SIE

Financial Crimes Enforcement Network

They prevent and punish money laundering and related financial crimes.

A risk that applies to a specific issuer

a risk within a business that represents a specific threat to that company. Also market and purchasing power

the act requires financial institutions like broker-dealers to report questionable events or transactions to FinCEN.

an issuer to call in a bond before maturity at times that will benefit the issuer.

if interest rates drop (say from 6% to 4%) while an issuer has an outstanding bond, they can call in the higher rate bond and reissue a new bond at a lower payout rate.

the sale and control of restricted securities in the secondary market. 

the holding period, quantity limitation, manner of sale, and filing procedures

A Business Continuity Plan that all FINRA firms must have relating to emergency or significant business disruption

Review and update annually

buying shares and selling them before the purchase is settled.

the account will be frozen for 90 days

500 shares at $17 a share

A quote is the bid and ask prices followed by the size on each side. A customer sells at the bid ($17) and the size is in round lots (5 × 100 = 500 shares).

income received from a job or self employment. 

income from investments and government benefits is NOT earned income

a FINRA rule that focuses on disputes in the industry and with customers who have filed a predispute agreement

disputes over money between representatives, member firms, banks, and customers.

NAV (net asset value) + SC (sales charge) = POP (public offering price)

the regular way settlement for everything except money market securities. 

T+1 is trade date plus 1 business day

Net assets (total assets - total liabilities) divided by outstanding shares

The capital market is more rewarding but geared toward medium to long-term investing, requiring more time for businesses to grow before realizing returns.

The money market is a less risky short term lending system used for putting spare cash to work for day to day operations.

The required minimum distribution.

the minimum amount you must withdraw from your retirement account after a certain age to avoid a tax penalty.

a 25% tax penalty on the difference of the RMD and the actual money taken out.

securities (usually bonds or preferred stock), that can be converted into common stock. 

The ability to convert to common stock, which tends to keep pace with inflation, offsets this risk

the over the counter market is where unlisted securities go in the secondary market. 

examples are corporate bonds, municipal bonds, treasury debt, and unlisted stocks

they are not guaranteed anything and paid back last,

but have limited liability status meaning they can't held liable for any remaining corporate debts

The Depository Trust Company serves the custody needs of the largest U.S. securities industry participants and some foreign entities as well.

provide safekeeping through electronic record-keeping of securities balances and act as a clearinghouse to process and settle trades in corporate and municipal securities.

The are registered with the SEC and a member of the Federal Reserve System

To establish transparency in financial statements and to establish laws against misrepresentation and fraudulent activities. 

They achieved this by requiring companies to register with the SEC and follow registration requirements such as offering a prospectus

transactions that do not require registrations to be filed

Treasury Bonds

since short term is less than 1 year, these are taxed as ordinary income based on AGI

Long term is taxed at a lower rate than ordinary income and changes every year

that the stock underlying the option will decline in price before the option expires and collect the premium. If it doesn't, the seller has to buy the shares at the current price and sell them to the buyer at the strike price

nominal yield is the ratio of interest earned on the bonds face value

current yield is the ratio of interest earned on the bonds current price

the total return expected on a bond if it's held until maturity. 

YTM is lower than current and nominal because not only are you receiving the lower interest rate (current yield), you are losing the premium you paid when you receive back the face value at maturity

a bond price being greater than it's face value

Interest rates decline, issuer's credit rating increases, or the bonds demand greatly exceeds supply

By capping the potential losses from an upward price move in the underlying asset. This creates a spread that limits downside risk.


Example

If you sell a call with a strike price of $50, anything above that can be unlimited loss. However if you buy a call with a strike price of $60, anything above that can be a gain. Between $50-60 you can still lose money but now the losses aren’t infinite

the fixed interest rate paid on the bond based on face value. no change

the bonds annual coupon payment divided by its current price. 

yield decreases above par

yield increases below par

the total return expected if the bond is held until maturity.

yield decreases above par/face value because you're paying more upfront but still receiving the same fixed coupon.

yield increases below par/face value because you're paying less upfront but still receiving the same fixed coupon.

T + 1 (trade date + 1 business day) for everything except money market securities

Minimum price change up or down for a trading instrument in the market.

$.1

Use as a substitute for a will because while the grantor is alive they still have full control over the trust.

Living (created during the grantors lifetime) or testamentary (created through a will after death)

Revocable (allows changes and control by the grantor during their lifetime) or irrevocable (does not allow changes and removes control from the grantor)

Funded (already holds assets), or unfunded (set up but not yet received assets)

Outside business activities (OBAs) and Private Securities Transactions (PSTs)

Passive investments, such as the purchase of a limited partnership interest.

By allowing shelf registration which permitS the issuer to pre register securities and issue them when the time is right without the delay of registering with the SEC

Ongoing on the firms website, when requested, and at account opening

Although it must be reviewed and updated annually, there is no requirement to communicate annually

Could be a REIT, a limited partnership, or limited liability corporation (LLC). they behave as a limited partnership with downside protected to being only the initial investment.

• beneficiary care - ensuring a dependent with a disability receives care
• privacy - unlike a will where terms are public
• estate planning - holding assets for children under the age of 18
• tax savings - using trusts can have lower tax consequences in general, but assets in a revocable trust benefit from a step up in cost basis upon death

with cumulative, all dividends, including ones missed in previous years, must be paid to the shareholder ahead of other classes of preferred and common stock shareholders

with non-cumulative, if there are no dividends one year you simply miss out

Their registrations will be deactivated by Financial Industry Regulatory Authority (FINRA) until the requirements of the program are met.

Included: Manager's fee, legal fees, 12b-1 fees

Not included: Front-end load

there is ample evidence that low-cost passive funds that employ an indexing strategy often outperform active management, especially after accounting for fees and taxes. For active funds, expense ratios that are high need to be justified by extraordinary returns, or must confer some other benefit to investors since competition has resulted in declining management fees.

anything that affects a customer's investment characteristics that can't be preceded by a dollar sign.

One, when an investor sells their shares to the public on the secondary market after an initial public offering (IPO). Proceeds go directly to the investor

the other type is a follow-on offering or APO which can either be dilutive, resulting in an increase in shares, or non-dilutive, where new shares are not created.

excess reserves that commercial banks and other financial institutions deposit at regional Federal Reserve banks.

These funds can be lent to other market participants with insufficient cash on hand to meet their lending and reserve needs.

The loans are unsecured and at a low interest rate, called the federal funds rate or overnight rate.

any type of investment offering where... 1. there is an investment of money, 2. the investment is made into a "common enterprise", 3. the investors expect to make a profit, 4. any expected profits or returns are due to the actions of a third-party

equity (common, preferred stock)

debt (government bonds, certificates of deposit (CDs), collateralized securities (CDOs and CMOs)

Hybrid (equity warrants, convertible bonds, preference shares)

Derivative (call options, put options)

Asset Backed (CDOs, Home equity, Auto loans, credit cards, student loans)

ownership interest in an entity (company, partnership, trust) in the form of capital stock included common and preferred stock.

borrowed money that must be repaid with terms that stipulate the size of the loan, interest rate, and maturity or renewal date. 

can be secured (backed by collateral) or unsecured, and if secured will be contractually prioritized over unsecured debt in case of bankruptcy.

The preliminary prospectus contains most details of the business and transaction - used to gauge interest in the market. 

The final prospectus contains the security's price and number of shares to be issued, made available after registration is declared effective

a rule that allows companies to satisfy delivery requirements for prospectuses by providing access online instead of physical delivery

a document filed with the Secretary of State or registrar to establish a company as a corporation

it should detail the maximum number of shares to be authorized

common stock

right to vote on corporate matters, rights to maintain proportionate ownership, right to a dividend IF declared

a contract clause of rights offerings that allow shareholders to maintain proportionate ownership as outstanding share count grows

a short term invitation to existing shareholders to purchase additional new shares below market price.

extra: savings from not having to pay an investment banker is passed on to existing shareholders

warrants are long term sweeteners/incentives to buy additional shares of a security at a discounted price, but still above market price

example: MSFT is $300, for the next 10 years you can buy it at $350. doesnt make sense now but if its at $500 in 10 years it makes a lot of sense

when there are no restrictions against doing so in the partnership resolution.

the most complete measure of the money supply that adds long term deposits (over $100k). Discontinued for being no longer useful to analysis

• M1 - count of all coins and notes in circulation
• M2 - short term deposits in banks and money market accounts

investors cannot borrow more than 50% of the purchase price and must pay the remaining balance in cash. 

Treasury securities like bills notes and bonds.

• Form BD - application for broker dealer registration
• Form U4 - application for representative registration
• Form U5 - ending of representative's registration by BD
• Form BDW - termination of registration as a broker-dealer
• Form BR - register or close branch offices of broker dealers
• Form U6 - report disciplinary action against BDs

30 days

Central Registration Despository

Buyers of options have rights while sellers may be in an obligatory position if the contract is exercised

A negotiable certificate of deposit or Jumbo CD. 

They are issued in amount between $100k to $1 million, they trade in the secondary market, are unsecured debt of the issuing bank, and come with terms between 2 weeks and one year

a person that provides advice to a municipal entity (like a city government) concerning municipal products (like the issuance of municipal debt securities)

Suspicious activity report regardless of dollar amount, report to FinCEN within 30-60 days.

T-bills do not pay periodic interest, rather they are always sold at a discount to par value and at maturity are repaid full face value. The difference between the discount price and par value is interest income. 

Treasury notes/bonds are sold at/above/below par depending on market rates and receive coupons throughout its life

tax advantaged savings accounts for individuals with disabilities.

Income earned within the account is not taxed.

Limited to those where disability occurred before age 26

Uniform Transfers to Minors Act, an extension of the Uniform Gifts to Minors Act beyond cash and securities to include real estate, paintings, royalties, and patents. 

It allows minors to receive gifts tax free until they become legal age (18 or 21 depending on state) without the need for a formal trust

Application for representative registration requires name, address, aliases, 5-year residency, 10 year employment

you must have at least 50% of the amount you want to borrow of a stock on margin already deposited in your account. 

For example if you want to buy $10,000 of ABC on margin, you would need to have $5,000 already in your account

U.S. government securities, municipal securities, Nonconvertible corporate bonds, options, money market instruments. 

They're exempt because they're low risk and highly liquid

Bonds that are backed by state and local taxes used to raise money for projects that dont directly generate revenue

a bank issued certificate representing ownership in foreign stock which can be converted. 

May involve double taxation, limited selection of companies, may not be SEC compliant, may incur currency conversion fees

It allows issuer to sell portions of a RSO (registered shelf offering) without having to register the security, last two years for non WKSIs and three years for WKSIs ( well known seasoned issuers)

supplemental prospectus is required to be filed before each sale

a prospectus provides broad general details about the security

a supplemental prospectus provides transaction specific details for each sale

Advises municipalities on selling the municipality's securities

When a company's board of directors (BOD) approves a dividend payment

On the close of the business day

A employer-sponsored retirement plan, or pension.

where employer is responsible for managing investments

benefits are guaranteed and distributed in fixed monthly payments or lump sum similar to annuity

Based on factors like age, years of service, average salary

retirement plans like 401k and 403b funded pre tax by employees and employers that dont promise a specific amount of benefits

within 30 days

multiple maturity dates and principal payments spread out over time.

A bond issue might have $1 million in total, with $100,000 maturing each year for 10 years. Each portion of the bond is redeemed as it matures.

single maturity date where the full principal is paid at once.

A $1 million bond that matures in 10 years with a lump sum payment of principal at maturity.

type of term bond with a large principal payment due at the end of the bond's term, with smaller payments made in between.

A $1 million bond where annual payments are made on interest, but the principal repayment is a large sum due at the end of the bond’s term (e.g., after 10 years).

part of a larger bond issue with different maturities but similar characteristics.

A $10 million bond issue where $2 million is issued with 5-year maturities, another $3 million with 10-year maturities, and the remaining $5 million with 15-year maturities.

When signing the margin agreement, a customer hypothecates (pledges) the securities to the broker-dealer who then rehypothecates (pledges) them to the bank as collateral for the margin loan.

its taxed annually and pays interest at maturity

ABC Securities is a FINRA member broker-dealer that maintains an inventory in BigTech Computing stock. When transacting business in BigTech stock, ABC is a market maker

Publicly traded closed-end funds are not obligated to deliver a prospectus in the secondary market place

The rule requires at least two principals, unless the firm only has one individual working for the firm.

FOCUS reports, U4 forms, and order tickets

an unsecured loan or bond (usually debentures) that has a junior claim to all other debt issues but, like all debt, is senior to the claims of all equity holders, both preferred and common.

equity shares owned by major shareholders of a publicly traded company. No holding period, but volume limits always apply

investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons

A wrap account charges a fee that includes all costs, including management and advice. An account that charged a set fee for trading costs is a fee-based account.