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114 Cards in this Set
- Front
- Back
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Test Question
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Test Answer
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What are stocks?
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Private equity ownership
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What are bonds?
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Exchange for debt
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Stocks and bonds are _______
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securities
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What are the two types of capital markets?
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Primary and secondary markets
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What was the first federal regulation of capital markets?
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Securities Act of 1933
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What is the primary market?
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Where corporations (issuers) attempt to sell securities in the form of stocks or bonds
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What was the Securities Act of 1933 concerned with?
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Full and fair disclosure
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What does the Securities Act of 1934 cover?
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The secondary market where investors trade securities amongst themselves; I.E. NYSE
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What does SRO stand for?
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Self-Regulatory Organization
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What did the Maloney Act of 1938 enable?
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The creation of non-exchange SROs
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What does NASD stand for?
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National Association of Securities Dealer
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Why was the National Association of Securities Dealers (NASD) of 1939 created?
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To act as the SRO of the OTC market.
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What does MSRB stand for?
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Municipal Securities Rulemaking Board
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When was the MSRB created?
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1975
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Who merged to create FINRA?
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The NYSE and NASD
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What does FINRA stand for?
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Financial Industry Regulatory Authority
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The Trust Indenture Act of 1939 provides added security for whom?
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Bond investors; the act requires an agreement (indenture) between the issuing corporation and a trustee who would act as owner of the bonds in case of the corporation's liquidation.
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What does the Investment Company Act of 1940 cover?
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Companies that are formed to pool investor money and invest that money in securities; most popular is mutual funds.
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Who does the Investment Advisers Act of 1940 apply to?
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Firms that sell investment advice for a fee.
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Who is specifically exempt from the Investment Advisers Act of 1940?
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Broker-dealers, lawyers, accountants, teachers, engineers, and publishers whose investment advice is incidental to their profession (provided they don't charge a separate fee for the service)
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What did the Securities Investor Protection Act of 1940 (SIPA) enable?
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The creation of industry-funded insurance.
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What does the Employee Retirement Income Security Act of 1974 (ERISA) cover?
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The administration of private qualified retirement accounts such as 401(k).
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What did the Securities Acts Amendments of 1975 create?
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The Municipal Securities Rulemaking Board (MSRB)
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What is the MSRB?
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Municipal Securities Rulemaking Board
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Does the MSRB have the ability of enforcement?
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No, it writes the rules and regulations but they are enforced by other regulatory entities.
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What are the criminal penalty caps for the Insider Trading Act of 1988?
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5m and/or 20 years in jail for individuals convicted of insider trading.
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What act was passed in response to consumer complaints concerning the practice of cold calling?
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The Federal Telephone Consumer Protection Act of 1991
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What is the Penny Stock Rule of 1991?
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Covers the selling of certain low-priced securities to potential new customers.
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What is a penny stock?
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Non-exchange traded and non-Nasdaq listed security that trades for less than $5/share
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Which Act created the SEC?
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Securities Act of 1934
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Is the SEC an SRO?
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No, the SEC is a branch of the Federal Government
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What are the two basic categories of FINRA registration?
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Registration of principals and representatives.
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If a person engages in the sale of non-securities such as commodities, commodity futures, and fixed insurance products - do they need to be registered?
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No.
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How long must a person wait after failing an examination the 1st, 2nd, and 3rd time?
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30 days, 30 days, 180 days
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How long does FINRA retain jurisdiction for disciplinary purposes after a RR leaves the industry?
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Two years.
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Regarding the Regulatory Element of RR Continuing Education, how often must they participate?
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2nd anniversary of initial securities registration, then every 3 years, no graduation.
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How often must an RR participate in Firm Element Continuing Education?
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Annually, created and provided by the firm/broker-dealer.
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Member firm personnel to member firm personnel; what is the gifting limit?
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$100
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Private securities transactions are also known was what?
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"Selling away"
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Regarding disciplinary proceedings, the respondent must file a response to the complaint within how many days?
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25 after first notice, 14 days after second notice, otherwise it's treated as admission of guilt.
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If the registration of an associated person is suspended, canceled or revoked, can that person hold clerical or ministerial positions at a member firm?
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Nope.
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Can FINRA sentence an RR to imprisonment?
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No, only a court of law can.
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Regarding disciplinary proceedings, once the Hearing Panel has rendered a decision, how long does the respondent have to file an appeal?
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25 days
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When a respondent files an appeal after the Hearing Panel has rendered a decision, who do they file it with?
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National Adjudicatory Council (NAC)
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What are the levels of appeal for disciplinary proceedings?
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Hearing Panel > NAC > SEC > Federal Courts
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What is the fine limit for 'minor' rule violations that the respondent does not dispute
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$2500
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Simplified arbitration procedures have how many arbitrators, and the dispute must not exceed what dollar amount?
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One arbitrator and less than $25k
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What is defined as advertisements?
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Any material used in newspapers, magazines, radio, television, telephone recordings, motion pictures,s or other public media.
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What is considered sales literature and market letters?
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Notices, circulars, research reports, form letters, and reprints of published articles.
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When are advertisements and sales literature subject to industry requirements?
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If they involve an offer or recommendation of any security, analysis or investment advice, of if they discuss employment opportunity.
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For the first year that a BD is doing business, all of its advertisements must be filed with FINRA how many days prior to publication?
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10 days
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The 10 day in-advance filing with FINRA regarding advertising, applies to first year BDs, but also what?
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Options, CMOs, investment companies, or any firms under order of FINRA
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Advertisements and sales literature must be approved by whom prior to first use
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By a principal of the member firm.
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A BD must retain copies of all communications with the public for how many years?
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3; the first 2 years must be within reach.
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Regarding opening new account, who must sign the new accounts form?
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The RR and principal; customer's signature is only required for margin accounts.
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FINRA requires what information when opening a new account?
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Customer's name and residence, whether the customer of legal age, signature of RR opening account, signature of principal approving account
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Given written instructions, how long can a broker-dealer hold a client's mail?
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2 months if customer is traveling domestically, 3 months if traveling international.
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If a client moves to a different state, who must be registered in that state?
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The RR and firm.
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If an RR learns that a customer has died, what must they do?
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Mark account as deceased, cancel all open orders placed by the customer. The brokerage firm then freezes the assets unitil it receives necessary docs from administrator or executor of the deceased customer's estate.
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To xfer securities from the name of a deceased person to estate account, what docs are required?
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Copy of death certificate, letters testamentary, an inheritance tax waiver, an affidavit of domicile.
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How often must BD's send statements for inactive and active accounts?
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Inactive = quarterly, active = monthly.
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Regarding transferring account, after validation of transfer instructions, how quickly must the current firm complete transfer to receiving firm?
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3 business days.
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What is the difference between a commission and a markup?
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Commission in the charge that a BD asses for executing a trade; Markup is the difference between price charged to customer and prevailing interdealer price.
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Who is responsbile for maintaining and error account?
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The RR's firm, not the RR.
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What does SIPC stand for?
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Securities Investor Protection Act
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What are the limitation for SIPC coverage?
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Max of 500k, no more than 250k of that may be cash losses.
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Does SIPC coverage apply to commodity or futures accounts?
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No
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What does SEC Regulation S-P require?
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All BDs, investment companies, and investment advisors registered with the SEC to adopt policies relating to privary/confidentiality of their clients.
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What are the penalties for violating the AML laws?
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Up to 20 years in jail, and fines up to 500k, or twice the amount of money involved (whichever is greater).
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All BD's must have a _______ who is responsbile for their AML program.
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compliance officer
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What is an affiliated director re: corporation?
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Directors who are affiliated w/ the corporation aside from serving on the board.
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If a company has to liquidate assets, whats the order for creditors?
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Secured creditors, unsecured creditors, and then preferred stockholders.
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What are the Shareholder Rights?
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Stock certificate, right of transfer, and right of inspection.
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What is treasury stock?
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Stock issued by a corporation, and then reacquired.
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Does Treasury Stock receive dividends or have voting rights?
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No
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When does a stock typically trade ex-dividend?
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On the second business dy prior to the record date.
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Who decides Declaration Date for stock dividends?
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Board of directors
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Do shareholders vote on stock splits?
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Yes
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What are preemptive rights?
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A common stockholders right to buy new issues prior to non shareholders in order to still maintain ownership percentage.
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What is a rights offering?
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The process of offering preemptive rights to common stockholders.
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A rights offering is usually good for how long?
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Less than two months.
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The subscription price in a rights offering is usually _____ than the current market price.
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Lower
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The subscription price in a warrant is usually _______ than the current market price.
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higher
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What is the calculation for dividend yield?
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Annualized dividend / Current market price
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Par value of corporate bonds is usually how much?
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1k
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Municipal bonds are usually issued in denominations of how much?
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5k
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A round lot of bonds is how much $$$?
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100k
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Bonds usually pay interest how often?
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Semi-annually
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What are the four types of yields for bonds?
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Nominal, current yield, yield to maturity, yield to call
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What are the four types of yields for bonds?
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Nominal, current yield, yield to maturity, yield to call
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What is the formula for bond current yield?
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Current Yield = (Annual Interest Payment/Current Market Price)
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What is the primary yield used for bonds in the marketplace, unless otherwise specified?
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Yield to maturity
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For a bond selling at a discount, name the order of yields from lowest to highest
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Nominal (coupon), current yield, yield to maturity. Lowest to highest.
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For a premium bond, name the order of yield from highest to lowest
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Nominal (coupon), current yield, yield to maturity.
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Regarding prices of bonds, which fluctuate more? Bonds purchased at a discount or at a premium?
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Purchased at discount
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Regarding bond yields, which fluctuate more? Yields of short term or long term bonds?
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Yields of long term bonds
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Do securities/bonds issued by the US government have credit risk?
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No
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Bond call provisions usually benefit who?
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The issuer
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Indenture is also known as what?
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bond agreement
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Defeasance has to do with what?
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When a bond is prerefunded and the bond issuer is eliminated of the reponsibility and the bondholders rights are eliminated as well
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What are sinking funds?
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Funds that bond issuers set up to deposit money in order to redeem their bonds
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A Put provision on a bond enables what?
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The bondholder to redeem the bond. This is the opposite of a call provision on a bond for the issuer
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What must a corporation pay first, interest on its bonds or dividends to its preferred or common shareholders?
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Interest on bonds
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New issues of corporate bonds must be registered under which Acts?
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Securities Act of 1933 and are subject to the Trust Indenture Act of 1939
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What are the two types of indentures?
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Closed and Opened
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What are the two types of corporate bonds?
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Secured and unsecured
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The Trust Indenture Act of 1939 states that a corporation issuing more than _______ million of debt must provide an indenture agreement between the issuer and trustee
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10
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What are the three major types of secured corporate bonds?
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Mortgage bonds, Equipment Trust Certificates, and Collateral Trust bonds
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Most corporate bonds are secured or unsecured bonds?
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Unsecured
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Unsecured debt securities are also called ______ and _______?
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notes and debentures
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Unsecured corporate bonds that have a junior claim on the issuers assets are called what?
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subordinated debentures
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What are fallen angels?
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Bonds that start off as investment grade bonds and are then downgraded to below investment grade
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A technique used to profit from price differentials in the same security is knows as?
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Arbitrage
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