Series 7 Unit 1 - Cloned

Front 1

Net Worth

Back 1

Net worth is computed by subtracting all liabilities from the value of total assets.

Front 2

3 methods of common stock valuation

Back 2

Par - arbitrary value 2) Book Value - current liquidation value of share 3) Market Value - supply and demand value

Front 3

Common stock types

Back 3

1) Outstanding Stock - shares issued but not repurchased 2) Authorized Stock - specific number of shareds the company has authorization to issue or sell 3) Issued Stock - authorized and distributed to investors 4) Treasurery stock - shared issued and subsequently repurchased.

Front 4

Balance Sheet shows you?

Back 4

1) Assets 2) Liabilities 3) Equity

Front 5

Net worth =

Back 5

assets - liabilities

Front 6

Voting: 2 types of voting

Back 6

1) Statutory - one vote, per share for each item on the ballot 2) Cumulative - allows allocation of total number of votes in any manner the shareholder chooses.

Front 7

Why issue "nonvoting" stock?

Back 7

Allows company to raise additional capital while maintaining management control and continuity without diluting voting power.

Front 8

What is "preemptive rights"?

Back 8

Gives investors the rith to maintain a proportionate interest in a company's stock.

Front 9

Two types of stock splits and what they do?

Back 9

1) Forward split - increases the number of shared and reduces the price withouth affecting the total market value of shares outstanding. "More shares, less value = same total ownership interest before and after" 2) Reverse split - reduces the number of shares and increases the price. "Fewer shareds, more value = shame total interest before and after"

Front 10

What is the "long" and "short" of common stock?

Back 10

The "long" positon is limited to lose only the value of what was purchased in the stock. The "short" position is unlimited in the potential loss.

Front 11

What are the key features of Preferred Stock?

Back 11

1) When a BOD declares a dividnece, they receive their dividends before common stockholders. 2) If the corporation goes bankrupt, they have a priority claim to the remaining assets over common stock holders. 3) Offers a dividend which can be "fixed" or "adjustable". 4)Are NOT guaranteed and often pain semiannually as declared by the BOD.

Front 12

Types of preferred stock?

Back 12

1) Cumulative - fixed semiannual divident payments, if a payment is missed, it will be caught up at the next declared dividend. 2) Convertible - each share can be converted to common stock at a preset price noted on the certificate. Often a lower price since it can recognize the capital gains of the stock. 3) Participating - receives a share of the corporate profits and remain after all dividends and interest due other securities are paid. 4) Callable/redeemable - company can buy back after a specified date at a stated price. Often the highest stated rate since it can be called back.

Front 13

Calculate Divident yield

Back 13

annual dividend / current market value of stock

Front 14

Key roles in transferrability of a stock?

Back 14

1) Transfer agent - responsible for a) ensuring securities are issues in the correct owner's name b) cnaceling old and issue new certificates c) maintaining records of ownership d) handling problems relating to lost, stolen or destroyed certificates. 2) Registrar - ensures a corporation does not have more shares outstanding than it has been authorized to issue.

Front 15

Dividend Department - Dividend Disbursing Process

Back 15

Declaration Date: when a company's board of directors approves a dividend payment, it also designates the payment date and the dividend record date. SEC requires to be notified FINRA or the appropriate exchange at least 10 business days before the record date.

Ex-Dividend Date: on the basis of the dividend record date, FINRA or the exchange posts an ex-date, which is two days before the record date. Because most trades settle three days before the record date to qualify for the dividend.

Declaration, record, and payment are determined by the board of directors, and FINRA, or the exchange, determines ex-date.

Note: for dividends only, the buyer is considered the owner as of the settlement date, not the trade date.

Front 16

Dividend Department - Dividend Disbursing Process

Back 16

"Dividend Record Date: the stockholders of record on the record date receive the dividend distribution.

Payable Date: three or four weeks after the record date, the dividend disbursing agent sends dividend checks to all stockholders whose names appear on the books as the record date.

Cash Trades: cash trades settle the same day, so they go ex-dividend on the day after the record date because no lag occurs between the trade date and the transaction settlement.

NOTE:
The order of dates is Declaration, Ex, Record, Payable.
DERP will help you remember the order in which the dates involving dividend distribution occur."

Front 17

Rights

Back 17

"Rights have a theoretical value based on the savings to investors, who then purchase stock below the market price. In dealing with any question on the value of a right, you will not have to adjust market price. The questions deal only with value, so your only decision is whether to divide MP-SP by N or N+1. the easy way to remember is this: If you are asked the value of a right on or after the ex-date, don't use the 1. Cum means ""with"" whereas ex means 'without.""

Before the ex-date
Market price -subscription price
Number of rights to purchase 1 share+1

On the morning of the ex-date
Market price -subscription price
Number of rights to purchase 1 share"

Front 18

Rights and Warrants

Back 18

"Rights Warrants
> Short term (30-45 days) > Long term
> On issuance, exercise > On issuance, exercise
price below market price higher market price
> May trade with or > May trade with or
separate from the separate from
common stock the units
> Offered to existing > Offered as a sweetener
shareholders with for another security
preemptive rights

Note: The long term nature of warranties said to be attractive because of the leverage it offers. Warrants also allow issuers to offer bonds or preferred stock at an interest or dividend rate lower than the market rate because the issuer is offering investors something extra: the long term right to buy stock at a fixed price "

Front 19

ADRs

Back 19

"facilitate the trading of foreign stocks in US markets.

> No preemptive rights
> Dividends in dollars (declared in foreign currency but payable in US dollars)
> Currency risk
> Registered Owner isn't the individual investors
> All exchange-listed ADRs are sponsored"

Front 20

REITs

Back 20

"a company that manages a portfolio of real estate investments in order to earn profits for shareholders.

> Not a limited partnership
> Not an investment company
> Pass through income, not losses
> 75% of total investment assets in real estate
> 75% of gross income from rents or mortgage interest
> must distribute 90% or more of income to shareholders to avoid taxation as a corporation
> Trade on exchanges or OTC
> Dividends received from REITS are taxed as ordinary income"

Front 21

Primary market

Back 21

new issues sold for the first time

Front 22

First market [within secondary market]

Back 22

Trading of exchange listed securities
Ex: NYSE, AMEX, NASDAQ

Front 23

In the first market, who provides quotes for exchange-listed securities?

Back 23

CQS - conosolidated Quotations Service

Network A Tape = reports NYSE listed issues regarless of the market center where the trade takes place
Network B Tape = reports AMEX listed issues regardless of the market center where the trade takes place
Network C Tape = reports NASDAQ listed issues regardless of the market center where the traes take place

Front 24

Second Market

Back 24

OTC trading of UNLISTED securites

Front 25

What is the OTCBB? and what is its purpose?

Back 25

OTC Bulletin Board

a display facility run by FINRA for Publicly traded companies that cannot meet exchange listing standards.
- it is not an exchange

Front 26

What TRADES OTC?

Back 26

-Publicly traded companies taht do not meet FINRA requirements to be traded on exchanges
-most corporate bonds
-commercial paper
-U.S. Govts agencies
-Munies

Front 27

What is SOLD OTC

Back 27

New issues

Front 28

What is the THRID MARKET? and what trades there?

Back 28

The OTC trading of EXCHANGE LISTED securites

-open 24 hours
-will vie to trade at slightly better prices than exchanges in order to have the order directed to them

Front 29

What is the FOURTH MARKET? and Who trades there?

Back 29

is ECNs [electronic communications networks] /ATSs - direct trading os securities between institutions OTC (these companies bypass brokers and large commissions)

-ECNs - a computer network that match customer orders to buy and sell 24 hours a day on an agency basis

- must register with FINRA as a Broker/dealer, for

-ATS - alternate trading system

Front 30

Describe Regulation ATS

Back 30

ATS - Alternate Trading System

-b/c of the growth of ECNs
-rules: the types of orders that can be palced. can not discipline its users other than restricting access to their systems

Front 31

What is the ADF and why was it created

Back 31

Alternate Display Facility

was created to display ECN quotes if the ECN wasn';t going ot post its quote in an exchange order book. i.e. the ADF allows for these quotes to be seen by all market participants

Front 32

Regulation NMS

Back 32

SEC regulation NMS (national Market system) - to foster competition btw market centers in trading
-consists of rules 600-612 with impact market participants
3 major rules:
-1. all market centers must enforce policies to prevent 'trade-throughs'
-2. when providing access to their markets, market centers cannot favor one firms over another - equal pricing
-3. all prices must be in Penny increments if it listed at $1.00 or more

Front 33

What does rule 602 state

Back 33

"Exchanges must collect diplay bids and offers"

-requires each exchange collect bids, offers and quotations sizes from broker-dealers and for disseminated and changing this for data "quotation vendors"

Front 34

What is Rule 604

Back 34

"Limit Order Display Rule"

-Requires exchanges and market makers to display customer limit orders publicly so can be access by all
-if market maker receives a customer limit order that is better priced than its own quote, must display. (so best price is always shown)
----customer can opt out of this if they specifically request the order not be shown

Front 35

What is Rule 605

Back 35

"Market Center Order Execution Report" - by market center, monthly

-Market centers must prepare and make available monthly reports Summarizing executions including:
---effective bid-ask spreads
---how market orders of various sizes were executed
---the speed of execution
---fill rates
---price improvements or dis-improvements
**OTCBB and PINK SHEET executions are excluded

Front 36

What is Rule 606

Back 36

"Reports to customers on Order Routing and Payment for Order Flow" - by firm, quarterly
(the firm pays a small amount to the retail member that directs the order to the market maker via. rebating some of its profit for executing the trade)

-detail disclosure of this order flow on the CUSTOMER CONFIRMATION
---upon customer request: firm must disclose identity of market to which the customers orders were routed int he previous 6 months and the time of execution
-Must also provide Quarterly reports on the percentage of customer orders that ere "non-directed"
---identity of 10 largest markets/market makers these non-directed orders were routed
---any other venue revieving 5% or more of the orders
---member firms relationship with that market maker
---arrangement/if any for payment for order flow or profit sharing

Front 37

What is Rule 607

Back 37

"Customer notice of payment for order flow"

- each B/D must NOTIFY each NEW customer @ ACCOUNT OPENING AND ANNUALLY THEREAFTER of:
---Order flow payment policies and details of compensation received
---the firm's policies for determining the routing of each customer order subjecting it to payment for order flow

Front 38

What is Rule 611

Back 38

"Trade-Through Rule"

-all markets that quote NYSE, AMEX, & NASDAQ stocks must be electronically linked [all national securities exchanges, NASDAQ market, ECNs, OTC market makers, block positioners & any other B/D that executes trades internally]
--*any executable order Must be executed within 1 SECOND at best posted price

Front 39

What is Rule 610

Back 39

"Market Access"

1.There must be multiple trading platforms for equities
-----ex. NYSE stocks trade on NYSE, regional exchanges, Third Market and via ECNs
-----ex. NASDAQ stocks trade via Single Book, unlinked ECNs (quoted in ADF), and regional exchanges on a UTP basis
2.Quoting market centers and participants must offer automatic execution of order (no discrimination btw members and non-members"
3. Rules est. to prevent locked &/or crossed markets

Front 40

What is Rule 612

Back 40

"Sub-Penny Quoting"

-no more sub-peny on NMS (NYSE, AMEX, NASDAQ) stocks at $1 or more
-stocks trading BELOW $1, min = $.0001
**This rule does not apply to NON-NMS stocks (ie. OTCBB or PINK Sheets)

Front 41

What do dealers do & how do they profit?

Back 41

-Dealers make markets in, and maintains inventories of securities
-The difference in the Bid and Ask (the spread) is the Deals gross profit margin
*DEALER EARNS A MARK UP*
-sells stock to person @ ASK, buys it @ BID

Front 42

What are Specialists/DMM?

Back 42

(Designated market Makers)
-Dealers on NYSE Floor
-only 1 DMM per NYSE stock
-wholesalers of securites
-doNOT deal with Public
-Deal only with Retail members of NYSE (goldman sach, merrill..)

Front 43

What/Who are Market Makers?

Back 43

-OTC dealers who register with FINRA
-expected to maintain a market in an issue
-NASDAQ uses a system of competing market makers (mult. market makers for each NASDAQ stock)
-OTC allowed to act as a Broker OR Dealer, not both

Front 44

What is the non-NASDAQ market?

Back 44

-NOT electronically linked, ex. "display facilities" only
-EX: OTCBB, Pink OTC
-to trade, must "negotiate" with market maker that posted the quote via telephone or through internet-based trade negotiation application
-there are competing market makers, but the level of competion is small

Front 45

Brokers earn ______ & Dealers earn ________

Back 45

Brokers earn a COMMISSION & Dealers earn a MARK UP

Front 46

How many types of Duration of Orders are there and what are they?

Back 46

1. DAY ORDER - canceled at the end of the day if order is not filled
2. GTC - Good till canceled
3. GTW - Good thru week
4. GTM - Good through Month
(3&4 are entered at GTC and is the firms responsibility to cancel order if it can't be filled in allotted time)

Front 47

AON

Back 47

All or None

-SEVERAL ATTEMPTS CAN BE MADE to try to fill entire order, other wise its filled in entirety or not at all

Front 48

FOK

Back 48

Fill or Kill

-ONLY ONE ATTEMPT can be made to fill, otherwise its cancelled

Front 49

IOC

Back 49

Immediately or cancel

- try to fill as much of order in ONE attempt, the unfilled portion is cancelled

Front 50

Either/Or

Back 50

2 possible trades.
-one side is filled, other is cancelled
-if partially filled, remaining ammount applies to both remaining orders

Front 51

Not Held

Back 51

Up to Trader (order is "not held" to immediate execution)

Trader will "hold back" if he thinks order (perhaps a FOK) can be better executed at another time

Front 52

Discretionary

Back 52

customer hasn't specified security and size of order

Front 53

DNR

Back 53

Do not Reduce

normally, on ex date, orders are reduced to reflect the loss of dividend; if DNR is specified, order is not reduced

Front 54

At the Opening/ At the Close

Back 54

To be filled at the Opening or Closing price, otherwise it is canceled

Front 55

Market Order

Back 55

there is no specified price, order is filled at prevailing market price

Front 56

Limit order

Back 56

Either LIMIT TO BUY or LIMIT TO SELL
-LIMIT TO BUY: order filled at specified price or better (lower)
-LIMIT TO SELL: order filled at specified price or better (higher)

Front 57

Stop Order

Back 57

to "STOP A LOSS"
Either STOP ORDER TO BUY or STOP ORDER TO SELL
-STOP ORDER TO BUY: orders the stop of filling an order if the market price rises to the specified price or higher (if market rises)
-STOP ORDER TO SELL: order the stop of selling of a order if the market falls to a specified price or lower (if market falls)

Front 58

Can you change/amend a order Ticket?

Back 58

NO.
[unless the Manager approves of this; and deatails the reasons for the change in WRITING]
----This written record is called a "cancel and Re-Bill" record

Front 59

How many general types of Orders are there and what are they?

Back 59

SIX
1. Market Order
2. Limit Order
3. Stop Order
4. Stop-Limit Order
5. OSLOBS [Open Sell Limits - Open Buy Stops]
6. OBLOSS [Open Buy Limit - Open Sell Stops]