Term
| What is the relationship between a strong dollar/weak dollar and exports and imports for the US? |
|
Definition
Strong Dollar - exports become less attractive to countries with weaker currencies
Weak Dollar - exports become more attractive to countries with stronger currencies |
|
|
Term
| What is the relationship between high interest rates and demand on US assets? |
|
Definition
| When interest rates are higher in the US than abroad it will appreciate the value of the dollar by increasing demand. |
|
|
Term
| What if the US has lower interest rates than abroad? |
|
Definition
| Demand for foreign assets will strengthen and the demand for US assets will likely weaken |
|
|
Term
|
Definition
| Tracks all money coming in versus going out of the economy. Including imports, exports, and investments |
|
|
Term
| Would a weak or strong dollar be beneficial for the owner of an ADR and why? |
|
Definition
| Weak dollar would be more beneficial because it will cause the foriegn security value to be higher. |
|
|
Term
| Four phases of the business cycle |
|
Definition
Expansion
Peak
Contraction
Trough |
|
|
Term
|
Definition
| They do very well in economic expansion but very poorly during economic contraction |
|
|
Term
| What are Cyclical Industries? |
|
Definition
| Heavy equipment, steel, automobile manufacturing, durable goods, big ticket items, travel, and aerospace |
|
|
Term
| What are defensive or non cyclical stocks? |
|
Definition
food, clothing, pharmaceuticals, healthcare, alchohal, tobacco
Constant even in a recession |
|
|
Term
|
Definition
What the president and congress do
Tax and Spend
Lower taxes causes people to stimulate economy or make jobs
Higher taxes and cut spending to slow economy
Keynesian thinking |
|
|
Term
| What is the view of Monetarists? |
|
Definition
| Control the money supply to control the economy |
|
|
Term
|
Definition
The Fed controls how much banks can have on reserve
if the economy is overheating then increase reserve requirements
if the economy is sluggish lower the reserve requirements |
|
|
Term
| What is the Discount Rate and how can it effect interest rates? |
|
Definition
The rate the Fed charges banks that bowrrow directly from the Fed
If they want to increase interest rates they raise the Discount rate
If they want to decrease interest rates they lower the Discount rate |
|
|
Term
| What kind of interest rates can the Fed influence? |
|
Definition
| Short term rates they cannot contol longer rates |
|
|
Term
| What would cause an economic Slump? |
|
Definition
| Interest rates would drop as people are being laid off (rising unemployment) causing the GDP to decrease |
|
|
Term
|
Definition
| Using balance sheet analysis and income statement analysis |
|
|
Term
| What is the Income Statement |
|
Definition
| Shows the results of the company's operations over a particular period of time. |
|
|
Term
| What does the balance sheet show? |
|
Definition
| Snapshot of the company's financial strength at a particular point in time |
|
|
Term
| What is a companies 10-K? |
|
Definition
| Annual shareholder report showing the balance sheet and income statement filed annually |
|
|
Term
| How to calculate Earnings per share |
|
Definition
| Earnings/ shares of common Stock outstanding |
|
|
Term
How to calculate the Divident payout ratio
|
|
Definition
| Annual dividends paid / Earnings per share |
|
|
Term
| Characteristics of a growth stock |
|
Definition
| High earnings per share ratio |
|
|
Term
| Characteristics of a value Stock |
|
Definition
|
|
Term
| Cash Flow definition and calculation |
|
Definition
How much cash is being generated by the company
Net Income + depreciation + ammorization = Cash flow |
|
|
Term
|
Definition
Assets = Liabilities + Stockholders Equity
Assets - Liabilities = Stockholders equity
|
|
|
Term
|
Definition
Cash and cash equivilants
Anything that can redily be converted into cash
Mature in 3 months or less, commercial paper, bankers acceptances, repurchase agreements, and T-bills |
|
|
Term
| Net working Capital Calculation |
|
Definition
| Net working capital = current Assets - Current Liabilites |
|
|
Term
| Current Ratio calculation and definition |
|
Definition
Current assets/Current Liabilities
Ratio gives dollar amount for every dollar of debt you have this much asset to cover the debt |
|
|
Term
|
Definition
I in quick reminds us that you take INVENTORY out of the deal
Current assets - Inventory / current liabilities |
|
|
Term
|
Definition
Compares the amount of debt that makes up total capitalization.
Ratio of .40 means less than half of your total capitalization comes from borrowed money
Total liabilities / Total Assets |
|
|
Term
|
Definition
Technical analysts analyze stock market data
Focus on how many shares have been trading and at what price |
|
|
Term
| What is the Resistance Level? |
|
Definition
| Whenever a stock goes up it meets its resistance at a defined level after analysis |
|
|
Term
| When is a stock referred to as being overbought? |
|
Definition
| When it reaches the resistance threshold |
|
|
Term
| When is a stock reffered to as being oversold? |
|
Definition
| When it reaches the support price. The lower of the closing prices |
|
|
Term
| What is a head and shoulders price Pattern and what does it signal? |
|
Definition
It is a up and down chart like peaks
It signals the reversal of a trend
When it reaches the top of the peak or head it means the bull trend is going to end (a bearish signal) |
|
|
Term
| What is a head-and-shoulders bottom? |
|
Definition
| Indicates the reversal of a downtrend and is a bullish indicator |
|
|
Term
| What would a Technical Analyst moniter? |
|
Definition
Advance Decline lines
Volume of trades
200 day moving average |
|
|
Term
| What is the odd lot theory? |
|
Definition
Do the opposite of small time investors
People who can only afford "odd lot" or less than 100 shares buy too high and sell too low so do the opposite |
|
|
Term
|
Definition
How many open short sales are out there
if there is a large number of open shorts that is a bullish indicator
small number of open shorts is a bearish indicator |
|
|
Term
| Price to earnings Ratio what does it indicate |
|
Definition
Compare the price of the stock to earnings per share to see if the stock is attractively priced
Indicates how much investors value a company's profits as expressed through the market price of the stock
Shows us how much investors are willing to pay for profits of the company |
|
|
Term
| What is the Price-to-Book ratio and where is it found? |
|
Definition
Book value is found on the balance sheet
Amount that would be paid to the common stock holders after liquidation and payment of creditors and preferred stock holders.
Current Stock Price/ book value of a share |
|
|
Term
Price to earnings to growth Ratio
PEG Ratio |
|
Definition
| Used to value a company that is on an amazing growth path |
|
|
Term
|
Definition
Push the price of a stock down artificially
Companies worried about price seeming too high and splits cut the cost down making it more attractive to investors
Percentage of ownership does not change just number of shares |
|
|
Term
|
Definition
| Want to artificially inflate stock prices by condensing the number of shares but making the per share price rise |
|
|
Term
| How to calculate annualized return |
|
Definition
| holding return / number of years in holding period |
|
|
Term
| Difference between yield and total return for a mutual fund investor |
|
Definition
Yield - any income recieved or dividend distribution
Total return - drop in mutual fund share price |
|
|
Term
|
Definition
What do I GET for holding the investmen
Nominal yield means named yield what bond named yield is |
|
|
Term
|
Definition
What you paid to get what you have gotten
Coupon rate / market price
GE 5s debenture of '17 @ 96.375
Par value is 1,000 x 5s (5%) = $50
50 / 96.375 (current Market Price) |
|
|
Term
| What is the relationship between interest rates and bond prices? |
|
Definition
When interest rates increase bond prices drop
When interest rates decrease bond prices rise |
|
|
Term
| What order do yields go in? |
|
Definition
Nominal, Current, Yield to Maturity, Yield to Call
Purchased at a premium YTC lower than Nominal
Purchased at a Discount YTC higher than Nominal |
|
|
Term
| Yield to Maturity Calculation |
|
Definition
Annual interest + or - annualized discount/premium
Average of Bond Price and Par
ex. A 6s GE Subordinated Debenture Purchased @ 985 and maturing in 10 years has a YTM of
$60 + $15 (the difference between par and purchase)/ 10 mature rate
$60 + $1.50 / Average of 985 + 1000 / 2
$61.50 / $992.50 = 6.19%
YTM = 6.19% |
|
|
Term
| How often are bond payments paid? |
|
Definition
|
|
Term
| How to Calculate Real Rate of Return |
|
Definition
|
|
Term
| How are Treasury Securities Taxed? |
|
Definition
| At just the federal ordinary income rates |
|
|
Term
| How is Corporate Bond interest taxed? |
|
Definition
| Taxed by the fed, state and local government at ordinary income rates |
|
|
Term
|
Definition
Used to compare a corporate bond return and a municipal bond return
Municipal bond tax equivalent yield = yield / 100% - tax bracket
Corporate bond tax equivalent yield = yield x 100% - tax bracket |
|
|
Term
| What does Standard Deviation Measure? |
|
Definition
| Measure of variablity the lower the better |
|
|
Term
| What is the best measure of central tendancy when there are no outliers? |
|
Definition
|
|
Term
|
Definition
Assumes that investors are naturally risk averse
Adviser tries to determine the optimal portfolio mix to achieve maximum return for the amount of risk that an investor is willing to take |
|
|
Term
| What is the definition of risk in Modern Portfolio Theory? |
|
Definition
|
|
Term
| What does Standard Deviation Measure |
|
Definition
Measures how much an investment deviates from its average return
SD of 5 means investment deviates five percent up or down from the average return
If avg return is 10% then the range of return outcomes are 5% - 15% |
|
|
Term
|
Definition
Uses Standard deviation to determine if an investor is getting enough return for the risk he is taking
measures risk adjusted returns
The higher the number the better
The higher the Sharpe Ratio the better the investor is being compensated for the risk he is taking
|
|
|
Term
| What is the riskless rate of return |
|
Definition
| The yield on a 3 month T-bill |
|
|
Term
|
Definition
Investments tendency to go up and down compared to the overall market
The S&P is the benchmark used
a beta of more than 1 - stock is more volitale than the market
a beta equal to 1 - stock is just as volital as the market
a beta of less than 1 - stock is less volitale than the market
Multiply the beta by the S&P performance gives return |
|
|
Term
|
Definition
Represents the volatility of a stock or portfolio by itself as opposed to beta measures volatility compared to the market
Expected return 10%
Return of 8% - alpha is -2%
Return of 12% - alpha is +2% |
|
|
Term
|
Definition
| Explains how much of a portfolios movement is explained my the movement of the benchmark |
|
|
Term
| Expected Return Definition and Calculation |
|
Definition
Possible return on an investment weighted by the likelihood that the return will occur
Multiply the return by the likelyhood of that return
75% chance of an 8% return (.75 x .08) |
|
|
Term
| Capital Asset Pricing Model CAPM |
|
Definition
Allows Modern Portfolio Theorists calculate expected return based on risk
If invest in something more risky than riskless rate of return investor demands a reward for that
Risk free rate + beta (expected return - Risk free rate) |
|
|
Term
|
Definition
Standard Deviation is plotted on the horizontal axis
Average annual rate of return is on the vertical axis
Want portfolios to lie on that frontier |
|
|
Term
|
Definition
1 - is perfect correlation
-1 - perfectly uncorrelated
0 - not correlated |
|
|
Term
|
Definition
Measures how a change in interest rates would affect a bond's price
The higher a bonds duration the more sensitive it is to a change in interest rates
Lower the coupon and the longer the maturity the greater the duration
greater the duration the more susceptible the price is to interest rate spikes |
|
|
Term
| Zero Coupon Bonds vs interest paying bonds regarding duration |
|
Definition
The duration is the maturity on the zero coupon bond
For interest paying bonds the duration is always less than the years to maturity
Duration on long term zero coupon are longer than interest paying |
|
|
Term
|
Definition
| Simulation that takes into account many factors to predict how a portfolio would react |
|
|
Term
|
Definition
PN = Po x (1+r)t
Pn = future value
Po= Present value
r = rate of return
t = time |
|
|
Term
| Present Value Calculation |
|
Definition
Po = pn / (1+r)t
remember do the process the number of times you are given
t = number of times you do the calculation |
|
|
Term
| Net Present Value and Internal Rate of Return IRR |
|
Definition
if net present value is negative
or
if IRR is less than the cost of borrowing it is not financially feasible
Used to determine if an invesment will produce enough cash to not just cover the cost but generate a profit |
|
|
Term
| Name the indexes used for benchmarking and what they measure |
|
Definition
S&P 500 - overall market
S&P 400 - mid-cap
S&P 600/Russel 2000 - small cap
DOW - Large Cap
NASDAQ - Technology |
|
|
Term
|
Definition
Risk that an investment will lose its value due to an overall market decline
Also called Market risk
Diversification will not reduce market or systematic risk if the markets going down all of them are going down |
|
|
Term
|
Definition
Diversifiable Risk
Un = one - all eggs in one basket |
|
|
Term
|
Definition
| Risk of competition the businesses products or services becoming obselete |
|
|
Term
| Political, currency, natural event risk |
|
Definition
Political - in emerging markets the government is not stable
Currency - Foriegn exchange rates eating into gains
Natural events - Natural devistation
All systematic Risk |
|
|
Term
| Regulatory or Legislative Risk |
|
Definition
Laws change certain companies could be affected
Not political risk that is with emerging markets Regulatory is the change of laws |
|
|
Term
|
Definition
The risk that interest rates will suddenly go up knocking down the market price of your bond
Remember long term bonds suffer the most longer duration |
|
|
Term
|
Definition
If the bond is downgraded
Only focuses on percieved creditworthiness not actual |
|
|
Term
|
Definition
Risk that the bond might be called during a period of declining interest rates
They do this when rates drop to borrow cheaper money and pay the bond holder less |
|
|
Term
|
Definition
| Inflation risk happens in fixed payments because they do not offer growth like common stock may not keep up with inflation |
|
|
Term
|
Definition
If you dont spend your intrest checks then it is reinvested and could be reinvested at a lower rate
To aviod reinvestment risk use zero coupon bonds like STRIPS |
|
|
Term
|
Definition
Risk that the company could be bought out
Change of control provision or a put provision would protect from event risk |
|
|
Term
|
Definition
| Ability to convert investment into cash quickly |
|
|
Term
|
Definition
| Risk that another investment could have provided a bigger return |
|
|
Term
|
Definition
Guaranteed by the US Government
3 or 6 month denominations
3 month is risk free rate of return
Available for purchase every Monday |
|
|
Term
|
Definition
Not FDIC insured
Denominations in at least $100,000
It is negotiable and you can sell to someone else |
|
|
Term
|
Definition
Short term
Short term credit investments by a non financial institution guaranteed by a bank
Used in international transactions
Sold at a discount of face value |
|
|
Term
|
Definition
270 day or less maturity
Sold at a discount to face value
Short term |
|
|
Term
|
Definition
One party sells the other party something today with the agreement to repurchase it at a set price in the near future
|
|
|
Term
|
Definition
Short term municipal bonds money is coming in short term
TRAN is revenue backed |
|
|
Term
| Characteristics of T-bills |
|
Definition
Mature in one year or less
Sold at a discount
Minimum denominations of $100
Sold every Monday |
|
|
Term
| Characteristics of T-Notes |
|
Definition
2-10 year maturity
Semiannual interst payments |
|
|
Term
| Characteristics of T-Bonds |
|
Definition
|
|
Term
|
Definition
Zero Coupon bonds
no interest payments
Exact amount of money on a later date STRIPS are used
Avoid reinvestment risk
Purchased at a discount and mature at face value |
|
|
Term
|
Definition
Treasury Inflation Protected Securities
Keeps up with CPI |
|
|
Term
| Mortgage Backed securities guaranteed by the federal government |
|
Definition
| Ginnie Mae or issued by Fannie Mae and Freddie Mac not required to bail out Fmae and Fmac |
|
|
Term
| What risk are Mortgage backed securities most exposed to? |
|
Definition
| Prepayment risk, home owners pre paying their mortgage |
|
|
Term
|
Definition
| Allows foreign issuers to borrow money in the US marketplace |
|
|
Term
|
Definition
Collateralized Mortgage Obligation
Divided into 3 tranches ABC Classes
Derivatives, Backed by Mortgage backed securities, Most rated AAA |
|
|
Term
| General Obligation Municipal Bonds |
|
Definition
| Local government bonds that are fully backed by of the issuer |
|
|
Term
|
Definition
| Bonds that are repaid in the form of fees or sales not guaranteed |
|
|
Term
| Taxation of Municipal Bonds |
|
Definition
| Capital gains are always taxed. Interest is tax free on the federal level. Interest is tax free on the state level only if purchased in state of residence |
|
|
Term
| Who needs Municipal Bonds |
|
Definition
| Looking for income, safety, and tax advantages. Mostly wealthy investors usually for tax advantages |
|
|
Term
|
Definition
| Corporations secure the bonds with specific assets in the company. Most likely the investors to be repaid if company goes belly up. But lowest coupon rates |
|
|
Term
|
Definition
| Debentures - have second claim to money if bankrupt |
|
|
Term
| Claim order of companies assets if bankruptcy |
|
Definition
1.Employee/wages
2.IRS/taxes
3.Secured Creditors
4.Debentures
5.Subordinated debentures
6.Preferred Stock
7.Common Stock |
|
|
Term
| Convertable Bond Calculation |
|
Definition
Par/Conversion price = # of common shares
Common shares/value = convertable |
|
|
Term
|
Definition
| Underlying shares are worth exactly what the bond is trading for on the open market |
|
|
Term
|
Definition
| pool of life insurance policies is purchased from policyholders at a discount and sold as a security to investors |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C |
|
|
Term
|
Definition
| AAA, AA, A, BBB, BB, B, CCC, CC, C, D |
|
|
Term
|
Definition
| Bonds that are rated low but have the potential to produce a high return |
|
|
Term
|
Definition
| When interest rates drop so you can borrow money at a cheaper rate |
|
|
Term
| Guaranteed Corporate Bonds |
|
Definition
| Guaranteed by a cosigner on a loan promise from another party to pay debt |
|
|
Term
| How much is a bond point worth? |
|
Definition
| $10 per bond point dictates bonds price |
|
|
Term
| What does Basis points measure |
|
Definition
|
|
Term
| What rights do Common stock holders have |
|
Definition
| Voting rights, inspect the list of shareholders and copies of the minutes from shareholder meetings. Recieve stock certificates, right to sell, give away stock. DO NOT VOTE ON DIVIDENDS |
|
|
Term
|
Definition
| T+3 is the regular way settlement |
|
|
Term
|
Definition
| 2 business days before the record date |
|
|
Term
| What does DERP stand for in terms of settlement |
|
Definition
| Declaration, Ex-date, Record date, Payable date |
|
|
Term
|
Definition
| Right to proportional ownership of the stock. If new stock is released the original owners get the chance of buying to maintain ownership |
|
|
Term
|
Definition
| Usually attached to entice purchase it gives the opportunity to purchase a stock at a predetermined price |
|
|
Term
| What is the par value of preferred stock |
|
Definition
|
|
Term
| Participating preferred stock |
|
Definition
| allow the owner to share in dividends above the nominal rate |
|
|
Term
|
Definition
| may be repurchased by the issuer after a certain date for a certain price. Usually pay the nicest rate of return |
|
|
Term
| Convertible preferred stock |
|
Definition
| purchased for income and growth can be converted into shares of common stock |
|
|
Term
| American Depository reciepts |
|
Definition
| Foreign stocks are purchased using US dollars. Weak Dollar is better for holders of ADRs |
|
|
Term
|
Definition
Real Estate investment trust.
Pool real estate investments so investors do not have to deal with liquidity problems
losses are not passed through to partners just price of share goes down |
|
|
Term
| Real Estate Limited Partnerships |
|
Definition
Extremely illiquid
losses are passed through to partners |
|
|
Term
|
Definition
| divide the total value of cash and market value by the number of existing shares |
|
|
Term
|
Definition
| issue new shares whenever investors feel like buying them. when they sell them they buy back or redeem shares |
|
|
Term
|
Definition
do an initial fund-raiser and that is it, fixed number of shares are sold at an NAV.
Unlike OE fund CE are worth whatever the market says they are worth
Trade on the secondary market |
|
|
Term
| What are sales charges in Open end funds |
|
Definition
| printing sales literature, advertisements, mailing prospectuses, and paying sales people |
|
|
Term
| Open mutual funds have ________ points |
|
Definition
| Break points, certain price points recieve lower sales charges |
|
|
Term
|
Definition
| if an investors fund shares appreciate up to a breakpoint the investor will recieve a lower sales cahrge on additional purchases |
|
|
Term
| Conversion privelages in open end funds |
|
Definition
| can convert into different shares as long they are in the same fund family |
|
|
Term
|
Definition
| covers distribution expenses and is not an operating expense to the fund it cannot cover management fees |
|
|
Term
|
Definition
front end loaded sales charges
operating expenses are lower than other classes of shares |
|
|
Term
|
Definition
Back-end load sales charge
contingent deferred sales charge
Mid or Long term holding period |
|
|
Term
|
Definition
level load, high operating expenses
Suitable for short term investors |
|
|
Term
|
Definition
| Investor using a set dollar amount each month. buying more shares when prices are low and less when prices are higher. lower average cost of shares eventually |
|
|
Term
|
Definition
| Involves more volatility. higher P/E |
|
|
Term
|
Definition
| less volatile than growth funds because income is received to offset losses. |
|
|
Term
|
Definition
| less volitale. Invest usually in equities that pay regular or increasing income |
|
|
Term
|
Definition
| Fund that concentrates in a particular sector of the market. Highest risk and reward ratios, expect higher management fees and sales charges |
|
|
Term
|
Definition
| Managers are investing in both the value and growth sectors |
|
|
Term
|
Definition
| both in the equity and bond market |
|
|
Term
|
Definition
| no load and maintain a stable value of $1 per share |
|
|
Term
|
Definition
| For people who believe managers cannot beat the index. Mirrors the index with low to no fees |
|
|
Term
| What does the Board of Directors of a mutual fund do? |
|
Definition
establish investment policy
Selecting and overseeing the IA, transfer agent and custodian
Establishing dividends and capital gains policy
Approving 12b-1 plans |
|
|
Term
| Mutual fund shareholders have the right to |
|
Definition
| recieve a semiannual report and an audited annual report, vot by proxy for BOD, IA contracts, Changes in investment policy, changes in borrowing money underwriting other issuers securities |
|
|
Term
|
Definition
organized under a trust indenture
Does not have a board of directors
issues only redeemable securities
Can be called a pooled investment |
|
|
Term
|
Definition
| Can be sold short, trade like shares of stock, organized as UITs |
|
|
Term
|
Definition
| debt security in which the certificaate is purchased at a discount and redeemed at a future date for the higher face amount |
|
|
Term
|
Definition
| any investor with over 1 million in net worth or makes over 200K a year married couple 300K a year |
|
|
Term
|
Definition
| Riskier strategies, highly illiquid usually tied up for 2 years. Do not hace to register under the Investment company act of 1940 |
|
|
Term
|
Definition
| does not include a issuer whose investors are qualified purchasers and who is not making a general public offering |
|
|
Term
| When do call buyers make money |
|
Definition
| when the underlying stock goes up in value. betting that the market price will go above strike price |
|
|
Term
| How to calculate how far in the money an option is |
|
Definition
| market price minus the strike price |
|
|
Term
|
Definition
| How much higher the stock price is compared to the strike price of the call |
|
|
Term
|
Definition
| that the option could become more valuable given the amount of time still left before expiration |
|
|
Term
| How to calculate time value |
|
Definition
Premium - intrinsic value
intrinsic value = market price - strike price |
|
|
Term
| How to calculate break even price |
|
Definition
Strike price + premium = breakeven
Breakeven is the same for buyer and seller of call |
|
|
Term
| Put buyer gets the opportunity to _______ |
|
Definition
| righht to sell the stock at the strike price before the contract expires |
|
|
Term
|
Definition
| investors who think a stock is about to drop in price |
|
|
Term
|
Definition
| amount of money that a puts strike price is above the market price |
|
|
Term
|
Definition
| tow of more persons own the business jointly. It is not a structure that protects from liabilities like a sole proptietorship |
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Term
|
Definition
| Has to have at least one general partner. Limited partners are only liable up to what they have invested. |
|
|
Term
| What is the limited partners cost basis |
|
Definition
| equals the captial he contributes initially plus the capital he agrees to contribute later |
|
|
Term
| What can the limited partners have a say in? |
|
Definition
| Dissolving the partnership, Suing the General Partner for negligence and other bad stuff, Inspecting certain records |
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|
Term
| What are the advantages of a limited partnership |
|
Definition
Flow through of income and expenses directly to the partners
Limited partners have limited liability |
|
|
Term
| What are the disadvantages of a limited partnership |
|
Definition
General partner has unlimited liability
Distribution of profits not as flexible within an LLC |
|
|
Term
|
Definition
No limit on the number of members
Owners are members not shareholders
Owners and officers and directors are protected from liabilities of the comapny |
|
|
Term
|
Definition
Limited Liability
More flexible profit distributions
No minutes required
Avoids double taxation of income |
|
|
Term
| What 2 of four things does the LLC have to avoid to not be considered a corporation |
|
Definition
Perpetual life
Centrailized management
Limited liability
Freely Transferable assets |
|
|
Term
| What does an LLC have to file to start |
|
Definition
| articles of organization and pay the filing fees - to the secretary of the state in which they are incorp. |
|
|
Term
|
Definition
Income and expenses pass directly to the owners
No more than 100 members |
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Term
|
Definition
No corporate tax
Liability protection
Write - offs
And avoids double taxation like a C corp |
|
|
Term
| Disadvantages of an S-corp |
|
Definition
One class of stock
100 shareholder maximum
Corporate meetings required |
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|
Term
|
Definition
Traditional corporate structure
Profits do not flow directly through to large shareholders.
Double taxation |
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|
Term
|
Definition
| Market price of the shares divided by earnings associated with each share |
|
|
Term
|
Definition
The higher the P/E ratio the more speculative the stock.
Growth investors invest in stocks with high P/E ratios |
|
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Term
|
Definition
Invest in stocks that are safer blue chips
Lower P/E ratios Buy great companies that are cheap |
|
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Term
|
Definition
If you are seeking out stocks and trying to time the market
Higher expenses actively traded |
|
|
Term
|
Definition
Can usually invest in index funds no hands on active market timing
Lower expenses not actively traded |
|
|
Term
|
Definition
-Lower transaction costs
-avoid being taxed on a lot of Short term gains |
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|
Term
|
Definition
| Assumes that all information is absorbed instantly and immediately acted upon |
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|
Term
|
Definition
| Implies that actively picking stocks is not effective at all |
|
|
Term
| Efficient Market Hypothesis 3 stages |
|
Definition
Weak - only past stock prices are reflected in todays stock price
Semi-Strong - only information that is not publicly available can benefit investors seeking abnormal returns on investments
Strong - all info in the market public or private is reflected in the stocks price |
|
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Term
|
Definition
looks at how a particular investment affects the risk/reward ratio of the entire portfolio
-Assumes that investors are risk averse |
|
|
Term
|
Definition
| graph that shows the optimal portfolio with the least amount of risk to reach a goal |
|
|
Term
| Modern Portfolio does what to make sure the mix is correct |
|
Definition
|
|
Term
| What does diversification do? |
|
Definition
Balance the risk of one investment with the characteristics of another
-Use uncorrelated stocks to offset |
|
|
Term
| How to calculate market Caps |
|
Definition
| total numcer of outstanding shares a company has and multiplying that by today's closing price on the stock |
|
|
Term
|
Definition
-under 1 billion = small cap
-1 billion - 5 billion = mid cap
-5 Billion and up = Large cap
small cap - higher risk/reward
Large cap - lower risk/reward |
|
|
Term
| Caps smaller than small cap |
|
Definition
|
|
Term
|
Definition
| buying the same dollar amount of a stock on a consistant basis causing the avg price per share lower |
|
|
Term
|
Definition
-dividend reinvestment program
-dividends automatically reinvested into more shares |
|
|
Term
Long Term Gain tax rate
Short Term Gain tax rate |
|
Definition
Long term = 15%
Short term = ordinary income |
|
|
Term
| Interest paid on corporate or gov bonds are taxable at what rates |
|
Definition
-ordinary income rates
-corporate bonds are taxed at fed, state , and local gov
-Gov bonds - taxed at only fed level |
|
|
Term
| How are GNMA,FNMA, and FHLMC taxed |
|
Definition
| federal, state, and local gov |
|
|
Term
| How are Municipal bonds taxed |
|
Definition
| exempt at fed level, can be double exempt if purchased in state of residence. Triple exempt if purchased in us territory |
|
|
Term
|
Definition
| difference between what you paid and sold the stock for |
|
|
Term
| What is an unrealized gain? |
|
Definition
| A gain that is on paper not sold and "realized" yet |
|
|
Term
| What is the taxation of a mutual fund that puts capital gains back into the fund? |
|
Definition
| The holders are still responsible for the taxes on the gains even if not distributed |
|
|
Term
| Cost basis of inherited securities |
|
Definition
| Stepped up cost basis to the fair market value on the date of death |
|
|
Term
| How are inherited securities taxed? |
|
Definition
| as a long term gain no matter how long you hold |
|
|
Term
| Cost basis of gifted securities |
|
Definition
| Take the original cost basis of the security |
|
|
Term
| Tax deductible charitable donations |
|
Definition
| get to deduct the fair market value of the stock on the date of donation |
|
|
Term
| What are the most suitable investments for an estate |
|
Definition
| Short term, safe, debt securities |
|
|
Term
| When would the state go after estate taxes |
|
Definition
| When the estate is large enough to be taxed at the federal level |
|
|
Term
| What is the maximum tax free amount allowed to be gifted |
|
Definition
13K individual
26K as a married couple |
|
|
Term
| What does the IRS define as a gift |
|
Definition
Selling something at less than its value
transferring property to someone else and expecting nothing in return
making an intrest free or reduced interest loan |
|
|
Term
| Advantages for setting up trusts |
|
Definition
- faster and less costly than a will
- avoids probate court
- Eliminates challenges to estate
- Keeps trasfer or property private
- reduces amount of estate taxable to heirs |
|
|
Term
| Taxation of revocable trusts |
|
Definition
| revocable trusts count towards the value of the estate |
|
|
Term
| Taxation of irrevocable trusts |
|
Definition
irrevocable trusts do not count towards the value of an estate
- except when funds in the estate are used for the benefit of the grantor |
|
|
Term
| How is income taxed in trusts |
|
Definition
| when the estate earns income that income is taxable to the estate. When it is delivered to a beneficiary it is taxable to them as income |
|
|
Term
|
Definition
| a legal entity - such as an estate, trust, corp, partnership, BD, or investment advisor |
|
|
Term
| who would be subject to the AMT |
|
Definition
| owner of a limited partnership interest consult the K-1 form and may have to add certain tax preference items. Or municipal bond proceeds |
|
|
Term
|
Definition
| the more income you make the more you are taxed |
|
|
Term
|
Definition
|
|
Term
|
Definition
| salary, bonuses, tips, and any income derived from actively participating in business |
|
|
Term
|
Definition
| rental income stuff you dont work for |
|
|
Term
|
Definition
| 401k feature income taxes are delayed to increase compounding dollar |
|
|
Term
|
Definition
| The company has to send at least 90% of its net income to qualify for this tax treatment. only pay tax on 10% of retained money |
|
|
Term
| When a corporation invests in stocks of other companies what is the tax situation? |
|
Definition
| they get to exclude the first 70% from tax and only get taxed on 30%. If they own more than 20% of the company they can writeoff 80% of it |
|
|
Term
| What are the maximum amounts allowed in an IRA |
|
Definition
5 thousand dollars
6 thousand dollars if they are 50 or older |
|
|
Term
| How do you avoid the 10% penalty in withdrawing money from an IRA |
|
Definition
Die
Become disabled
Buy a first home
72-t distributions
medical expenses
Higher education expenses |
|
|
Term
| When are required minimum distributions supposed to take place? |
|
Definition
| April st of the following year to take out at least the required minimum distribution |
|
|
Term
| What is the penalty if you dont take your RMD on time? |
|
Definition
|
|
Term
|
Definition
Funded with after tax dollars.
tax free dist if had the account for at least 5 years and over the age 59 1/2 |
|
|
Term
| Converting your trad IRA to a Roth |
|
Definition
| pay the tax on the money coming out of the trad IRA |
|
|
Term
| What can you not invest in an IRA |
|
Definition
| Spreads, strattles, naked options, artwork, only cash and securities and us minted gold and silver coins |
|
|
Term
| How many rollovers can you do in a year? |
|
Definition
| one per year and it must be completed in 90 days |
|
|
Term
| How distributions are taxed after the owner's death |
|
Definition
| two options lump sum or gradually but taxes must be taken out |
|
|
Term
| If an IRA is inherited by someone not the spouse how is the money taken out? |
|
Definition
Withdraw the funds within 5 years
Withdraw the funds based on the beneficiary's life expectancy |
|
|
Term
| IRA beneficiary is the spouse how is it taxed? |
|
Definition
| Treat the account as if it is their own |
|
|
Term
| Death on or after required beginning date how taxed to beneficiaries not the spouse |
|
Definition
| take the money out over the longer of her own life expectancy or the life expectancy of the deceased account owner |
|
|
Term
| Death on or after required beginning date how taxed to the spouse |
|
Definition
treat as their own OR
longer of their or deceased persons life expectancy |
|
|
Term
|
Definition
allows business owner to make pre tax contributions for themselves and any eligiable employees
- 25% of wages can be contributed to an employees SEP, up to the max
- Business makes all contributions
-If contribution is made then all eligible employees have to be paid |
|
|
Term
|
Definition
for businesses with nor more than 100 employees and have no other retirement plans.
-owners must either match the employee's plan contributions up to 3% of compensation or contribute 2% of the employee's compensation whether he contributes of not.
-Contributions are immediatly vested |
|
|
Term
|
Definition
self employed only
-only sole proprieters
-20% of compensation into Keogh
-25% of employees compensation |
|
|
Term
|
Definition
-defined contribution plan Defined as
-not required to match
- qualified plan (has to cover all employees)
-vesting schedule
-Tax defferal plan |
|
|
Term
|
Definition
defined contribution plan
-based on companies profits for that year
- Predetermined formula to establish payments |
|
|
Term
|
Definition
the company puts aside money for the employee
-they define the benefit they assume invesment risk
-dont define the benefit they do not assume investment risk |
|
|
Term
|
Definition
Governing body over qualified retirement plans
- reporting has to be done annually
-have to be 21 years old and work at least 1000 hours to qualify |
|
|
Term
|
Definition
teacher preacher plan
-pre tax contribution and employees will pay ordinary income tax on all money pulled out |
|
|
Term
|
Definition
State and local government employees
-contributions tax deductible
- same maximum contribution limits used by 401k plans |
|
|
Term
|
Definition
-beneficiary of the plan does not have to be a blood relative of the doner
-owner controls the assets at all times
-after tax contributions
-withdrawls used for qualified education expenses are tax-free at the federal level
-withdrawls have to be used for higher education expenses
-second beneficiary can be named
- can donate up to the maximum gift tax amount can put in up to 65K for 5 years or if married filing seperatly they can put in 130K
-Can be used in tech school if school is post secondar eligible to participate in a student aid program |
|
|
Term
| Coverdell Education Savings Account |
|
Definition
after tax contributions
-maximum contributions are 2K a year per child
-can be used for all levels of education
-beneficiary assumes control of account when they reach adulthood
-There are income limits for a CESA |
|
|
Term
| How is a variable Annuity Taxed non qualified |
|
Definition
| if non qualified then the initial lump sum not taxed but any gains are |
|
|
Term
| What accounting method is used in annuities? |
|
Definition
|
|
Term
| Distributions from annuities are taxable at what rates? |
|
Definition
|
|
Term
| What does Annuitizing the contract mean? |
|
Definition
| Receive monthly payments for the rest of their life |
|
|
Term
|
Definition
| insurance companies risk that the annuitant will live much longer than anticipated |
|
|
Term
| How is the annuitized phase calculated |
|
Definition
| converts accumulation units into annuity units when it is enacted |
|
|
Term
| what is the assumed interest rate on an annuity |
|
Definition
| What the actuaries project the return for the annuity will be what the accumulation units are worth. If they exceed the AIR then the check gets bigger |
|
|
Term
| What risks are involved in a fixed annuity |
|
Definition
| purchasing power loss, wont keep up with inflation |
|
|
Term
| How would an annuity's value be handeled in an estate? |
|
Definition
Annuity's valuee would be included in the annuitant's estate for the purpose of federal estae tax.
-Beneficiary would be required to pay ordinary income rates on anything above the cost basis |
|
|
Term
|
Definition
Certain percentage is guaranteed and certain percentage is tied to an index.
Once annuitized it turns into a fixed annuity |
|
|
Term
| How much of a cash value can be borrowed in a whole or universal life policy? |
|
Definition
|
|
Term
|
Definition
| offers flexible premiums to be paid |
|
|
Term
|
Definition
-grows tax deferred
-cash value tied to account performance
-death benefit is tied to actual performance versus Assumed investment return
-Minimum death benefit is usually guaranteed |
|
|
Term
| Variable Universal Life insurance |
|
Definition
| Has the characteristics of both universal and variable policies. |
|
|
Term
| How long does a variable policy holder have to switch back to a whole life product |
|
Definition
| 2 years without providing proof of insurability |
|
|
Term
| What is a tax free exchange of LI products |
|
Definition
|
|
Term
| Variable Life Insurance and Variable Annuities must be covered under what act? |
|
Definition
Securities act of 1933 and must be sold with a prospectus.
-BD of the company must be registered under Securities exchange act of 1934
-And IA act of 1940 and is registered as a UIT or Open-ended fund, and manager must be registered too |
|
|
Term
| Taxation of Life Insurance |
|
Definition
| beneficiary recieves death benefit free and clear of fed income taxes, but DB will be added to the insured's estate tax to determine estate taxes |
|
|
Term
|
Definition
| manages financial affairs of someone else and puts their interest in front of their own |
|
|
Term
|
Definition
| Risk control is the main factor for a fiduciary (old Rule) |
|
|
Term
| Modern Portfolio Theory is different than Prudent Man rule because |
|
Definition
| Tells you to look at the whole portfolio not just the individual investment. Some investments alone may be risky but maybe not as risky in the portfolio as a whole |
|
|
Term
|
Definition
| You think the price is going to drop |
|
|
Term
|
Definition
| You think the price is going to go up |
|
|
Term
| Short Selling how it works |
|
Definition
| You think the price of a stock is overpriced and due for a drop. You buy the stock borrowed from BD at a the high and hope the stock price drops so you can buy the shares at a lower price. Bearish |
|
|
Term
| When buying a stock short what is the limit on how much you have to spend to get out of your position? |
|
Definition
No limit it is unlimited if price continues to climb
limited upside the stock can only go down to 0
Unlimited risk can go up forever |
|
|
Term
|
Definition
| issuer receives the proceeds of a transaction |
|
|
Term
|
Definition
| other people not just the issuer buy and sell securities at no direct financial benefit to the issuer |
|
|
Term
| What are the 4 separate components of the secondary Market |
|
Definition
Exchange/1st market
Second
Third Fourth |
|
|
Term
| Exchange market 1st mkt in secondary |
|
Definition
|
|
Term
|
Definition
works for a brokerage house and fills orders for a commission
More orders he fills the more he is paid |
|
|
Term
|
Definition
| Gets a commission to help out when the commission house broker is too busy |
|
|
Term
|
Definition
-Trades for his own account and carries an inventory
-Main responsibility is to maintain a fair and orderly market
-Decides where a stock opens during an opening rotation
-Keeps a book of stop and limit orders |
|
|
Term
|
Definition
-Over the Counter Market
-Not a physical market like the exchange |
|
|
Term
|
Definition
| -Put out a bid and ask price and stand ready to take either side of the trade for at least one round lot |
|
|
Term
|
Definition
| Difference between where they buy and where they sell |
|
|
Term
| Non NASDAQ stocks would be more or less liquid |
|
Definition
| less liquid, because the bid-ask spread is a lot wider |
|
|
Term
| How does a Market Maker fill his orders |
|
Definition
Market order to buy should be filled at the lowers ask price among all the market makers in that stock.
A market order to sell should be filled at the highest bid price |
|
|
Term
|
Definition
| where they will buy the stock |
|
|
Term
|
Definition
| where they will sell the stock |
|
|
Term
| When a BD acts as a broker or agent they charge what? |
|
Definition
|
|
Term
|
Definition
| Business Entity. Manages portfolios, or provides financial planning and wealth management services |
|
|
Term
| Investment Adviser Representative (IAR) |
|
Definition
| An individual who works on behalf of the IA sells the services of the firm. Or if they supervise people who do that stuff they have to be registered as an IAR |
|
|
Term
| To be considered as an IAR what does the employee do? |
|
Definition
-manage accounts
-make recommendations
-determine recommendations
-sell services of firm
-supervise those who do any of the above |
|
|
Term
|
Definition
| an investment advisor who manages the client's account in exchange for a percentage of the assets |
|
|
Term
| Which advisers provide continuous and regular supervisory or management services? |
|
Definition
-Adviser with discretionary authority who provides ongoing supervision of the account
-adviser without discretion but who does have ongoing responsibility to select or make recommendations based on the needs of the client as to specific secutities or other investments
-adviser compensated based on the a |
|
|
Term
| Which advisers would not be providing continuous and regular supervisory or management services |
|
Definition
-adviser providing market timing reccommendations
-Adviser providing newsletters
-Adviser providing advice only upon client request |
|
|
Term
| Definition of an Investment Adviser defined by the USA |
|
Definition
| A person who for compensation, advises others orally or in writing as to the value of securities and issues reports regarding SECURITIES |
|
|
Term
| Do financial planners meet the definition of an investment advisor |
|
Definition
|
|
Term
| What kinds of publications do not qualify as investment advisers? |
|
Definition
| Newspaper, magazine, or newsletter that functions merely as a newspaper, magazine, or newspaper does not fit the def of IA |
|
|
Term
|
Definition
The publication is of a general and impersonal nature, in that the advice provided is not adapted to any specific portfolio or any client's particular needs.
-it has to be in general and regular circulation, in that it is not timed to specific market activity or to events affecting, or having the ability to affect, the securities industry |
|
|
Term
| How many clients must an IA have in any state to have to register |
|
Definition
|
|
Term
| What is the criminal penalty under the USA |
|
Definition
-3 years in jail
-$5,000 penalty |
|
|
Term
| What is the federal penalty |
|
Definition
-5 years in jail
-$10,000 penalty |
|
|
Term
| What authority do securities regulators have? |
|
Definition
| The right to granting, suspending, or revoking licenses in order to protect investors |
|
|
Term
| Who can be paid a performance fee? |
|
Definition
-Registered investment companies can pay a performance based fee to portfolio managers
-Any legal entity with at least 1 million under management
-Business development companies (only take money from wealth and institutional investors)
-3c7 only from qualified investors |
|
|
Term
|
Definition
| Fee must be reduced by the same amount for under-performance that it would be increased for superior performance |
|
|
Term
| Who is a qualified investor |
|
Definition
An individual or company that has at least 750,000 under the management of the IA
-An individual or company that has a net worth of more than 1.5 million
-qualified purchaser
-executive officer of the IA
-Employee of the IA who participates in investment functions |
|
|
Term
| When can a contract between an IA and a client be reassigned? |
|
Definition
| After receiving written consent from the client |
|
|
Term
| What must a firm do if a new majority partner comes in? |
|
Definition
| Get written consent from client to assign contracts |
|
|
Term
| What must a firm do if a new minority partner comes in? |
|
Definition
| Notify the clients within a reasonable amount of time. |
|
|
Term
| What are the 3 things in the USA and the IA act of 1940 that advisory contracts must provide in writing? |
|
Definition
-Adviser shall be compensated for performance
-No assignment of contract is allowed without client consent
-If the adviser is a partnership, clients will be notified of any change in partnership structure |
|
|
Term
| What is the disclose or abstain principal |
|
Definition
| All conflicts of interest must be disclosed to the client, if the conflict is severe enough abstain from the actions |
|
|
Term
| What does it mean when an IA is acting as a principal? |
|
Definition
| That they are selling a security out of their own account. If it is a solicited order then the customer's written consent to purchase must be obtained |
|
|
Term
| What is an Agency Cross transaction |
|
Definition
| The firm is advising you to purchase a security and is also acting as the broker between the client and seller |
|
|
Term
| What is required for an Agency Cross Transaction |
|
Definition
Get the advisory client's written consent
At least once per year send a statement itemizing all ACT' for the client |
|
|
Term
|
Definition
| marketing/sales fee that a salesperson receives as long as the client stays invested in the mutual fund |
|
|
Term
| What must an adviser disclose about his own holdings before sold? |
|
Definition
| whether they own the stock themselves or that they would never touch the stock |
|
|
Term
| IPOs must be distributed how to clients? |
|
Definition
| given a fair opportunity for all clients to purchase them no favoritism to certain clients |
|
|
Term
| What is considered having custody of client funds? |
|
Definition
| If the adviser is holding the funds or has the ability to appropriate them. |
|
|
Term
| If an adviser receives a check from a client payable to a third party what must he do? |
|
Definition
| The check must be forwarded to the third party within 24 hours |
|
|
Term
| If an adviser receives inadvertantly recieves client securities in the mail what must he do? |
|
Definition
| Returned to sender within 3 business days |
|
|
Term
| What must an adviser do under the USA if they have custody |
|
Definition
| Notify the Administrator in writing and they might have higher net capital requitements |
|
|
Term
| Who is considered qualified custodians? |
|
Definition
-Banks and Savings Associations
-Registered Broker/Dealers
-Registered Futures Commission Merchants
-Foreign Financial Institutions
-Transfer agents
To qualify there should not be any affiliation between IA and qualified custodian |
|
|
Term
| When an adviser uses a qualified custodian what must be given to the client? |
|
Definition
notify the client immediatly of
-name
-address
-and manner in which the funds or securities are maintained
-All changes must be given to client promptly |
|
|
Term
| When must Account Statements be sent to clients |
|
Definition
|
|
Term
| When can a firm disclose the identity or financial matters of its clients? |
|
Definition
Only if the client gives permission OR
If subpoenaed |
|
|
Term
| What must an adviser disclose if they take custody or discretion over an account? |
|
Definition
-Financial situation
-If the adviser has been convicted of a securities -related violation in the last 10 years
- |
|
|
Term
| When must an adviser maintain positive net worth at all times? |
|
Definition
| If the adviser accepts prepayment from clients of more than $500 six months or more in advance |
|
|
Term
|
Definition
Disclosure document must be delivered to prospective client within 48 hours of entering into the contract OR
-at time of signing if the customer has 5 days to cancel |
|
|
Term
| What is allowed in advertisements? |
|
Definition
-Past stock picks if future results not guaranteed
-Has to include all picks not just the winners
-at least in a year time period
-Whether the returns includes fees or not |
|
|
Term
| What is not allowed in advertisements? |
|
Definition
| Cannot use Testimonials!! |
|
|
Term
| What must an IA do if they wish to use solicitors? |
|
Definition
- IA must be registered
- no outstanding order suspending the solicitor
-must be a written agreement between the solicitor and adviser |
|
|
Term
| What does the solicitor agreement have to include? |
|
Definition
-Describe the solicitation activities and the compensation agreement
-Solicitor must provide the client with the IA disclosure brochure and a seperate solicitor disclosure document
-Adviser must recieve a signed acknowledgment from the client they recieved both |
|
|
Term
| To Securities regulators certify or approve professionals? |
|
Definition
| NO, they just register them |
|
|
Term
| When can the term "investment counsel" be used? |
|
Definition
| Only when the adviser is deemed to be performing Security Supervisory Services |
|
|
Term
| What does the IA code of ethics need to include? |
|
Definition
-Fiduciary responsibilities that you require of your supervised persons
-Supervised persons must comply with applicable federal security laws
-Access persons to report and for the IA to review ttheir personal securities transactions and holdings
-Any violations reported to COO
-Each supervised person will get a copy of the Code of Ethics |
|
|
Term
|
Definition
| Any supervised person who has access to nonpublic info regarding any clients no public info, holdings of funds of reccomendations to clients |
|
|
Term
| Who is presumed an Access Person |
|
Definition
| Directors, officers, and partners |
|
|
Term
| What must the access persons holding report need to contain? |
|
Definition
-Title and type of security
-number of shares
-name of broker, bank, dealer which access person holds an account
-Date the access person submits the report |
|
|
Term
| When must the Access report be filed and with whom? |
|
Definition
No later than 10 days after becoming an aceess person
-once a year an updated report must be filed
-info has to be accurate as of no more than 45 business days prior
-Filed with Chief Compliance Officer |
|
|
Term
| When must an Access Person transaction reports be filed? |
|
Definition
|
|
Term
|
Definition
-Dividend Reinvestment plan
-Dividends reinvested to buy more shares automatically
-Not a reportable transaction |
|
|
Term
| What investments are not reportable? |
|
Definition
-Direct obligations of the US gov
-Bankers acceptances
-CDs
-Commercial paper
-High quality short term debt instruments
-Shares issued by open end fund
-shares issued by UIT invested in one or more open end fund exclusivly
- |
|
|
Term
|
Definition
| When the IA just files the ADV with the SEC and the SEC sends a copy to the state |
|
|
Term
| When can the client give oral authorization for discretion? |
|
Definition
| They can give oral authorization but the adviser then has 10 business days after the first discretionary order is placed to obtain written authorization |
|
|
Term
|
Definition
| When a client's account is traded unnecessarily to gain more commissions on the trades |
|
|
Term
| What is considered Soft Dollar compensation? |
|
Definition
services such as
-research reports
-analytical software
-Anything that directly benefits the client |
|
|
Term
| What is not considered Soft Dollar Compensation? |
|
Definition
-Vacations
-Travel expenses
-Anything that does not benefit the client |
|
|
Term
|
Definition
| One fee that covers everything that happens in the account |
|
|
Term
| When can a third party give orders to the IA? |
|
Definition
| When the third party is granted written authorization from the client |
|
|
Term
| When can an IA borrow money from a client? |
|
Definition
-If the Client is in the business of loaning money
- |
|
|
Term
| If an adviser provies a report or recommendation to a client when it was prepared by someone else what must the adviser do? |
|
Definition
| -Disclose the fact that they didn't prepare it |
|
|
Term
| If advice leads to advisory firm or any of its employees recieveing compensation what must the adviser do? |
|
Definition
| Disclose to the client in writing in advance of giving the advice |
|
|
Term
| What form must all advisory contracts be in? |
|
Definition
|
|
Term
| What must advisory contracts contain? |
|
Definition
-stipulate all the terms of the contract
-services provided
-term of the contract
-advisory fees, formula for computing fees
-amount of prepaid fess that are refundable
-whether adviser has discretion
-No assignment can be made without client written consent |
|
|
Term
| Are exculpatory provisions allowed in contracts? |
|
Definition
|
|
Term
| How long is the time frame for the SEC to approve registration? |
|
Definition
|
|
Term
| When must a form ADV be filed with the SEC? |
|
Definition
| Within 90 days after the end of each fiscal year |
|
|
Term
| When must major changes be filed to the SEC? |
|
Definition
| Promptly (within 30 days) |
|
|
Term
| How must advisers register with the SEC now? |
|
Definition
| Electronically through the IARD |
|
|
Term
| What does Form 1 on the ADV Contain? |
|
Definition
-Name and form of the organization
-State under which the company is organized
-Names and addresses of all partners, officers, directos
-Number of employees
-Education of IA and partners
-Business affiliations over the past 10 years
-Nature of the business
-Report rendering
-Nature and scope of authority of IA with respect to client funds
-How compensated
-Whether any associates have been disqualified |
|
|
Term
| Which advisers are eligible to register with the SEC? |
|
Definition
-Adviser with at least 25 million under management
-Adviser ro a registered investment company
-NRSRO
-Pension consultants with assets of at least $50 million
-Internet IAs
-Affiliates of federally registered IAs if place of business is same as SEC registered
-Newly formed advisers who believe they will become eligible for SEC in 120 days
-POB in Virgin Islands or Wyoming
-Adviser with place of business outside US |
|
|
Term
|
Definition
IA is registering with the SEC, they also notice file with the state. Basically letting the state know easiest way of filing
-Have to pay a notice filing fee in each state |
|
|
Term
| USA exemptions from IA registration |
|
Definition
-IA has no place of business in that state
-Clients are only institutional investors
-IA's, BDs, Mutual funds, trusts are considered insitutional not accredited investors
-IA who during the past 12 months did not direct communication to more than 5 clients |
|
|
Term
| Federal exemptions from IA registration |
|
Definition
-All clients are residents of one state and IA's place of business is in that state @ IA does not advise on Exchange traded securities
-All clients are insurance companies
-Any person who in the last 12 months had fewer than 15 clients and does not hold themselves out as an IA
-And is not an IA to a registered investment Co. |
|
|
Term
| What form do you file to withdraw from registration |
|
Definition
ADV-W
-Must file within 180 days after the close of their fiscal year |
|
|
Term
| If an IA files a form ADV-W what laws apply to them |
|
Definition
| While they are registered with both the commission and one or more state securities authorities the IA act of 1940 and state laws still apply to their advisory activities |
|
|
Term
| If an IA is moving from State registration to federal what must they do? |
|
Definition
| Must apply for SEC registration within 90 days of filing an annual updating amendment to form ADV that shows why they are now eligible |
|
|
Term
| How long does SEC registration last after a form ADV-W is filed? |
|
Definition
|
|
Term
| If the disclosure brochure is amended who must it be sent to? |
|
Definition
|
|
Term
| Can information in the disclosure brochure be omitted? |
|
Definition
| Yes only if it does not apply to that particular client |
|
|
Term
| What is included in the ADV part II? |
|
Definition
-Types of securities about which advice is rendered and the types of analyses used to make reccomendations
-Services provided, fees charged
-Education and business background of all officers of the firm and any employee that determines advice
-Compensation incentives
-A balance sheet (if prepayed fees of over $500 is charged six or more months in advance
-Regulatory action against the firm that is material to evaluation |
|
|
Term
| When dont you have to supply a disclosure document? |
|
Definition
-If the client is an Investment company
-If the advice is considered impersonal and costs less than $200 a year |
|
|
Term
|
Definition
| includes one fee where all the services provided are wrapped together |
|
|
Term
| What must be delivered to the client if a wrap fee is charged? |
|
Definition
| A written disclosure statement of how these wrap fees work |
|
|
Term
| What type of client would benefit from a wrap fee? |
|
Definition
| One who trades frequently |
|
|
Term
| If one adviser refers a client to another who charges a wrap fee do they need to provide wrap fee disclosure? |
|
Definition
|
|
Term
| What is the consent to service of process? |
|
Definition
Authorizes the Administrator to receive court papers on apllicants behalf in any non criminal legal complaint.
-It is only filed initially |
|
|
Term
| What records must an IA keep? |
|
Definition
-Receipts and Disbursement journals
-General Ledger
-Order Memoranda
-Bank records
-Bills and Statements
-Financial Statements
-Written communications and agreements
-(including electronic transmissions)
-List of Discretionary accounts
-Advertising
-Personal Transactions of Representatives and Principals
-Powers granted by clients
-Disclosure statements
-Solicitors disclosure statements
-Performance claims
-Customer Information forms and suitability infor
-Written Supervisory Procedures |
|
|
Term
| If the IA has custody of client funds what records must be kept? |
|
Definition
-journals of Securities Transactions and movements
-Seperate Client Ledgers
-Copies of Confirmations
-Record by secuirty showing each client's interest and location therof |
|
|
Term
| If the IA actively manages client assets what records must be kept? |
|
Definition
-Client Purchases and Sales History
-Current Client Securities Positions |
|
|
Term
| Where are the required records required to be kept? |
|
Definition
| In an easily accessible place for a period of 5 years from the end of the fiscal year during which the last entry was made, for the first 2 years must be maintained in the adviser's principal office |
|
|
Term
| What must electronic records have to be qualified? |
|
Definition
| The firm must verify that the records are accurate and complete and could not have been easily altered |
|
|
Term
| Who is excluded from the definition of an Investment Adviser? |
|
Definition
-Banks
-Savings Institutions
-Trust Companies |
|
|
Term
| What do you have to do to be considered an IA? |
|
Definition
-Rendering specific advise based on a specific situation
-Get compensation
-Hold themselves out to public as IA |
|
|
Term
| When can a publication be considered an IA? |
|
Definition
-If the circulation is irregular, based on market movements or signals
-When the advice is specific to the client's needs |
|
|
Term
| When is a lawyer, accountant, teacher, or engineer excluded from the def of an IA? |
|
Definition
-Only if their advice is solely incidental to their profession
-If they charge a fee for the advice they are not excluded |
|
|
Term
| If an adviser is excluded from the def of an IA are they also excluded at the state level? |
|
Definition
|
|
Term
| If an adviser gets an exemption of SEC registration are they exempt at the state level? |
|
Definition
|
|
Term
| When is an adviser exempt from state registration? |
|
Definition
If they deal with only institutional investors
-If they do not have a place of business in the state BUT
-if they have more than 5 non institutional in a 12 month period they will have to register |
|
|
Term
| What is defined as having a place of business in a state? |
|
Definition
| An office at which the IA regularly provides IAdvisory services, solicits, meets with or otherwise communicates with clients. and any other location that is held out to the general public as a location where these services are provided |
|
|
Term
| When is an adviser only has 5 clients and he is holding himself out to the public and soliciting is he exempt from state registration? |
|
Definition
NO he is soliciting so he has to register
General SOLICITATION ONLY not family solicitation |
|
|
Term
| When can a firm with less than $30 million choose to be federally registered? |
|
Definition
If they are an adviser in 30+ states
-manage between 25-30 million
-Or only advise registered investment companies |
|
|
Term
| What is included in the definition of a Registered Investment company |
|
Definition
-Mutual funds
-UIT
-Insurance companies |
|
|
Term
| What does a federally covered adviser provide to the state when they notice file? |
|
Definition
-Complete copy of its Form ADV
-Filing a U-4 application for each IAR who will provide services on behalf of IA
-Payment of required notice filing fees |
|
|
Term
| Is an Investment Adviser Representative able to be federally covered? |
|
Definition
| NO THEY DO NOT REGISTER WITH THE SEC |
|
|
Term
| Where must an IAR register? |
|
Definition
| In any state that they have a place of business |
|
|
Term
| If an IAR only meets with clients once a month in a state are they exempt from registration? |
|
Definition
| NO they have a place of business in the state so they must register |
|
|
Term
| What is the SEC Release IA-1092 and what year was it released? |
|
Definition
-Three prong test
-Does the professional provide investment advice?
-Is he in the business of providing advice
-Do they receive compensation?
-If the answer to the three questions are yes they are an adviser
-1987 |
|
|
Term
| Are pension consultants Advisers? |
|
Definition
| Yes, if they help decide which securities or whether to invest in securities they are. |
|
|
Term
| Are consultants who help pension funds determine which IAs to hire subject to registration? |
|
Definition
|
|
Term
| What does it mean to be in the business of providing advice? |
|
Definition
-Gives advice on a regular basis
-business activity conducted with some regularity
-or if they hold themselves out to the public that they provide advice
-has to be specific to client situations |
|
|
Term
| What type of soft-dollar compensation is allowed by the SEC? |
|
Definition
-Research Reports
-Custodial and clearing services
-Special Software aiding in research
-Has to provide benefit to the client |
|
|
Term
| What type of soft-dollar compensation is not allowed by the SEC? |
|
Definition
-Furniture and office equipment
-Salaries or overhead
-Vacations
-Cell Phones
-Air fare |
|
|
Term
| What is the Securities act of 1933? |
|
Definition
-Paper Act
-All about registering the security with the SEC which then gives the company the green light to sell the security to the public |
|
|
Term
| What is a registration statement? |
|
Definition
S1
-Underwriters fill out paperwork to register security |
|
|
Term
| What happens after the underwriters and issuer file the registration papers? |
|
Definition
Cooling-off period
-Lasts a minimum of 20 days
-Nothing can be sold or advertised |
|
|
Term
| What is the process of registering a security under the act of 1933? |
|
Definition
-underwriters and issuer fill out registration paperwork
-Cooling off period
-publish a tombstone ad
-get indication of interest from people
-Send preliminary prospectus to indication of interest list
-Due diligence
-Release of Security for sale by SEC |
|
|
Term
| What does a tombstone ad include? |
|
Definition
Announces that a sale will take place and informs the reader how they can get a prospectus
-Not an offer or solicitation |
|
|
Term
| What is a preliminary prospectus and what is it referred to? |
|
Definition
-Contains everything a normal prospectus would just no effective date and no final/public offering
-Called a red herring |
|
|
Term
| What information is found in a prospectus? |
|
Definition
-History of the company
-Board of directors
-Officers of the company
-Important risks involved with investment in the company
-Financial statements |
|
|
Term
| When the SEC releases the security for sale what must happen? |
|
Definition
| On the release or effective date the prospectus is delivered to all buyers of these new securities |
|
|
Term
| Does the SEC Guarantee accuracy of prospectuses? |
|
Definition
|
|
Term
| What securities are exempt under the Act of 1933? |
|
Definition
-US government securities
-Municipal securities
-Charitable org. securities
-Bank securities
-Securities that mature in 270 days or less
-Such as commercial paper, Bankers acceptances |
|
|
Term
| Exempt transactions under the Act of 1933? |
|
Definition
-Reg A - issuer can sell up to $5 million worth of securities in a year and offer only an offering circular
-Intrastate offerings |
|
|
Term
| Rule 147 exemption under act of 33? |
|
Definition
-Intrastate offering sold only in 1 state
-only if issuer's main business is located in that state and 80% of its assets are located in the state as well
-Buyers of the security cannot sell security to a non resident for 9 months |
|
|
Term
| Private placement exemption under the act of 33? |
|
Definition
-Also called a Reg D transaction
-Only offered to accredited investors
-$1 million net worth or makes 200k a year individually or 300K married filing jointly
-No more than 35 non accredited investors can buy these securities
-Everyone has to hold the stock for the first year before selling it |
|
|
Term
| What is a restricted stock? |
|
Definition
| Usually a stock purchased in a private placement and there is a restriction on how long the stock must be held |
|
|
Term
|
Definition
| When a restricted stock is sold a legend on the certificate says when you can sell it |
|
|
Term
| Securities Exchange act of 1934 |
|
Definition
-Referred to as the people act
-Dictates how people may act in the securities markets
-Any person in connection with the offer, sale, or purchase of any security can get in trouble for making material mistatments of fact or omitting material facts in a way that is misleading |
|
|
Term
|
Definition
-used in insider trading suits
-extract 3 times the amount of the advisers benefit |
|
|
Term
| Who is defined as an insider? |
|
Definition
| Any person with inside information not only directors or officers. Even immediate family |
|
|
Term
| According to the SE act of 1934 who regulates margin? |
|
Definition
|
|
Term
| Under the SE act of 1934 when must public companies file reports with the SEC? |
|
Definition
|
|
Term
| What are the criminal penalties for filing fake financial reports? |
|
Definition
-$5 million
-20 years in prison |
|
|
Term
| What are the civil court penalties under the act of 34? |
|
Definition
|
|
Term
| What are the criminal court penalties under the act of 34? |
|
Definition
$5 million
20 years in prison |
|
|
Term
| What is the Uptick rule or regulation SHO? |
|
Definition
| Prevents short sellers from piling onto a dying stock |
|
|
Term
| What is the trust indenture act of 1939? |
|
Definition
| -If a corporation wants to sell $5 million or more worth of bonds that mature outside of one year, they have to do it under contract with a trustee. Indenture contract with a trustee that looks out for bond holders. |
|
|
Term
| What is the Investment Company Act of 1940? |
|
Definition
Classified investment companies as
-Face amount certificate companies
-UIT
-or managed companies |
|
|
Term
| What is an open-end mutual fund? |
|
Definition
Funds are redeemable
-Continuous public offering of shares to the company
-Dont trade on exchanges
-Common shares
-Managed
-NAV forward calc |
|
|
Term
| What is a closed-end mutual fund? |
|
Definition
-IPOs
-traded on the exchanges
-limited number of shares sold
-issues common shares, preferred shares, Bonds |
|
|
Term
| What is a Unit Investment Trust? |
|
Definition
-Has no board of directors
-Reedemable shares
-Portfolio set for life
-Supervised not managed
-low fees
-Fixed income securities |
|
|
Term
| To fit the definition of investment company what must be true? |
|
Definition
| The shares must be able to easily be sold and the number of shareholders must exceed 100 |
|
|
Term
|
Definition
| Protects employees who depend on pension funds for retirement security |
|
|
Term
| What type of companies does ERISA protect? |
|
Definition
| The private sector not government |
|
|
Term
| What does a defined benefit pension plan do? |
|
Definition
| basically promises to pay a predetermined amount of benefits to employees when they retire. |
|
|
Term
| Who are the fiduciaries in a pension plan? |
|
Definition
-Trustee
-Investment advisers
-All individuals exercising discretion
-All members of the plan's administrative committee
-Those who select commitee officials |
|
|
Term
| How to determine whether someone is a fiduciary? |
|
Definition
| If they are exercising discretion or control |
|
|
Term
| What governs ERISA covered plans? |
|
Definition
| Investment policy statement |
|
|
Term
| What must a plan have for employees to make own investment decisions or what does 404(c) state? |
|
Definition
-Offer a selection of at least 3 investment choices with materially different risk and return characteristics
-Provide the ability to change invesment allocations at least quarterly
-Provide sufficiant education and informationabout the plan to allow participants to make informed decisions |
|
|
Term
| If a retirement plan allows participants to invest in its own company stock what must it do? |
|
Definition
-Company stock is publicly traded
-Stock is traded with enough frequency so particiapants instructions to sell and buy can be executed promptly
-Shareholder info is given
-Voting rights are passed through
-Plan designates a fiduciary to insure info is maintained to keep it confidential
-Independent fiduciary keeps the other one honest |
|
|
Term
| What does a fidelity bond do? |
|
Definition
| Covers ERISA plans against huge losses resulting from fraud and dishonest acts |
|
|
Term
| What are prohibited transactions for pension funds? |
|
Definition
No self-dealing
-A sale, exchange, or lease between the plan and party-in-interest
-Lending money or other extension of credit between the plan and PII
-Furnishing goods, services, or facilities between the plan and PII |
|
|
Term
| What is the Uniform Securities Act? |
|
Definition
| Uniform law for all states to follow in the securities industry |
|
|
Term
| Under the USA what can the State Administrator do to protect investors? |
|
Definition
-Issue rules and orders
-Issue subpoenas to obtain evidence and testimony
-Issue subpoenas at the request of other regulators
-Cooperate with other regulators
-Apply to a court of law to issue a court order to compel persons to comply with subpoenas
-Administer oaths, take testimony
-Investigate both in and outside the state
-Publish results of investigations, actions |
|
|
Term
| If somebody is violating the securities laws of the state what can the administrator do? |
|
Definition
-issue an order to suspend or revoke their license to sell or provide advice
-Can issue a cease and desist order |
|
|
Term
| If your license is suspended in one state is it suspended in all the others? |
|
Definition
| Yes can be used as a reason to |
|
|
Term
| What can the Administrator NOT do? |
|
Definition
-Issue Judicial Injunctions
-Sentence people to prison or impose criminal penalties |
|
|
Term
| What must the administrator provide when the order to deny, suspend or revoke a license is passed? |
|
Definition
-Have to give pprior notice
-Opportunity for a hearing
-Written findings of fact, conclusions of law |
|
|
Term
| What can the accused adviser in a suspension hearing file and how long does he have to file it? |
|
Definition
-File an appeal
-Has to file within 60 days |
|
|
Term
| Why would an administrator issue a suspend/revoke order? |
|
Definition
The adviser has:
-has filed a false or misleading app
-has willfully violated or willfully failed to comply with any provision of USA
-was convicted in the last 10 years of any securities related misdemer or any felony |
|
|
Term
| What Misdemeanors get advisers in trouble with securities regulators? |
|
Definition
-Deal with mishandling money
-fraud,theft, larceny, extortion |
|
|
Term
| What are the two things that an Administrator can do without giving prior notice or an opportunity for a hearing? |
|
Definition
-Cease and Desist order can be issued without prior notice
-Summarily suspend a registration pending final determination |
|
|
Term
| What are the two Non-punative (no penalty) orders? |
|
Definition
|
|
Term
| When is a cancellation order issued? |
|
Definition
| When the adviser dies, foes out of business, is declared mentally incompetent, or simply cannot be located |
|
|
Term
| What are the criminal penalties for willful violations under the USA? |
|
Definition
-3 years in prison
-$5,000 fine or both |
|
|
Term
| How long is the statute of limitations |
|
Definition
| Within 5 years of the misdeed |
|
|
Term
| Under the USA in criminal court who has the burden of proof? |
|
Definition
| The accused has to prove they didnt know what they were doing was wrong |
|
|
Term
| What are civil liabilities under the USA? |
|
Definition
-Price paid for the security and or advice
-Plus interest
-Plus court costs/attorney fees
-minus any income received on the security |
|
|
Term
| What is the statute of limitations on civil liabilities? |
|
Definition
| -The buyer can sue if he initiates action within 2 years of the incident |
|
|
Term
What is an offer of rescission?
How long does the buyer have to accept the offer? |
|
Definition
-Legal do over
-The issuer of an unregistered security offers to buy back the security plus interest.
-The buyer has 30 days to accept the offer |
|
|
Term
| Can a buyer sue even if the adviser who defrauded them has died? |
|
Definition
| Yes the estate can be sued |
|
|
Term
| Who is not a "person" under the USA? |
|
Definition
-Dead
-Declared mentally incompetent
-A minor child |
|
|
Term
| What is the definition of a BD? |
|
Definition
| -Any person engaged in the business of effecting transactions in securities for the account of others or for its own account |
|
|
Term
| What does the USA define an investment adviser as? |
|
Definition
| any person who, for compensation, engages in the business of advising others, either directly or through publications or writing, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities |
|
|
Term
| What does an Investment Adviser Representative do? |
|
Definition
| -Individuals employed by an investment adviser who are involved with selling the services of the firm or managing client's financial affairs |
|
|
Term
| Who represents Broker Dealers? |
|
Definition
|
|
Term
| When an agent begins or terminates a connection with a BD or issuer when must the Administrator be notified? |
|
Definition
|
|
Term
| When must a BD register in a state under the USA? |
|
Definition
-If they have a place of business in the state
-If any of their clients in the state are non-institutional or retail investors |
|
|
Term
|
Definition
| Terminates the agent's employment |
|
|
Term
|
Definition
|
|
Term
| After registration how long does it take to have your license granted? |
|
Definition
| No later than noon of the 30th day after filing |
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Term
| What is a consent to service of process? |
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Definition
| Says that should any other state need to serve an adviser in a different state they can just serve the administrator not have to find the adviser |
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Term
| What is a surety bond and in what form can it be in? |
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Definition
-They provide for the cost of going after a rogue adviser
-Up to 10K
-Can be in the form of cash deposit or deposit of securities |
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Term
| What records are required to be kept under the USA and for how long? |
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Definition
-Account statements
-correspondence
-Memoranda
-papers
-books
-Should be kept for 3 years |
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Term
| When can the administrator request the records? |
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Definition
| -Anytime they need to when it applies |
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Term
| When does the USA require minimum net capital and how much for each situation? |
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Definition
-Advisers with custody/have 35K
-Adviser with discretion but not custody/ 10K
-Adviser accepting prepayment more than $500 six or more months in advance |
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Term
| Can state regulators have higher net capital requirements than set forth by the Fed? |
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Definition
| No they cannot have to comply with IA Act of 1940 |
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Term
| When must persons in the securities industry renew their licenses and when do they expire? |
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Definition
-Every year
-Expire on Dec 31 |
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Term
| When the Administrator is determining the qualifications of BDs and IAs who can they base their decision off of in the company, who can they not? |
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Definition
-Only on the firm and the agents themselves
-Not anyone providing clerical work
-Not limited parners |
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Term
| Are partners, officers and directors of a BD or IA considered agents or representatives when they register? |
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Definition
| yes they are when the ADV or Form BD is filed |
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Term
| What makes a BD different from an IA? |
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Definition
-BD are in the transaction business not advice
-Conduct covered by Act of 34
-Can use client testimonials
-Do not have fiduciary duty spelled out as well so dont have to provide as mush disclosure |
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Term
| What does the NASAA stand for and what do they do? |
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Definition
-North American Securities Administrators Association
-Organization of state regulators who want you to know the USA |
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Term
|
Definition
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Term
| What is regular way settlement? |
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Definition
|
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Term
| Can BD delay delivering securities or request for cash? |
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Definition
|
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Term
Do BD have suitability requirements on un-solicited orders?
Solicited orders? |
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Definition
|
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Term
| What does NASAAA BD Item D say? |
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Definition
| -the firm should not buy or sell securities for a customer if the customer hasn't authorized them to |
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Term
| What does NASAA BD Item E say? |
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Definition
| Says that a BD cannot choose the activity, asset, or amount without customer written authorization |
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Term
| What can the BD do without discretionary authority? |
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Definition
| They can choose the time and price |
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Term
| When can IA place trades after receiving verbal authorization? |
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Definition
10 days before getting authorization in writing.
BD need it in writing before placing any discretionary orders |
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Term
| When can a BD trade on margin for a client and when does the written authorization need to be signed? |
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Definition
Before the signing of written authorization
-The signed margin agreement must bee recieved promptly after the initial transaction |
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Term
| What does NASAA BD Item G say? |
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Definition
| The BD must keep the customer fully paid securities records separate from the firms securities or securities pledged as collateral |
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Term
| What does a hypothecation agreement do? |
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Definition
| In a margin account the customer signs and gives the company the authority to pledge customer securities as collateral |
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Term
| What does NASAA BD item I say |
|
Definition
-Have to give the customer the most recent price or close to it
-BD cannot charge unreasonable fees |
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Term
| What does NASAA BD item J say |
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Definition
| The underwriters must deliver a prospectus no later than the due date for confirmation |
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Term
| What does it mean when a BD is backing away? |
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Definition
| If a BD puts out a firm quote they have to trade at the price they indicate |
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Term
| Can BD guarantee a customer against a loss? |
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Definition
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Term
| What information are BD customers entitled to |
|
Definition
-Trade confirmations
-Account statements
-Mutual fund prospecuses
-Independent research
-Respond to customer complaints and keep written detailed records on how complaints handled |
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Term
| Can BD agents execute transactions that are not recorded on the firms books? |
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Definition
| Not without written authorization from the firm to do so |
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|
Term
| Can BD agents act as a custodian for customer money or securities? |
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Definition
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Term
| What is the only exception to when a BD agent can share in gains and losses of a customer? |
|
Definition
-When they have a joint account with the customer AND
-have the customer and firms written authorization
-AND you must share in proportion to your investment in the account |
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Term
| When can a BD agent split commissions? |
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Definition
| Only with registered agents at their firm or a firm directly related to their firm |
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Term
| Can research report analysts be compensated by anyone in the investment banking industry? |
|
Definition
| NO they cannot be tied together at all |
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Term
| To have a website what regulations must you follow? |
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Definition
-Needs to be text on the site that explains you are not offering securities or investment advice through the website
-Site cannot involve effecting purchase or sale of securities or giving personalized investment advice |
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Term
| What investments are NOT considered securities? |
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Definition
-Fixed annuity
-whole life, term, universal policy
-Endowment policy
-Commodities/futures contracts
-Bank deposit or fully insured CD |
|
|
Term
| What type of futures contracts are considered securities? |
|
Definition
-Options to buy or sell a commodity futures contract
-Single stock futures contract |
|
|
Term
| What does the Howey Decision say? |
|
Definition
-tells us what an investment contract is
-An investment of money in a common enterprise where the investor benefits solely through the efforts of others |
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Term
| What does the state want from the person registering a security? |
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Definition
-Filing Fee
-Total amount of the offering
-Amount of securities offered in their state
-Names of other states where securities will be offered
-Any adverse order, judgment, or decree entered by a court |
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Term
| How long are securities registered under the USA? |
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Definition
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Term
| Which securities may require an escrow account? |
|
Definition
| -Securities offered by coordination or qualification |
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Term
| What way do securities offered by coordination or qualification need to be sold? |
|
Definition
| Through a specified form stipulated by the Administrator |
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Term
| What must a securities registration statement include? |
|
Definition
| Consent to service of process |
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Term
| Who can file Securities registration on behalf of the issuer? |
|
Definition
|
|
Term
| If an agents registration is declared effective on August 15 when does the registration expire? |
|
Definition
| Effective for one full year going forward |
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Term
| When a security is registered in a state what do they want to see? |
|
Definition
-All sales literature and advertising used
-Specimen of the security
-All the offering documents
-If the security is registered with the SEC
-Copy of the agreement between the issuer and underwriters
-Underwriter agreement |
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Term
| Can the Administrator prevent a security from getting registered? |
|
Definition
| Yes but prior notice and an opportunity for a hearing are given |
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Term
| What is registration by coordination? |
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Definition
| -Issuer has to first register the securities with the SEC under the 33 act and coordinate the process with the states where the security will be sold. |
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Term
| When is registration by coordination usually used? |
|
Definition
| -When a company is dong an interstate IPO |
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Term
| When is the effective release date of a security offering finalized? |
|
Definition
-No stop order is in effect and no preceeding is pending
-Registration statement has been on file with administrator for at least 10 days
-Statement of max min proposed offering prices and max underwriting commissions on file for 2 full business days |
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Term
| What is registration by filing or registration by notification? |
|
Definition
-Securities registered under this must be registered with the SEC
-The issuer and any predecessors have been in continuous operation for at least 5 years |
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Term
| When can registration by notification/filing be used? |
|
Definition
-There has been no default during the current fiscal year or within the 3 preceding fiscal years in the payment of principal, interest, or preferred dividend.
-The issuer and any predecessors during the past 3 fiscal years have had average net earnings of 5% of either the max offering price or the market price within 30 days of filing |
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Term
| If the issuer's securities meet the requirements for both coordination and notification/filing which one do they use? |
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Definition
| The issuer uses their discretion |
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Term
| A registration statement under notification/filing becomes effective when? |
|
Definition
-If no stop order is in effect and no proceeding is pending
-becomes effective at 3 oclock eastern time of the second full business day after filing the registration statement |
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|
Term
| What is registration by qualification? |
|
Definition
| Have to qualify the security with the State through a long list of requirements |
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|
Term
| Who can register using qualification? |
|
Definition
|
|
Term
| When is registration by qualification effective? |
|
Definition
| When the Administrator orders it effective |
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|
Term
| What securities do not have to be registered in individual states? |
|
Definition
| Federal covered securities |
|
|
Term
| Are investment company securities federally covered securities? |
|
Definition
Yes
Mutual fund, ETFs, Variable contracts |
|
|
Term
| What securities are exempt from State registration under the USA? |
|
Definition
-Any security issued/guaranteed by the US Treasurey/US government
-Municipal securities
-Any security issued by any canadian government
-Any security issued by a foreign government with diplomatic relations
-Banks, savings institutions, trust companies
-Debt securities issued by an insurance company
-Public utility securities
-federal covered
-non profit
-promissory not maturing in 270 days
-investment contract issued by pension/employee benefit program |
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|
Term
| What is the Reg D exemption? |
|
Definition
| Exempt transaction because it is being sold by the issuer only to accredited investors |
|
|
Term
| What does a non-issuer or secondary transaction mean? |
|
Definition
| The transaction is not for the benefit of the issuer so usually an exempt transaction |
|
|
Term
| What does the USA define as an offer? |
|
Definition
| every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value |
|
|
Term
| What does the USA define as a sale? |
|
Definition
| Includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value |
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|
Term
| What does the USA not consider to be an offer of a security? |
|
Definition
-Any bonfide pledge or loan of a security
-Any stock dividend if nothing of value is given by stockholders for the dividend
-Any act incident because of stockholder vote
-Any incident caused by approved company reorganization |
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|
Term
| When has an offer been made in a particular state? |
|
Definition
| When the offer originates from this state or is directed by the offer-or to this state |
|
|
Term
| What kinds of communication can be used to accept an offer? |
|
Definition
-phone
-text message
-email
-fax |
|
|
Term
| According to the USA who is not a broker dealer? |
|
Definition
-An agent
-An issuer
-Bank, savings institution, or trust company |
|
|
Term
| When is a Broker dealer exempt from registration under the USA? |
|
Definition
if they transact business exclusively with
-Issuers of the securities involved in the transactions
-other BD
-Banks, savings institutions, trust companies
-Insurance companies
-Investment companies under act of 40
-pension or profit-sharing trusts
-other financial institutions
-institutional buyer |
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|
Term
| Under the USA when would an individual not be an agent of a BD? |
|
Definition
-if the individual represents the issuer
-if the security or transaction is exempt |
|
|
Term
| Are US government representatives that assist people in buying gov securities agents? |
|
Definition
|
|
Term
| Under the USA is an individual who effects transactions with the issuers employees, partners or directors an agent? |
|
Definition
| No if no compensation is paid |
|
|
Term
| Under the USA who is exempt from registering as an IA? |
|
Definition
-person who has no place of business in the state if they only deal with institutional investors
-person who has no place of businesss in the state and during any period of 12 consecutive months does not direct business communications to more than 5 clients |
|
|
Term
| Do IARs with federal covered IAs have to register in the states they do business? |
|
Definition
| Yes no diminimus exclusion in federal covered advisers |
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