Title Details

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? 1

Equity = Stock 2

Common Stock 2

Corporate Timeline 2

Values of Common Stock 4

Rights of Common Stockholders 5

Why Do People Buy Common Stock? 11

What Are the Risks of Owning Common Stock? 12

How Does Someone Become a Stockholder? 12

Preferred Stock 14

Dividend Distribution 18

Warrants 20

American Depositary Receipts (ADRs)/American Depositary Shares (ADSs) 22

Real Estate Investment Trusts (REITs) 22

Exchange-Traded Funds (ETFs) 23

Pretest 25

CHAPTER 2 DEBT SECURITIES 31

Corporate Bonds 31

Types of Bond Issuance 32

Bond Certificate 33

Bond Pricing 33

Bond Yields 35

Bond Maturities 38

Types of Corporate Bonds 39

Zero Coupon Bonds 41

Guaranteed Bonds 41

Convertible Bonds 41

The Trust Indenture Act of 1939 44

Bond Indenture 44

Ratings Considerations 44

Retiring Corporate Bonds 45

Collateralized Mortgage Obligation (CMO) 47

Exchange Traded Notes (ETNs) 49

Other Asset Backed Securities 50

Pretest 51

CHAPTER 3 GOVERNMENT SECURITIES 55

Series EE Bonds 55

Series HH Bonds 56

Treasury Bills, Notes, and Bonds 56

Treasury Notes 57

Treasury Bonds 57

Treasury Bond and Note Pricing 57

Treasury Strips 58

Treasury Receipts 58

Treasury Inflation Protected Securities (TIPS) 58

Agency Issues 59

Pretest 61

CHAPTER 4 THE MONEY MARKET 63

Money Market Instruments 63

Corporate Money Market Instruments 63

Government Money Market Instruments 65

Municipal Money Market Instruments 66

International Money Market Instruments 66

Interest Rates 66

Pretest 69

CHAPTER 5 ECONOMIC FUNDAMENTALS 71

Gross Domestic Product 71

Economic Indicators 73

Economic Policy 75

Tools of the Federal Reserve Board 75

Fiscal Policy 78

International Monetary Considerations 80

Pretest 81

CHAPTER 6 ISSUING CORPORATE SECURITIES 85

The Securities Act of 1933 85

The Prospectus 86

The Final Prospectus 86

SEC Disclaimer 87

Misrepresentations 87

Tombstone Ads 88

Freeriding and Withholding/FINRA Rule 5130 88

Underwriting Corporate Securities 89

Exempt Securities 93

Exempt Transactions 94

Rule 415 Shelf Registration 98

Securities Offering Reform Rules 98

SEC Rule 405 99

Pretest 101

CHAPTER 7 TRADING SECURITIES 105

Types of Orders 105

The Exchanges 108

Priority of Exchange Orders 109

The Role of the Specialist/DMM 109

Crossing Stock 112

Do Not Reduce (DNR) 112

Adjustments for Stock Splits 113

Stopping Stock 114

Commission House Broker 114

Two Dollar Broker 114

Registered Traders 115

Super Display Book/SDBK 115

Short Sales 115

Threshold Securities 118

Block Trades 120

Trading Along 120

Circuit Breakers 121

Listing Requirements for the NYSE 122

Reading the Consolidated Tape 123

Exchange Qualifiers 124

The Nasdaq Market 125

The Alternative Display Facility (ADF) 131

Trade Reporting and Comparison Service (TRACS) 131

Electronic Communication Networks (ECNs) 132

Unlisted Trading Privileges 132

Market Centers 132

SEC Regulation NMS 134

SEC Regulation ATS 134

Nasdaq International 135

NonNasdaq OTC BB 135

Pink Sheets 136

Third Market 136

Fourth Market 137

Market Maker Regulations and Responsibilities 137

Times for Entering a Quote 138

The Opening Cross 138

Order Imbalances 138

The Nasdaq Offi cial Opening Price (NOOP) 139

The Closing Cross 139

The Nasdaq Halt Cross 140

Withdrawing Quotes 140

Handling and Displaying Customer Limit Orders 141

The Manning Rule 144

The Order Audit Trail System (OATS) 144

Automated Confi rmation System/ACT Market Center Trade Reporting Facility 145

ACT/TRF Trade Scan 146

Avoiding Double Reporting 148

Market Making During Syndication 152

Trade Reporting and Compliance Engine (TRACE) 156

Broker vs. Dealer 158

FINRA 5% Markup Policy 158

Markups/Markdowns When Acting as a Principal 159

Riskless Principal Transactions 160

Net Transactions with Customers/FINRA Rule 2124 160

Proceeds Transactions 161

Firm Quote Rule 161

Trade Complaints Between Members 162

Arbitrage 162

Pretest 165

CHAPTER 8 CUSTOMER ACCOUNTS 169

Opening a Customer Account 169

Holding Securities 171

Mailing Instructions 172

Types of Accounts 172

Death of a Customer 174

Partnership Accounts 174

Corporate Accounts 174

Trading Authorization 175

Accounts for Employees of Other Broker Dealers 180

Numbered Accounts 180

Day Trading Accounts 180

Account Transfer 181

Option Accounts 182

Margin Accounts 182

Commingling Customer’s Pledged Securities 183

Wrap Accounts 183

Regulation S-P 184

Pretest 185

CHAPTER 9 MARGIN ACCOUNTS 191

Regulation of Credit 191

Establishing a Long Position in a Margin Account 194

Establishing a Short Position in a Margin Account 200

Combined Margin Accounts 205

Margin Requirements for Day Trading 206

Portfolio Margin Accounts 206

Pretest 209

CHAPTER 10 RETIREMENT PLANS 213

Individual Plans 213

Individual Retirement Accounts (IRAS) 214

Keogh Plans (HR-10) 219

Tax Sheltered Annuities (TSAS)/Tax Deferred Accounts (TDAS) 220

Employee Retirement Income Security Act of 1974 (ERISA) 224

Pretest 227

CHAPTER 11 BROKERAGE OFFICE PROCEDURE 231

Executing an Order 231

Clearly Erroneous Reports 233

Execution Errors 233

Corporate and Municipal Securities Settlement Options 234

When Issued Securities 235

Government Securities Settlement Options 235

Accrued Interest 236

Rules for Good Delivery 238

Delivery of Round Lots 239

Delivery of Bond Certificates 240

Rejection of Delivery 240

Don’t Know Procedures (DK) 240

Fail to Deliver/Fail to Receive 241

Due Bills 241

Customer Account Statements 241

Carrying of Customer Accounts 242

Proxies 242

Pretest 245

CHAPTER 12 FUNDAMENTAL AND TECHNICAL ANALYSIS 249

Fundamental Analysis 249

Changes in the Balance Sheet 252

Technical Analysis 258

Efficient Market Theory 262

Capitalization weighted index 263

Price weighted index 263

Pretest 265

CHAPTER 13 CUSTOMER RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 267

Professional Conduct in the Securities Industry 268

Fair Dealings with Customers 268

Recommendations to an Institutional Customer 272

Recommending Exchange Traded Funds (ETFs) 272

Information Obtained from an Issuer 273

Disclosure of Client Information 273

Borrowing and Lending Money 273

Gift Rule 274

Outside Employment 274

Private Securities Transactions 274

Customer Complaints 275

Investor Information 275

Know Your Customer 275

Investment Objectives 276

Risk vs. Reward 278

Tax Structure 281

Investment Taxation 281

Calculating Gains and Losses 281

Taxation of Interest income 284

Inherited Securities 284

Donating Securities to Charity 285

Estate Taxes 285

Withholding Tax 285

Corporate Dividend Exclusion 286

Alternative Minimum Tax (AMT) 286

Taxes on Foreign Securities 286

Pretest 287

CHAPTER 14 SECURITIES INDUSTRY RULES AND REGULATIONS 293

The Securities Exchange Act of 1934 293

The National Association of Securities Dealers (NASD) 295

Registration of Agents/Associated Persons 297

Securities Investor Protection Corporation Act of 1970 (SIPC) 311

The Securities Acts Amendments of 1975 312

The Insider Trading and Securities Fraud Enforcement Act of 1988 312

The Telephone Consumer Protection Act of 1991 313

The Penny Stock Cold Call Rule 314

The Role of the Principal 315

Currency Transactions 318

The Patriot Act 318

The Uniform Securities Act (USA) 319

Sarbanes-Oxley Act 320

SEC Regulation S-K 321

SEC Regulation M-A 322

FINRA Rule 5150 Fairness Opinion 324

SEC Regulation S-X 324

Regulation FD Fair Disclosure 325

Pretest 327

ANSWER KEYS 333

GLOSSARY OF EXAM TERMS 345

INDEX 411