about this book xix about the test bank xxi … · about the test bank xxi about the securities...
TRANSCRIPT
Contents
ABOUT THE SERIES 62 EXAM XV
ABOUT THIS BOOK XIX
ABOUT THE TEST BANK XXI
ABOUT THE SECURITIES INSTITUTE OF AMERICA XXIII
CHAPTER 1 EQUITY SECURITIES 1
What Is a Security? 1Equity = Stock 2Common Stock 2Corporate Timeline 2Values of Common Stock 4Rights of Common Stockholders 5Why Do People Buy Common Stock? 11What Are the Risks of Owning Common Stock? 12How Does Someone Become a Stockholder? 12Preferred Stock 14Dividend Distribution 18Warrants 20American Depositary Receipts (ADRs)/American Depositary Shares (ADSs) 22
vi Contents
Real Estate Investment Trusts (REITs) 22Exchange-Traded Funds (ETFs) 23Pretest 25
CHAPTER 2 DEBT SECURITIES 31
Corporate Bonds 31Types of Bond Issuance 32Bond Certifi cate 33Bond Pricing 33Bond Yields 35Bond Maturities 38Types of Corporate Bonds 39Zero Coupon Bonds 41Guaranteed Bonds 41Convertible Bonds 41The Trust Indenture Act of 1939 44Bond Indenture 44Ratings Considerations 44Retiring Corporate Bonds 45Collateralized Mortgage Obligation (CMO) 47Exchange Traded Notes (ETNs) 49Other Asset Backed Securities 50Pretest 51
CHAPTER 3 GOVERNMENT SECURITIES 55
Series EE Bonds 55Series HH Bonds 56Treasury Bills, Notes, and Bonds 56Treasury Notes 57Treasury Bonds 57Treasury Bond and Note Pricing 57Treasury Strips 58
Contents vii
Treasury Receipts 58Treasury Infl ation Protected Securities (TIPS) 58Agency Issues 59Pretest 61
CHAPTER 4 THE MONEY MARKET 63
Money Market Instruments 63Corporate Money Market Instruments 63Government Money Market Instruments 65Municipal Money Market Instruments 66International Money Market Instruments 66Interest Rates 66Pretest 69
CHAPTER 5 ECONOMIC FUNDAMENTALS 71
Gross Domestic Product 71Economic Indicators 73Economic Policy 75Tools of the Federal Reserve Board 75Fiscal Policy 78International Monetary Considerations 80Pretest 81
CHAPTER 6 ISSUING CORPORATE SECURITIES 85
The Securities Act of 1933 85The Prospectus 86The Final Prospectus 86SEC Disclaimer 87Misrepresentations 87Tombstone Ads 88Freeriding and Withholding/FINRA Rule 5130 88
Underwriting Corporate Securities 89Exempt Securities 93Exempt Transactions 94Rule 415 Shelf Registration 98Securities Off ering Reform Rules 98SEC Rule 405 99Pretest 101
CHAPTER 7 TRADING SECURITIES 105
Types of Orders 105The Exchanges 108Priority of Exchange Orders 109The Role of the Specialist/DMM 109Crossing Stock 112Do Not Reduce (DNR) 112Adjustments for Stock Splits 113Stopping Stock 114Commission House Broker 114Two Dollar Broker 114Registered Traders 115Super Display Book/SDBK 115Short Sales 115Threshold Securities 118Block Trades 120Trading Along 120Circuit Breakers 121Listing Requirements for the NYSE 122Reading the Consolidated Tape 123Exchange Qualifi ers 124The Nasdaq Market 125The Alternative Display Facility (ADF) 131Trade Reporting and Comparison Service (TRACS) 131
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Electronic Communication Networks (ECNs) 132Unlisted Trading Privileges 132Market Centers 132SEC Regulation NMS 134SEC Regulation ATS 134Nasdaq International 135NonNasdaq OTC BB 135Pink Sheets 136Third Market 136Fourth Market 137Market Maker Regulations and Responsibilities 137Times for Entering a Quote 138The Opening Cross 138Order Imbalances 138The Nasdaq Offi cial Opening Price (NOOP) 139The Closing Cross 139The Nasdaq Halt Cross 140Withdrawing Quotes 140Handling and Displaying Customer Limit Orders 141The Manning Rule 144The Order Audit Trail System (OATS) 144Automated Confi rmation System/ACT Market Center Trade Reporting Facility 145ACT/TRF Trade Scan 146Avoiding Double Reporting 148Market Making During Syndication 152Trade Reporting and Compliance Engine (TRACE) 156Broker vs. Dealer 158FINRA 5% Markup Policy 158Markups/Markdowns When Acting as a Principal 159Riskless Principal Transactions 160Net Transactions with Customers/FINRA Rule 2124 160Proceeds Transactions 161Firm Quote Rule 161
Contents ix
Trade Complaints Between Members 162Arbitrage 162Pretest 165
CHAPTER 8 CUSTOMER ACCOUNTS 169
Opening a Customer Account 169Holding Securities 171Mailing Instructions 172Types of Accounts 172Death of a Customer 174Partnership Accounts 174Corporate Accounts 174Trading Authorization 175Accounts for Employees of Other Broker Dealers 180Numbered Accounts 180Day Trading Accounts 180Account Transfer 181Option Accounts 182Margin Accounts 182Commingling Customer’s Pledged Securities 183Wrap Accounts 183Regulation S-P 184Pretest 185
CHAPTER 9MARGIN ACCOUNTS 191
Regulation of Credit 191Establishing a Long Position in a Margin Account 194Establishing a Short Position in a Margin Account 200Combined Margin Accounts 205Margin Requirements for Day Trading 206Portfolio Margin Accounts 206Pretest 209
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CHAPTER 10RETIREMENT PLANS 213
Individual Plans 213Individual Retirement Accounts (IRAS) 214Keogh Plans (HR-10) 219Tax Sheltered Annuities (TSAS)/Tax Deferred Accounts (TDAS) 220Employee Retirement Income Security Act of 1974 (ERISA) 224Pretest 227
CHAPTER 11BROKERAGE OFFICE PROCEDURE 231
Executing an Order 231Clearly Erroneous Reports 233Execution Errors 233Corporate and Municipal Securities Settlement Options 234When Issued Securities 235Government Securities Settlement Options 235Accrued Interest 236Rules for Good Delivery 238Delivery of Round Lots 239Delivery of Bond Certifi cates 240Rejection of Delivery 240Don’t Know Procedures (DK) 240Fail to Deliver/Fail to Receive 241Due Bills 241Customer Account Statements 241Carrying of Customer Accounts 242Proxies 242Pretest 245
CHAPTER 12FUNDAMENTAL AND TECHNICAL ANALYSIS 249
Fundamental Analysis 249Changes in the Balance Sheet 252
Contents xi
Technical Analysis 258Effi cient Market Theory 262Capitalization weighted index 263Price weighted index 263Pretest 265
CHAPTER 13CUSTOMER RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 267
Professional Conduct in the Securities Industry 268Fair Dealings with Customers 268Recommendations to an Institutional Customer 272Recommending Exchange Traded Funds (ETFs) 272Information Obtained from an Issuer 273Disclosure of Client Information 273Borrowing and Lending Money 273Gift Rule 274Outside Employment 274Private Securities Transactions 274Customer Complaints 275Investor Information 275Know Your Customer 275Investment Objectives 276Risk vs. Reward 278Tax Structure 281Investment Taxation 281Calculating Gains and Losses 281Taxation of Interest income 284Inherited Securities 284Donating Securities to Charity 285Estate Taxes 285Withholding Tax 285Corporate Dividend Exclusion 286
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Alternative Minimum Tax (AMT) 286Taxes on Foreign Securities 286Pretest 287
CHAPTER 14SECURITIES INDUSTRY RULES AND REGULATIONS 293
The Securities Exchange Act of 1934 293The National Association of Securities Dealers (NASD) 295Registration of Agents/Associated Persons 297Securities Investor Protection Corporation Act of 1970 (SIPC) 311The Securities Acts Amendments of 1975 312The Insider Trading and Securities Fraud Enforcement Act of 1988 312The Telephone Consumer Protection Act of 1991 313The Penny Stock Cold Call Rule 314The Role of the Principal 315Currency Transactions 318The Patriot Act 318The Uniform Securities Act (USA) 319Sarbanes-Oxley Act 320SEC Regulation S-K 321SEC Regulation M-A 322FINRA Rule 5150 Fairness Opinion 324SEC Regulation S-X 324Regulation FD Fair Disclosure 325Pretest 327
ANSWER KEYS 333
GLOSSARY OF EXAM TERMS 345
INDEX 411
Contents xiii
