SIE 13 - Settlement and Corporate Actions

  1. What are the 5 steps of a trade? Explain them.
    • Order entry: order ticket details regarding how to execute
    • Execution: occurrence of a trade in a market center
    • Clearing: executing firms agree to details, unrecognized trades result in DK
    • Settlement: the day when the customer's name is put on/off the books
    • Custody: safeguarding of client and firm assets
  2. What are the settlement date conventions for corporate/muni securities?
    T+2
  3. What are the settlement date conventions for gov't securities and options?
    T+1
  4. What are the settlement date conventions for cash-settled securities?
    Same day
  5. What are the settlement date conventions for seller's option trades?
    The settlement is negotiated, but not earlier than T+2. This is useful for restricted sales.
  6. What are the settlement date conventions for when issued trades?
    Trade the security when it's issued (determined by the national uniform practice committee.
  7. What does Reg T say about payment date?
    • The reg T payment date must be obtained for purchases that are made in either cash or margin accounts within 2 business days of settlement (S+2)
    • Before settlement, a customer can request that the broker-dealer transfer a trade from a cash account to a margin account
    • If no payment is made by T+4 (S+2), the position is closed out on S+3. Then, the account is frozen for 90 days (all payments must be paid in advance)
  8. What is freeriding?
    When an investor buys a stock and sells it but fails to meet the Reg T requirement of 50%.
  9. What are the two types of stock splits?
    • Forward (e.g. 2:1 or 3:2) more shares, lower price [2:1 = even, 3:4 = odd]
    • Reverse (e.g. 1:5) fewer shares, higher price
    • Dividends are adjusted proportionally
  10. How are stock splits treated for tax purposes?
    Additional shares received are usually not taxed as income since your total basis is unchanged.
  11. What is a tender offer?
    • It is a public announcement that indicates the intent to buy shares from the owner at a fixed price.
    • The offer is made by the issuer or a 3rd party
    • The offer is usually made to acquire a company or a controlling position
    • These are often used for buybacks
  12. What are the exclusions for tender offers?
    • Seller must be long shares or equivalent
    • Convertible security (don't have to ex)
    • Right or warrant (don't have to ex)
    • Call option (must ex)
Author
stpierrewm
ID
349453
Card Set
SIE 13 - Settlement and Corporate Actions
Description
SIE 13 - Settlement and Corporate Actions
Updated