Series 11 Flashcards

Terms Definitions
Qualified purchaser
sophisticated investor
calculate spread
nearby-deffered = spread
regulation M
Restricts distribution participants and issuers from bidding on secondary market stock offered for certain period around effective date
acting w/o prior notice (administrator); upon entry of the order the admin must notify all interested parties that it has been entered, the reasons, and w/in 15 days after the receipt of a written request a hearing will be granted
used to: postpone or suspend registration of securities professional or a security pending a final determination of a proceeding relating to a problem and in denying or revoking a specific security or transaction exemption
a firm must apply to become
interest coverage ratio
EBIT/bond interest expense
The registion statement for a registion by filing must contain a consent to service of process, and other papers containing what other information?
What two categories of fraudulent violations are listed in the Uniform Securities Act?
401(k) plan
employee directs employer to contribute a % of his salary to retirement acct; permit employer to make matching contributions up to a set % of the employee-directed contributions; type of defined contribution plan; all contributions made w/ pretax dollars; permitted to make withdrawals w/ max limits and amt not eligible for rollover and taxable as ordinary income; can also take loans w/o tax, max amt is vested share or $50k and carry a reasonable rate of interest
restricted securities
unregistered securities purchased by investors in a private placement; purchasers sign an investment letter saying they understand the restriction upon resale; legend placed on certificates indicating restriction upon resale; aka letter securitities and legend securities
Wash sale
an investor repurchases substantially the same security within 30 days of previously selling it
Painting the tape
participating in securities transactions only to give the appearance of securities activity
the FRB's Federal Open Market Comittee.  Sets short-term interest rates by setting discount rate, reserve requirement and buying/selling T-bills to/from primary dealers
Leading econ. indicators
avg manufacturing production
initial unemployment claims
new consumer goods orders
vendor performance
contracts and order for plant and equipment
building permits
S&P 500 stocks
Money supply
change in business credit
interest rate spreads (10 yr treasury - fed. funds)
consumer expectation
Auction Process
1.       Sign engagement letter – legal relationship between investment banker and buyer/seller in M&A
2.       Develop contact list of potential buyers
3.       Create the teaser of a business profile
4.       Confidentiality agreements
5.       Confidential information memorandum
6.       Distribution of the initial bid procedures letter sets deadline for prospective bids
7.       Creation of a data room to facilitate the requests for confidential information
8.       Conducting Management presentations
9.       Collect initial bids
10.   Evaluation of initial bids
11.   Term sheet creation
12.   Final bid procedures letter and seller includes draft definitive agreement
§  Firm offer, not a range
13.   Final bid placement where remaining bidders submit final bids which contain firm purchase price
14.   Select the Winner
15.   Signing definitive agreement
16.   Fairness opinion that explains the effort to obtain best price and the shareholder interests were protected
§  Must disclose any material relationships the banker has with issuer including stapled financing
17.   Signing and closing the deal
Rule 103
Distribution participants can make a market on a passive basis 
Limits on quantity – daily purchase limit is greater of 30% of average daily volume in the stock or 200 shares
 Falling Market -  When last independent bid is below that of passive market maker, PM may maintain its bid until purchases reach the lesser of two times the minimum quote size for industry or remaining daily limit
   Cannot enter a bid higher than highest independent bid on Nasdaq
Qualified Institutional Buyer
Institution with a securities portfolio of $100mm+

pension fund, investment company, insurance company, etc.
Members are QIB if portfolio is $10mm+
A person not defined as a broker/dealer in the state under the USA need not register as such.
403(b) Plans
tax-deferred plans for employees of public school systems, and tax-exempt, nonprofit orgs called 501(c)3 orgs (churches, trade schools, zoos, private hospitals, charitable institutions, etc); aka tax-sheltered annuities, so invest in annuities; must be 21 and completed 1 yr of service; plan must be in writing and made through a plan instrument, trust agreement, or both; employer must remit plan contributions to an annuity contract, a mutual fund or other approved investment; max $49k per yr
speculative investments
offer opportunity to earn substantial returns but carry a lot of risk; highly volatile stock, high-yield (junk) bonds, options on stocks or stock indexes, and commodity futures
The upward adjustment in the purchase price of an original issue discount bond is called accretion. If the bond is sold before its final maturity date, the bondholder must determine his adjusted cost basis. If the bond is bought at an original issue discount and held to maturity, the discount is considered to be interest and, for municipal bonds, exempt from taxes. (21-11)
Treasury notes
government issued debt with maturities of one to ten years
Regular-way settlement
settlement in three business days after the trade date

Stock a corporation has issued snd subsequently repurchased from the public.

Treasury stock has:

no voting rights,
does not receive dividends
can be reissued ot retired
cash account
a securities account requiring the customer to pay for all transactions in full, no later than five businss days after the trade or "two days after regular way settlement, " As opposed to a margin account in which an investor can purchase stocks and bonds by putting down no more than half the purchase price. 
Preferred Stock
A fixed-income equity security whose stated dividends must be paid before common stock can receive any dividend payment.  Also gets preference ahead of common stock in a liquidation (but behind all bonds and general creditors)
Money Market
Money market securities are debt issues with maturities of one year or less
Form U4
Application filed by all registered individuals under SRO rules and reviewed by Central Registration Depository. 
4(2) exemption
exempts registration from offering not involved with public offering
ex. private placements
Rule 101
participants are not permitted to buy or bid for security within the restricted period Also applies to any reference security that the subject security can be converted into cannot allocate IPO on prearranged purchase to influence aftermarket price
Series 53
Supervise in purchase and sale of municipal securities.
Limit order
buy at specific pricedotn move once limit reacheddotn become market
estate taxes
gross estate includes all interests in property held by and individual at time of death; certain expenses deducted (funeral expenses and debts) to arrive at adjusted gross estate; then unlimited marital and charitable deductions subtracted to arrive at taxable estate; estate taxes due 9 mos after death; can value property in gross estate as of date of death, or as of a date which is 6 mos after death
Issued Shares -
What are the various general investment categories in which stocks may be classified? Be prepared to identify some stocks for each category?
Cumulative voting
number of shares times number of vacancies equals number of votes
any person who issues or proposes to issue a security
Rule 144-A
provides for the sale of restricted stock between qualified institutions
Non-accredited investor
investor that must have a purchaser representative to conduct a transaction
an order which requires a person to testify'

A voting system that gives minority shareholders  more power, by allowing them to cast all of their board of director votes for a single candidate.

Example: An investor owns 100 shares of stock in the ABC company. An election of the BOD is coming up and several candidates are running to fill 3 seats. The investor thus has total of 300 votes- 100 for each seat. Under cumulative voting, he would, if he wished, allocate all 300 of his votes to a single candidate for just one of the seats.
Cooling off period
the period after the registration statment for an issue of securities has been filed.  lasting a minimum of 20 days and often longer depending on SEC deficiency letters.  No sales or advertising allowed during this period, which lasts until the effective or release date. 
Options Disclosure Document
the prospectus given to people considering the trading of options.  must be delivered at or before the time that the ROP approves teh account for trading.  Explains how options work and how they often don't.
Trading Authorization
a form granting another individual the anthority to trade on behalf of the account owner.  Either "limited" (buy/sell orders only) or "full" (buy/sell orders plus requests for checks/securities) authorization may be granted.  Sometimes referred to as "power of attorney" 
market maker acts
more like a depository and distribution source for securities, absorbing excess stock when demand is low and providing the stock when demand is high. As a result, he or she bears the burden of risk, but also buys and sells for his or her own profit.
FINRA Rule 5122
Private placement where member firm issues securities and conduct placement on its own behalf 
 There must be a market for OTC BB securities outside member firm
       Required to file disclosure docs when owns more than 50% of company        Exemptions:Institutional investors with $50M in assets and QIB in Rule 144A
selling syndicate vs. selling group
syndicate - group distributing securities that imposes financial commiment on members
selling group - group distributing securities that doesnt impose financial commitment
Sarbanes-Oxley Act
Section 302 - Officers have review all financial reports and reviewed internal controls within last 90 days and reported finding.
Section 401 - Disclosure in periodic reports - requires inclusion of all material off-balance sheet liabilities, obligations or transactions.
Section 402 - Prohibition of personal loans to executives.
Section 403 - Any new officer, director or 10% shareholder file with the SEC within 10 business days.
Section 404 - Report by issuer and accounting firm on adequacy of issuers internal controls.
Stock Index Futures
S&P500 Index, New York Stock Exchange Composite, Value Line Average, Major Market Index, Nikkei 225 Stock Average,
taxation of reinvested distributions
distributions are taxable to SH whether they are taken in cash or reinvested; issuer must disclose whether each distribution comes from income or realized capital gains; form 1099-DIV send to SH after close of year and details tax info related to distributions; divs reported as div income and taxed as either ordinary income or as a qualifying div w/ a max rate of 15%; cap gains reported as long-term cap gain
Portfolio Balance
Theory that as interest rates are cut in one country, there will be a flow of money to interest-bearing investments outside of the country.
Letter of intent
allows an investor to qualify' for sales discounts without initially investing the entire required amount
Company control stock
stock acquired by an affiliated person such as officer or director
Offering price
the lowest price that a seller is willing to accept for a security
Summary order
an order to deny or revoke an exemption granted to a security
An investor interested in monthly interest income should invest in
Government National Mortgage Association (GNMA) pays monthly interest and principal, treasury bonds pay semi-annual interest, utility stocks pay qtrly dividends, and coporate bonds pay semi-annual interest.
Immediate Annuity
An annuity that begins to pay out immediately
Bond Councel
the law firm that renders a legal opinion concerneing an issue of municipal securities
Discount rate
interest rate charged by FRB to member banks who borrow from the FRB
Level 1 in the Nasdaq
is available to registered representatives. It displays the inside market only - that is, the best (highest) bids and the best (lowest) asks for securities in the system. Level I prices are not guaranteed, as the market fluctuates too rapidly for a firm quote.
Corporate Bond Funds
Corporate bond funds invest in bonds issued by numerous corporations.
Rule 138: research reports
research reports can be distributed for nonconvertible debt or preferred when equity offering is filed
FINRA members may partner with non-members in what kinds of domestic underwriting?
Municipal and Government Bonds.FINRA has NO jurisdiction over exempt securities.
Security Act '33 Section 12
Civil Liabilities in Connection with Prospectuses and Communications
money mkt securities
safe; liquid; no IR risk or inflation risk; store money needed soon; rate of return low, so not suitable for long-term invesments; fluctuating income due to short-term maturities, principal always reinvested at a diff rate
MRSB - Municipal Securities Rulemaking Board
Writes rules and regulations for firms that transact business in municipal securities.
Deferred sales charge
the sales charge is determined by the length of time the security is held
Foreign funds (internation funds)
Invest in common stocks of companies located o/s of the US
Small Cap
a stock where the total value of all outstanding shares is considered "small," typically between $50million and $2billion. 
Original issue Discount (OID)
a bond issued originally at a discount.  UNless it's a municipal OID, the amount that the par calue increases/accretes each year is taxable to the investor as if she had actually recieved the money
This is simply the yield stated on the bond's coupon. If the coupon is paying 5%, then the bondholder receives 5%.
Nominal Yield
Rule 139: research reports
For WKSI, research reports can be published if already distributed regularly or if significant news comes out
college savings plans
can be used at any college; covers all qualified expenses; contribution limit of $250k; no state guarantee; no age limit
Investment Objectives of Clients, Financial Status of Clients,Risk Tolerance of Clients
What are the suitability factors in regard to clients and securities?
The interest on which of the following instruments is subj to taxation at the fed, state & local levels?
Collateralized mortgage obligations (CMOs).  Treasury instruments are tax a the fed level only.  Municipal instruments are exempt from taxation at fed level and possibly the state level if holder is a resident.
Market orders are the most common types of orders. The order merely instructs the broker to buy or sell a stock at whatever price is available when the order reaches the floor of the exchange. While the customer will not know the price at which the stock
Market Order or unrestricted order
Advantages of a S3 ASR versus S3?
There are two significant advantages of using an automatic shelf registration statement, as opposed to a regular non‑WSKI Form S‑3 shelf registration statement. First, as the name indicates, a Form S‑3ASR registration statement becomes effective automatically upon filing, without review by the SEC. Accordingly, after filing a Form S‑3ASR with a “universal” prospectus, an issuer can, promptly thereafter, file a prospectus supplement indicating the amount, and describing the features, of the securities that it wishes to “take off the shelf”, and then commence to sell those securities immediately upon the filing the prospectus supplement. Second, as a WKSI, the issuer is not required to register a specified dollar amount of securities at the time of filing the Form S‑3ASR; and it may postpone the payment of the filing fee until the time of filing the prospectus supplement for each shelf take-down (called “pay as you go”).
direct rollovers from retirement plans to roth IRAs
client must report the entire amt converted into the Roth as ordinary income in the yr of rollover and have modified AGI of $100k or less not counting the amt converted
1) Breakpoints uniformly apply to all recipients2) Information concerning scheduled breakpoints is given to shareholders and prospective investors3) The prospectus is revised if the schedules are revised4) The investment company advises existing sha
Most mutual funds have sales breakpoints, which are dollar levels at which the sales charges are discounted or reduced, and are clearly stated in the prospectus. What condition must be met for breakpoints to be allowed?
Yield To Maturity - YTM
The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as "yield" for short.
princpal or agency transactions for IAs
adviser may obtain client consent to a principal or agency transaction after execution, but prior to settlement of transaction; adviser not acting as broker if receives no compensation
Only issuers who have authority to levy and collect taxes. (Cities, Counties)
Who may issue General Obligation Bonds and what are some of the main sources for funding this debt?
books and records requirements of b/d by admins
must be preserved for 3 yrs; cant impose recordkeeping requirements in excess of SEC; records subject to preiodic, special, or other examinations by reps of the admin of the b/d's state or any other state the admin deems necessary or appropriate in public interest; must keep electronic communications; admin of any state where the registrant is registered may demand an inspection during reasonable business hrs w/ whatever frequency deemed necessary
1) The cost or fee for the advice2) Costs and resonabile attorney fees3) Any loss due to the advice, minus any income received from the advice.
If a person who dispenses investment advice for a fee is found in violation of the Act, what is the customer entitled to recover?
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