Securities Exam Key Terms and Concepts

Vocabulary flashcards generated from securities exam lecture review notes covering options, interest rates, account types, regulatory bodies, and formulas.

Buyer of an Option

An investor who has a RIGHT and can exercise the option contract.

Writer of an Option

An investor who has an OBLIGATION and can be assigned on the option contract.

Call Option

An option contract where the buyer anticipates the underlying stock price goes UP (bullish).

Put Option

An option contract where the buyer anticipates the underlying stock price goes DOWN (bearish).

Protective Put

An investment strategy consisting of owning stock and buying a put for downside protection.

Covered Call

An investment strategy consisting of owning stock and selling a call to generate income.

Call Breakeven

Calculated as Strike + Premium.

Put Breakeven

Calculated as Strike − Premium.

Interest Rate and Bond Price Relationship

An inverse relationship where if interest rates increase, bond prices decrease; if interest rates decrease, bond prices increase.

Callable Bond Reinvestment Risk

When interest rates fall, the issuer is likely to call the bond, forcing the investor to face reinvestment risk.

GO Municipal Bond

A General Obligation municipal bond backed by full taxing power.

Revenue Municipal Bond

A municipal bond backed by specific project or facility revenue.

Municipal Bond Interest Taxation

Generally federally tax-free; generally federal, state, and local tax-exempt if purchased by a resident of the issuing state.

Treasury Interest Taxation

Federal taxable, but state and local tax-exempt.

Corporate Bond Interest Taxation

Generally federal, state, and local taxable.

Short-Term Holding Period

A holding period of exactly $1\text{ year}$.

Long-Term Holding Period

A holding period of more than $1\text{ year}$.

Basis Point

Equal to $0.01\%$ ($100\text{ bp} = 1\%$).

Portfolio Income

Income generated from interest, dividends, and capital gains.

Passive Income

Income generated from rentals or limited partnerships.

Class A Shares

Mutual fund shares featuring a front-end sales load.

Class B Shares

Mutual fund shares featuring a back-end sales load or Contingent Deferred Sales Charge (CDSC).

Class C Shares

Mutual fund shares featuring a level load with higher ongoing fees, and often a short CDSC.

Mutual Fund NAV

Net Asset Value calculated as $(\text{Assets} - \text{Liabilities}) \div \text{Shares}$.

Corporate Charter / Articles

Required corporate account documentation used to prove that a corporation exists.

Corporate Resolution

Corporate account documentation specifying who is authorized to trade.

Retirement Indirect Rollover Window

An indirect rollover must be completed within $60\text{ days}$.

DTC

Depository Trust Company; oversees electronic and book-entry securities.

FINRA

Financial Industry Regulatory Authority; regulates broker-dealers and registered reps.

FinCEN

Financial Crimes Enforcement Network; enforces Anti-Money Laundering (AML) and the Bank Secrecy Act.

OFAC

Office of Foreign Assets Control; enforces sanctions and lists of blocked persons.

SEC

Securities and Exchange Commission; federal securities regulator.

Official Statement

The disclosure document for municipal new issues.

Prospectus

The disclosure document for corporate new issues.

Insider-Trading Civil Penalty

A civil penalty of up to $3\times$ the profit gained or loss avoided.

Written Customer Complaints Retention

Must be kept on record for $4\text{ years}$.

Convertible Bond Conversion Ratio Formula

Calculated as $\$1,000 \div \text{conversion price}$.

Stock Parity Price Formula

Calculated as $\text{Bond market value} \div \text{conversion ratio}$.