customer accounts and trading.

Discretionary Account

Broker or financial advisor can make trading decisions on behalf of a client without approval.

Churning

When a broker excessively buys and sells securities in a client’s account just to generate commissions.

Front Runnings

Broker or trader executes orders for their own account before executing large client orders. Uses knowledge of pending orders to profit unfairly.

Insider Trading

Trading based on material, nonpublic information (MNPI) about a company.

Selling Away

Broker sells securities not approved or offered by their firm where there’s no firm oversight or protection for the client.

Breakpoint Sales

Failing to inform investors about discounted sales charges on mutual funds if they invest more.

Painting the Tape

Creating a misleading impression of market activity or demand by buying/selling the same securities.

Matched Order

Two or more parties buy and sell the same security back and forth at agreed prices to manipulate the market.

Marking the Close

Manipulating the price of a security right before the market closes to influence the closing price.

Unauthorized Trading

Buying or selling securities in a client’s account without their prior consent or approval.

Can you use a margin account for a mutual fund?

No.

Can you use a margin account for an IPO?

No.

Margin Account

An account where an investor borrows money from the broker to buy securities.

Regulation T

You must deposit at least 50% of the purchase price of securities within 2 business days (T+2).

Long Margin

Borrow money to buy stock.

Short Margin

Borrow stock to sell it, hoping to buy back cheaper.

Tenants in Common

When a named tenant dies, their portion of the account is transferred to their estate and handled by domestic laws.

Single Account

One person’s name under the account—may not open accounts in other people’s names without written permission (power of attorney).

Tenants with Right of Survivorship

When a named tenant dies, their portion of the account passes on to the surviving joint tenant(s).

What other terms are synonymous with Margain Call?

Fed Call, Reg T call, Initial call.

Margin Call

Broker will demand you deposit cash or securities to meet the initial requirement (50%).

Maintenance Call

The account’s equity falls below 25% of the current market value of your securities — that 25% is the maintenance margin requirement set by FINRA.

What does UTMA stand for?

Uniform Transfers to Minors Act.

UTMA Account

Similar to UGMA but assets can include financial assets + real estate, art, patents, and other property.

What does UGMA stand for?

United Gits to Minors Accounts.

UGMA Account

A custodial account where an adult (custodian) manages assets gifted to a minor like stocks, bonds, and cash.

Cash Account

Basic account where investor pays full amount for trading.

Institutional Account

Account for large entities like banks, insurance companies, mutual funds, hedge funds, pension funds.

Numbered (street-name) Account

A person’s account that is held in the name of the broker–dealer for the benefit of the customer.

Partnership Account

Two or more individual owners of a business that’s not set up as a corporation may set up a partnership account.

Short Margin Account

An account for investors who sell securities short (selling borrowed securities hoping price drops).

Trust Account

An account set up by someone (the grantor) who gives assets to be managed by a trustee for the benefit of another person (the beneficiary). The trustee controls the investments.

Market Order

Immediate execution at the next best available price.

Solicited

Broker’s idea

Unsolicited

Client’s idea

Market Manipulation

Broad term for illegal practices that distort price or trading volume to deceive investors.

Custodial Account

Account opened for a minor; custodian manages assets until minor reaches legal age.

Day Order

Order is good only for that trading day; if not filled, it’s automatically canceled after 4PM.

Cash Dividends

Cash paid to shareholders.

Stock Dividends

Additional shares given instead of cash.

GTC (Good ‘Til Canceled)

Order is kept open until executed or cancelled.

T+2 Settlement

Most stocks and corporate bonds settle two business days after the trade date.

T+1 Settlement

Treasury securities and options settle one business day after the trade date.

Declared Dividend

When the company announces the dividend.

Ex-Dividend Date

First day stock trades without the dividend → must own stock before this date to get the dividend.

Record Date

Date company checks shareholder list to see who gets the dividend.

Payable Date

When the dividend is actually paid to eligible shareholders.

Forward Split

Company increases number of shares, reduces share price → total value stays the same.

Example: 2-for-1 split → 1 share at $100 becomes 2 shares at $50.

Reverse Split

Company decreases number of shares, increases share price → total value stays the same.

Example: 1-for-2 split → 2 shares at $50 become 1 share at $100.

Buybacks

Company repurchases its own shares, often to boost stock price or earnings per share.

Tender Offer

Company offers to buy shares from shareholders at a premium (above market price).

Rights

Short-term (usually 30-45 days) → allow existing shareholders to buy more stock at a discount before it’s offered to the public.

Warrants

Long-term → allow holder to buy stock at a set price in the future → usually issued as a sweetener with bonds.

Bid Price

The highest price a buyer is willing to pay for a stock.

Ask Price

The lowest price a seller is willing to accept.

Suspicious Activity Reports (SARs)

Filed by broker-dealers to report suspicious transactions that may involve:

• Money laundering

• Terrorist financing

• Insider trading

• Other criminal activity

When must SARs be filled?

Within 30 calendar days of detecting suspicious activity.

Know Your Customer (KYC)

Broker-dealers must collect essential information:

• Customer identity

• Financial status

• Investment experience

• Risk tolerance

• Tax status

Suitability

Firms must make recommendations that are suitable based on:

• Customer's financial needs

• Investment objectives

• Risk tolerance

• Time horizon

Are common stocks callable?

No.

Are preferred stocks callable?

Yes.

For what investment is the record date and ex-dividend date the same day?

Mutual funds.

For what investment is the ex-dividend day before the record date?

Stocks.

What’s exempt from the Securities Act of 1933?

Municipal Bonds

Primary Offering

First time shares are sold.

How are the benefit amount and contributions of a defined benefit plan set up?

The benefit amount is fixed, and contributions vary.

Established Customer Rule

1. They must have made 3 purchases or,

2. Their account is open 1 year with a broker-dealer

What are LGIPs?

Local Government Investment Pools used for short-term investments like municipalities.

Cooling Off Period

20 days

Are Penny Stocks NASDAQ listed?

No.

Penny Stock

Trading below $5 per share, risky, illiquid, and regulated by retail clients.

TIPS (Treasury Inflation Priced Securities)

Treasury bonds designed to protect against inflation— principal amount adjusts based on CPI.

STRIPS (Separate Trading of Registered Interest and Principal Securities)

The interest payments and principal become separate securities where the investor can buy one or the other.

SIPC (Securities Investor Protection Corporation)

Protects brokerage accounts if the firm fails. $500,000 total coverage ($250,000 cash limit)

FDIC (Federal Deposit Insurance Corporation)

Protects bank deposits if the bank fails. $250,000 per bank—per depositor.

Prospectus

Legal disclosure document provided to investors before or at the time of sale for new issues.

Is Prospectus required for mutual funds?

Yes, required at sale.

Is Prospectus required for secondary market trades?

No.

Statutory Prospectus

Complete, detailed disclosure document. Required for IPOs, mutual funds, and new securities under 1933.

Summary Prospectus

Shortened version highlighting key facts.

Preliminary Prospectus (Red Herring)

Draft version used during cooling period/before the securities are approved for sale.

Final Prospectus

Official, SEC clean prospectus with pricing and full details.

Discretionary Account

Registered representative has written authority to decide

• What security to buy/sell

• Action: buy/sell

• Amount of shares

Non-discretionary Account

Registered representative CANNOT trade without the client’s specific approval for

1. Asset

2. Action

3. Amount

What can a registered representative do in a non-discretionary account?

Make decisions on the time of execution and what price the trade is executed.

Form U5

Termination from a registered representative.

Tombstone Announcement

Advertisement during offering period that includes:

• Issuer name

• Security type

• Underwriters

What does the FDIC not cover?

Mutual funds, annuities, life insurance, or investments in a brokerage account.

Regulation S-P

Requires firms to have policies safeguarding customer privacy.

Who is responsible for Registration Statement Accuracy?

The issuer.

TOD (Transfer of Death) Registration

Account assets pass directly to beneficiaries upon death, avoiding probate.

Cooling Off Period

SEC reviews registration

What rights and privileges do common stockholders have?

A residual claim to assets at dissolution.

Do common stockholders get a vote on dividends to be paid?

No.

Which of the following is TRUE regarding qualified retirement plans?

Contributions are made with 100% pretax dollars.

What are the qualities of an Accredited Investor?

1. Net worth of at $1 million (excluding any equity they may have in their primary residence)

2. Annual income of at least $200K (or $300K from joint accounts) for the last 2 years and expected to stay the same for the current year.

What are rating services concerned with?

Quality.

Are municipal securities exempt from SEC registration?

Yes.

Code of Arbitration

FINRA rule regarding in-member against member disputes including a member firm and one of its registered representatives.