Series 7 Review Flashcards

169 vocabulary flashcards based directly on the Series 7 review lecture transcript.

Coverdell ESA

$2,000 per child annually; beneficiary can be changed to a family member of the current beneficiary

Inherited IRA (non-spouse) distribution options

take all proceeds immediately and pay ordinary income tax, or liquidate over the next 10 years

Excess IRA contribution penalty

subject to a 6% penalty tax

IRA trustee-to-trustee transfers

no limit per year

IRA rollovers

limited to 1 per year

IRA

anyone can contribute annually, but above certain income levels the contribution isn't tax deductible

ABLE Account

must be established before the disabled individual turns 46

ABLE Account

funded with after-tax dollars; beneficiary is the owner

403(b)

tax-deferred plan for public school/university employees, non-profit employees, and self-employed ministers

Deferred compensation plan

non-qualified plan for high earners to defer compensation via contract with employer

SEP IRA

employer sets the actual contribution percentage, same for all employees; only employer contributions are accepted; employer can change contribution percentage each year (good for variable cash flow); contribution can't exceed 25% of the employee's compensation

SIMPLE IRA

can be offered by employers with 100 employees or less; accepts employer and employee contributions; employee contributions are deducted from paycheck; employer must either contribute 2% or match employee contributions up to 3% (good for stable cash flows since employer has to match)

Annuity unit

accounting measure used to determine payment amount

Annuity payout rate factors

life expectancy, gender, settlement option

Life Income option (annuity)

shortest contract length, largest monthly checks

Annuity income taxation

taxed as ordinary income using LIFO

Variable Life Insurance

fixed premium; cash value depends on mutual fund performance

Permanent

whole life and variable life are both ___________ insurance

Variable annuity

a non-fixed investment trust

GMIB rider

guarantees separate account annuitization at a minimal growth rate regardless of actual performance

Term Bond

same issue date, rate, and maturity for all bonds; quoted as % of par

Serial Bond

matures at set intervals; quoted in basis points

Corporate bond quotation

quoted as % of par value

Dated date

date interest begins accruing on new issues

Debenture

corporate debt backed only by full faith/credit of issuer

Sinking fund

money set aside to pay bond principal

Muni premium tax treatment

MUST amortize

OID tax treatment (including zero-coupon bonds)

MUST accrete

Taxable bond premium tax treatment

MAY amortize

Market discount tax treatment

MAY accrete

Wash sale bond similarity factors

maturity, coupon rate, issuer

Accrued interest day count — corporate/munis

30/360

Accrued interest day count — U.S. Treasuries

actual/365

CMO Targeted Amortization Class

has extension risk; controls prepayment risk

CMO Planned Amortization Class

manages both prepayment and extension risk

Mortgage-backed pass-through certificates

carry prepayment risk; all payments are monthly

Placement/Acceptance Ratio

measures new issue market strength; declining ratio = rising underwriter inventories

VRDO

floating rate security with a nominal maturity and put option back to issuer at face value + accrued interest

Defeasal

when enough funds from new refunding bonds are put into escrow to pay off old debt, the old (refunded) bonds are said to be this

New issues of agency securities

sold through a selling group appointed by the agency

Special tax bond

secured by taxes other than ad valorem taxes

Certificate of Participation

G.O. bond alternative backed by lease revenue pledges

Construction loan notes

2–3 year maturity, used to reduce interest cost on new facility construction (often multifamily housing)

Muni accrued interest calculation

from dated date to settlement date using 30/360

"BW" (Bids Wanted) quote

means the dealer intends to sell the bonds

MSRB regulatory scope

regulates muni brokers, dealers, and banks — but NOT municipal issuers

LGIP

vehicle for local governments to invest excess funds

Build America Bonds (BABs)

taxable munis with a 35% federal interest subsidy for capital improvement projects

Muni underwriter final official statement deadline

must provide within 24 hours of customer request

RTRS

where muni bond trades are reported

EMMA

central hub for all muni info (statements, notices, real-time trade reporting)

Workable quote

used to get an indication of a likely price at which a dealer will buy specified bonds

Mutual fund redemption for street-name shares

must redeem within 7 calendar days from the request receipt date

coupon rate; YTM; trade date

Muni bond purchase price calculation (yield basis) requires

Underwriting timeline

Pre-Filing → Cooling-Off (20 days) → Post-Effective

Preliminary prospectus (red herring)

excludes final offering price

Free writing prospectus

can be used during the cooling-off period to advertise

Public offering price

set and included in the final prospectus during the post-effective period

Quiet period for research analysts

10 days at an underwriter involved in the IPO

Managing/lead underwriter compensation

gets the management fee — typically the smallest portion of the spread

Syndicate

group of underwriters (earns underwriting fee)

Selling Group

broker-dealers helping sell without bearing risk (earns concession if shares sell)

Western method (underwriting)

liability divided by initial allotment size

Eastern method (underwriting)

unsold shares shared pro rata

Issuer proceeds in an IPO

receives par value minus the spread

Aftermarket prospectus delivery

25 days for most IPOs, 40 days if issuer was already reporting

Primary offerings of agency securities are made at

par

Margin agreement requirement

signed margin agreement required at account opening or before first trade settles

Hypothecation Agreement

pledges securities as collateral

Credit Agreement

sets loan terms

Loan Consent Agreement

NOT required

Margin deposit requirements

under $2,000 long = full amount; $2,000–$4,000 = $2,000 deposit; $4,000+ = 50%; any short sale = greater of $2,000 or 50%

Minimum maintenance margin

25% long, 30% short (day trading accounts also 25%)

Reg T

sets initial margin and deposit rules but NOT the $2,000 minimum maintenance requirement; controls credit from broker to customer

SMA

excess equity

Stock options margin restriction

can't be purchased on margin

Options LEAP

long-term option, up to 39 months to expiry; loan value with 9+ months remaining is 25%

Listed option standardization

strike price, contract size, and expiration are standardized

Strangle

both contracts are out of the money

Options account pre-opening steps

new account form, options disclosure document, approval of first transaction (signed options agreement can follow within 15 days)

Options trading halt rule

when an exchange halts trading in a stock, the options exchange halts trading in that option too

Rule 147

intrastate offerings can't be resold out of state for 6 months

Rule 144A

private placement blocks in min. $500,000 units between qualified institutional buyers

Reg S-P

privacy notice only required if firm wants to disclose customer info

Reg SHO

security must be locatable/deliverable before short sale; hard-to-borrow threshold list securities must be bought in within 13 settlement days

Reg NMS

orders must get the best available price

Reg ATS

SEC rules governing alternative trading systems

Reg A

$75 million offering limit for public offerings needing liquidity

Reg U

controls credit from bank to broker

Anti-reciprocal rule

bars favoring a less-suitable fund due to business ties

5% Markup Policy

general guideline capping commissions/markups/markdowns

Securities Exchange Act of 1934

regulates trading of existing securities

Churning

excessive trading in both frequency and dollar value

Selling Away

rep executes customer trades through another firm without informing employer

Form U5

must be filed with FINRA within 30 days of a rep's termination

Disciplinary events reportable to FINRA

suspension, termination, fines/withheld comp over $2,500

13D notice

required when investors accumulate 5%+ position within 5 days

Code of Procedure actions

censure, suspension, expulsion, fines, license revocation; appeals go to National Adjudicatory Council

MSRB rule enforcement for bank dealers not FINRA-registered

performed by the OCC, Fed, and FDIC

Muni trading regulation enforcement for FINRA member firms

performed by FINRA