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What is the mission of the SEC? Protect investors and maintain fair, orderly markets.

Which Act created the SEC? Securities Exchange Act of 1934.

Does the SEC bring criminal charges? No; the DOJ handles criminal cases.

Who regulates broker-dealers? FINRA.

FINRA receives authority from? The SEC.

Who writes rules for municipal securities? MSRB.

Who enforces MSRB rules for broker-dealers? FINRA.

What does SIPC protect? Customer securities and cash if a broker-dealer fails.

What is the SIPC coverage limit? $500,000 total, $250,000 cash.

Does SIPC protect from market losses? No.

FDIC insures what? Bank deposits up to $250,000.

What is the primary market? Where new securities are issued.

What is the secondary market? Where existing securities trade.

What is the OTC market? Off-exchange trading of securities.

What is the third market? OTC trading of exchange-listed securities.

What is the fourth market? Direct institution-to-institution trading.

What is an ECN? An automated system that matches buy and sell orders.

Who are institutional investors? Entities like funds, banks, insurance companies.

Accredited investor income requirement? $200k individual / $300k joint.

Accredited investor net worth requirement? $1M excluding primary residence.

What is an underwriter? Firm that helps issuers raise capital.

What is a syndicate? A group of underwriters sharing risk.

What is a transfer agent? Manages stockholder records and transfers.

What is a custodian? Entity that safely holds customer assets.

A broker acts as? Agent.

A dealer acts as? Principal.

Leading economic indicator example? Building permits.

Lagging indicator example? CPI.

Coincident indicator example? GDP.

Stages of the business cycle? Expansion, peak, contraction, trough.

Inflation harms which investors? Bondholders.

Fed buying securities causes rates to? Fall.

Fed selling securities causes rates to? Rise.

Strong dollar benefits? Importers.

Weak dollar benefits? Exporters.

Keynesian theory focuses on? Fiscal policy.

Monetarist theory focuses on? Money supply.

Common stock represents? Ownership in a corporation.

Preferred stock offers? Fixed dividends and senior claim over common.

Rights give shareholders what? Ability to buy new shares at a discount.

Warrants allow? Purchasing stock at a set price long-term.

ADRs represent? Foreign securities in U.S. markets.

ADRs carry which risk? Currency risk.

Par value of a bond? $1,000.

Bond coupon rate? Annual interest divided by par.

Current yield formula? Annual interest ÷ market price.

Yield to maturity includes? Gains or losses to par.

Relationship between bond prices and rates? Inverse.

Longer maturity bonds have more? Interest rate risk.

T-bills maturity? 1 year or less.

T-notes maturity? 2–10 years.

T-bonds maturity? 20–30 years.

Agency securities examples? FNMA, FHLMC, GNMA.

GO bonds backed by? Taxing power.

Revenue bonds backed by? Project revenue.

Money market instruments include? CP, T-bills, repos, BAs.

Money market key feature? High liquidity.

Call option gives the right to? Buy.

Put option gives the right to? Sell.

Call is in-the-money when? Market > strike.

Put is in-the-money when? Market < strike.

Option premium = ? Intrinsic + time value.

Covered call advantage? Income from premium.

Naked call risk? Unlimited loss.

Tax on exercised call option? Premium added to cost basis.

Tax on exercised put option? Premium added to proceeds.

Expired option taxed as? Capital loss.

NAV priced when? Once daily after market close.

Index funds use? Passive management.

ETFs trade? Intraday on exchanges.

ETNs carry what risk? Issuer credit risk.

UIT characteristic? Fixed portfolio, no active management.

Variable annuity regulated by? SEC + state insurance + FINRA.

Who bears risk in variable annuity? The investor.

Who bears risk in fixed annuity? The insurance company.

Minimum REIT distribution? 90% of taxable income.

Equity REIT invests in? Properties.

Mortgage REIT invests in? Mortgages.

Hedge fund characteristic? Illiquid with high minimums.

529 savings plan uses? Market-based investments.

529 prepaid plan? Locks in future tuition prices.

ABLE accounts used for? Disability-related expenses.

Systematic risk affects? Entire market.

Business risk is? Unsystematic.

How to reduce unsystematic risk? Diversification.

Reinvestment risk occurs when? Interest rates fall.

Prepayment risk applies to? Mortgage-backed securities.

Extension risk occurs when? Rates rise, prepayments slow.

Liquidity risk? Cannot sell quickly.

Credit risk? Issuer may default.

Political risk? Foreign investments.

Inflation risk? Loss of purchasing power.

Hedge long stock with? Long put.

Hedge short stock with? Long call.

Protective put protects? Long stock position.

Asset allocation means? Distribution of investments across classes.

Rebalancing does what? Restores target allocation.

Diversification reduces? Unsystematic risk.

Market order executes at? Best available price.

Limit order executes at? Specified price or better.

Stop order becomes? Market order when triggered.

Stop-limit becomes? Limit order when triggered.

Bid price is? Price a dealer buys at.

Ask price is? Price a dealer sells at.

Spread = ? Ask – bid.

Long position benefits from? Rising prices.

Short position benefits from? Falling prices.

T+2 settlement applies to? Stocks, corporate bonds, munis.

T+1 settlement applies to? Options & Treasuries.

Cash settlement occurs? Same day.

Corporate actions include? Splits, mergers, dividends.

Ex-dividend date? One business day before record date.

Cash account requires? Full payment.

Margin account requires? Reg T 50% initial deposit.

Discretionary account requires? Written customer approval.

Numbered account still requires? Identity on file.

AML governed by? Bank Secrecy Act.

CTR filed for? Cash ≥ $10,000.

SAR filed for? Suspicious activity ≥ $5,000.

SAR filing deadline? 30 days.

OFAC monitors? Specially designated nationals list.

Structuring defined as? Breaking transactions to avoid reporting.

Layering defined as? Moving funds to obscure origin.

KYC rule? FINRA Rule 2090.

Suitability rule? FINRA Rule 2111.

Three components of suitability? Reasonable-basis, customer-specific, quantitative.

Reasonable-basis suitability? Product appropriate for at least some investors.

Customer-specific suitability? Product appropriate for the specific client.

Quantitative suitability? No excessive trading (churning).

Discretionary account requires? Written customer approval.

Time-and-price discretion allowed? Yes, if same day; no written authorization required.

Fiduciary account obligation? Act in beneficiary's best interest.

UGMA/UTMA ownership? The minor is the owner.

UGMA/UTMA controlled by? The custodian.

Custodian can use funds for? Benefit of the minor.

Margin account requires? Margin agreement + credit agreement.

Reg T governs? Initial margin requirements (50%).

Maintenance margin long? 25%.

Maintenance margin short? 30%.

Options can be purchased in? Cash & margin accounts.

Uncovered options require? Margin account approval.

Fee-based accounts charge? Annual fee instead of commissions.

Fee-based accounts best for? Active traders.

Wrap account includes? Advisory + brokerage services in one fee.

Wrap accounts require? Investment Adviser registration.

Numbered accounts require? Customer ID on file.

Churning defined as? Excessive trading for commissions.

Credit agreement discloses? Loan terms on margin accounts.

Hypothecation agreement? Pledges securities as collateral.

Rehypothecation? Broker repledges customer securities.

Arbitration mandatory between? Firms and employees.

Arbitration for customers? Only if customer signs agreement.

Mediation is? Voluntary conflict resolution.

Frozen account rule? Customer must prepay fully for 90 days.

Regulation S-P covers? Customer privacy protection.

Privacy notice required? At account opening and annually.

Opt-out allowed for? Sharing with unaffiliated third parties.

Types of POA? Full, limited, durable.

Durable POA continues after? Incapacitation.

POA ends when? On death.

Customer complaint retention? 4 years.

Account statements sent? Quarterly (monthly if activity).

ACATS used for? Transferring accounts.

ACATS validation deadline? 1 business day.

ACATS transfer deadline? 3 business days.

Mailing customer checks requires? Written instructions.

Insider trading governed by? 1934 Act & Insider Trading Sanctions Act.

Material nonpublic information? Nonpublic info affecting price.

Tippee liability? If tipper breached duty and tippee knew info was nonpublic.

Insider trading penalties? 3x profits + criminal charges.

Front-running? Trading ahead of customer orders.

Trading ahead of research report? Prohibited under FINRA Rule 5280.

Pump-and-dump? Artificial inflation then selling shares.

Marking the close? Manipulating price at market close.

Marking the open? Manipulating price at market open.

Wash sale? Fake trades to create volume.

Backing away? Market maker refuses to honor quote.

Painting the tape? Coordinated trades to mislead.

Excessive trading? Churning.

Selling dividends? Recommending buy just to receive dividend.

Free-riding? Buying without paying and selling before settlement.

Penalty for free-riding? 90-day frozen account.

Sharing in customer accounts allowed? Only with proportional sharing and approval.

Borrowing from customers allowed? Only if customer is a bank or family.

OBA rule? FINRA Rule 3270.

PST (selling away) rule? FINRA Rule 3280.

Political contribution rule? MSRB G-37.

Political contribution limit? $250 if eligible to vote.

Penalty for violation of G-37? 2-year ban on negotiated muni business.

OBA requires? Written notice to firm.

OBA examples? Side business, paid consulting.

PST requires? Firm preapproval.

Books & records rule? FINRA Rule 4511.

Retention of customer account records? 6 years.

Retention of trade confirmations? 3 years.

Retention of complaints? 4 years.

AML record retention? 5 years.

Breakpoint defined as? Discount on mutual fund sales charge.

Breakpoint sale violation? Not offering available discount.

Switching? Unnecessary mutual fund exchanges.

12b-1 fees used for? Marketing & distribution.

No-load fund max 12b-1 fee? 0.25%.

Firms guaranteeing returns? Prohibited.

Firms sharing losses? Prohibited.

Can BD lend money to reps? Yes if firm allows.

Senior exploitation rule? FINRA Rule 2165.

Senior exploitation hold period? 15 business days.

Unregistered persons taking orders? Prohibited.

Unregistered persons cold-calling? Allowed if no recommendations.

Telemarketing hours? 8am–9pm local time.

DNC list check frequency? Every 31 days.

Confirmations required? At or before settlement.

Best execution rule? FINRA Rule 5310.

IPO purchase restriction rule? FINRA Rule 5130.

Restricted persons include? Broker-dealer personnel and immediate family.

Market orders prioritize? Speed over price.

Limit orders prioritize? Price over speed.

Stop order purpose? Protect a position.

Sell stop triggers when? Market falls to stop price.

Buy stop triggers when? Market rises to stop price.

Stop-limit order? Becomes limit order when triggered.

Fill-or-kill order? Complete immediately or cancel.

Immediate-or-cancel? Fill what you can; cancel rest.

All-or-none? Entire order or none.

Not-held order? Allows time and price discretion intraday.

Good-til-canceled lasts? Until executed or canceled.

Market maker definition? Dealer providing continuous quotes.

Dark pools allow? Anonymous institutional trading.

Order routing must follow? Best execution.

OTC markets quote? Unlisted securities.

Reg SHO governs? Short selling.

Naked short selling allowed? No.

Locate requirement under? Reg SHO Rule 203(b)(1).

Threshold list identifies? Securities with fails-to-deliver.

Treasuries settle? T+1.

Corporate bonds settle? T+2.

Municipal bonds settle? T+2.

Options trades settle? T+1.

Options exercise settles? Stock T+2; premium same day.

Cash settlement? Same day.

Forward split effect? More shares, lower price.

Reverse split effect? Fewer shares, higher price.

Stock dividend effect on basis? Adjusted downward.

Tender offer? Buyback offer at premium price.

Mergers & acquisitions cause? Share exchange.

Do stock dividends provide cash? No; they provide additional shares.

Are stock dividends taxable immediately? No; taxed when shares are sold.

Adjusted cost basis formula after stock dividend? Total cost ÷ new share count.

Rights offering purpose? Protects shareholders from dilution.

Warrants issued as? Incentives (“sweeteners”) with bonds.

Rights duration? Short-term (30–45 days).

Warrants duration? Long-term (years).

Tendering shares means? Submitting shares to purchaser in a tender offer.

Tender offers regulated under? Williams Act (1934 Act revisions).

Who approves corporate actions? Board of Directors.

Proxy statement delivered when? Before shareholder vote.

Forward stock split? Increases shares, reduces price.

Reverse split? Reduces shares, increases price.

Par value of common stock? Arbitrary accounting value.

Treasury stock? Shares repurchased by the company.

EPS formula? (Net income – preferred dividends) ÷ shares outstanding.

Diluted EPS includes? Options, warrants, convertibles.

Market capitalization? Share price × shares outstanding.

Mutual fund NAV updated when? Daily after market close.

POP formula? NAV ÷ (1 – sales charge).

Front-end load? Sales charge at purchase.

Back-end load? Sales charge at redemption.

12b-1 fees? Marketing/distribution expenses.

Max 12b-1 for no-load fund? 0.25%.

ETFs trade? Intraday on exchange.

ETF tax benefit? In-kind redemptions reduce capital gains.

ETNs are? Unsecured debt notes.

UIT portfolio? Fixed, not actively managed.

Are UITs redeemable? Yes.

Are mutual funds redeemable? Yes.

Are closed-end funds redeemable? No; traded on exchange.

Expense ratio includes? Operating expenses.

Turnover ratio measures? Trading activity.

Variable annuity regulated by? SEC + state insurance + FINRA.

Variable annuity separate account invests in? Equity subaccounts.

Who bears VA investment risk? The customer.

Who bears risk in fixed annuity? Insurance company.

Is a fixed annuity a security? No.

Is a variable annuity a security? Yes.

Surrender charge occurs when? Early withdrawals.

1035 exchange? Tax-free annuity-to-annuity exchange.

Bonus annuity drawback? Higher fees and longer surrender periods.

VA suitability concerns? Liquidity, age, time horizon.

REIT distribution requirement? ≥90% of taxable income.

REIT avoids? Double taxation.

Mortgage REIT invests in? Mortgages & MBS.

Equity REIT invests in? Properties.

Hybrid REIT invests in? Both mortgages and properties.

GOs backed by? Full faith and credit (tax revenue).

GO issuers? States, counties, cities.

GO bonds may require? Voter approval.

Limited-tax GO? Capped taxing authority.

Unlimited-tax GO? No tax limit.

Revenue bonds backed by? User fees or project revenue.

Examples of revenue bonds? Airports, toll roads, bridges.

Feasibility study required for? Revenue bonds.

Typical municipal bond maturity? 20–30 years.

Municipalities commonly issue? Serial bonds.

TAN stands for? Tax anticipation note.

RAN stands for? Revenue anticipation note.

BAN stands for? Bond anticipation note.

TRAN stands for? Tax & revenue anticipation note.

VRDO stands for? Variable-rate demand obligation.

VRDO features? Rate resets + put feature.

ARS stands for? Auction rate security.

ARS primary risk? Auction failure → illiquidity.

Double-barreled bond backed by? Revenue + GO support.

Special tax bond backed by? Specific tax (e.g., tobacco tax).

Special assessment bond backed by? Charges on benefiting properties.

Moral obligation bond? Legislature may support payment (not guaranteed).

IDR/IDB stands for? Industrial Development Revenue Bond.

IDR risk? Credit risk of private corporate user.

Is municipal interest federally taxed? Generally no.

Example of federally taxable muni? BABs (Build America Bonds).

State tax exemption applies when? Investor resides in-state.

OID muni accretion? Tax-exempt.

529 savings plan taxation? Tax-free withdrawals for education.

ABLE accounts used for? Disability expenses (onset < age 26).

LGIP stands for? Local Government Investment Pool.

529 prepaid tuition advantage? Locks in tuition inflation-free.

MSRB G-17 covers? Fair dealing.

MSRB G-30 covers? Pricing & commissions.

MSRB G-32 covers? Primary offering disclosures.

MSRB G-41 requires? AML programs.

MSRB G-37 covers? Political contributions.

Muni confirmations governed by? G-15.

Books & records governed by? G-8 and G-9.

Time-of-trade disclosure rule? G-47.

Firm commitment underwriting? Underwriter buys entire issue.

Best efforts underwriting? Underwriter sells what it can.

Mini-max underwriting? Minimum to proceed, maximum cap.

All-or-none underwriting? Entire issue must sell or canceled.

Standby underwriting? Underwriter buys unsubscribed shares in rights offering.

Syndicate letter? Defines responsibilities and liabilities.

Selling group role? Helps sell but no liability.

Reg D applies to? Private placements.

Max non-accredited investors in Reg D? 35.

Accredited investor net worth? $1M excluding primary residence.

Rule 506(b) allows? No general solicitation.

Rule 506(c) allows? General solicitation if all buyers accredited.

Rule 147 applies to? Intrastate offerings.

Rule 147 residency test? 80% of revenue, assets, or sales in-state.

Reg A+ Tier 2 max offering? $75M.

Reg S allows? Offshore sales to foreign buyers.

Rule 144 governs? Resale of restricted & control securities.

Rule 144 holding period? 6 months (public companies).

Rule 144 control person volume limit? 1% of outstanding shares or weekly average.

Rule 145 covers? Mergers, acquisitions, reclassifications.

Shelf registration rule? Rule 415.

Prospectus required for? Primary offerings.

Cooling-off period minimum? 20 days.

Red herring allowed when? After filing registration.

Roadshow allowed? Yes; cannot solicit orders.

Tombstone ad includes? Basic information only; not an offer.

Free-writing prospectus allowed? After registration filed.

Blue-sky laws regulate? State-level securities regulations.

Reg T payment deadline? T+4.

Reg T penalty for nonpayment? Sell-out + 90-day freeze.

FINRA Rule 2269 requires? BD disclose participation in distribution.

FINRA Rule 2266 requires? Provide SIPC information.

MSRB G-11 covers? Primary offering practices.

MSRB G-34 covers? CUSIP + new issue requirements.

Securities Act of 1933 mission? Regulate primary markets.

What is DTCC? Depository/clearing corporation that settles and clears trades.

What is OCC? Clearing organization guaranteeing options contract performance.

A broker acts as? Agent.

A dealer acts as? Principal.

Market maker profit source? The bid–ask spread.

Quote 10.00–10.10 means? Bid = 10.00; ask = 10.10.

Inside market? Highest bid + lowest ask.

Locked market? Bid equals ask.

Crossed market? Bid higher than ask.

Who matches trades on an exchange? The matching engine.

Circuit breakers are used for? Halting trading during extreme volatility.

Dark pools allow? Anonymous institutional trading.

TRACE reports? Corporate bond trades.

RTRS reports? Municipal bond trades.

Consolidated Tape reports? Stock trades.

OTC markets quote? Unlisted securities.

Penny stock definition? Under $5, non-NASDAQ equity.

Penny stock rule? SEC Rule 15g-9.

Best execution governed by? FINRA Rule 5310.

OATS replaced by? CAT (Consolidated Audit Trail).

NBBO stands for? National Best Bid and Offer.

Short sales allowed only in? Margin accounts.

Locate requirement rule? Reg SHO Rule 203(b)(1).

Threshold securities list? Securities with chronic fails-to-deliver.

Treasury settlement? T+1.

Corporate bond settlement? T+2.

Municipal bond settlement? T+2.

Options trade settlement? T+1.

Options exercise settlement? Stock T+2; premium same day.

Cash settlement? Same day.

Forward stock split? More shares, lower price.

Reverse stock split? Fewer shares, higher price.

Stock dividend impact? More shares, lower cost basis per share.

Tender offer? Offer to buy shares at a premium.

Mergers & acquisitions result in? Exchange of shares.

Form U4 used for? Registering a representative.

What does U4 require? Employment, address, disclosures, fingerprints.

When must U4 be updated? Within 30 days (10 for disciplinary items).

Statutory disqualification includes? Felony or securities-related misdemeanor.

Does DUI disqualify? Only if felony DUI.

Form U5 used for? Termination reporting.

U5 filing deadline? Within 30 days of termination.

BrokerCheck provides? Public disclosure of rep background.

Fingerprinting required for? Anyone handling securities.

Who must register with FINRA? Broker-dealers.

Conduct Rules govern? Customer interactions.

Code of Procedure governs? Disciplinary actions.

Code of Arbitration governs? Dispute resolution.

Is mediation mandatory? No, voluntary.

FINRA can sanction by? Censure, fines, suspension.

Regulatory Element due when? After 1 year, then annually.

Firm Element due when? Annually.

Who designs Firm Element? The firm.

FINRA gift limit? $100 per year per person.

Non-cash compensation allowed? Yes, if not tied to sales.

Business entertainment allowed when? Rep attends event with client.

Cash compensation from product sponsors? Must go through the firm.

Political contribution rule? MSRB G-37.

Contribution limit? $250 if eligible to vote.

Penalty for exceeding G-37? 2-year ban on negotiated muni business.

Customer account records retention? 6 years.

Complaint retention? 4 years.

Advertising retention? 3 years.

Partnership documents retention? Life of firm + 3 years.

Trade blotters retention? 6 years.

Email retention? 3 years.

Business continuity rule? FINRA Rule 4370.

BCP must include? Emergency contacts & continuity procedures.

BCP updated when? Annually.

Telemarketing hours? 8am–9pm local.

DNC list checked? Every 31 days.

Retail communication? More than 25 retail investors in 30 days.

Correspondence? 25 or fewer retail investors in 30 days.

Institutional communication? To institutional investors only.

Communications rule? FINRA Rule 2210.

Testimonials must disclose? If compensation was paid.

Research analyst rule? FINRA Rule 2241.

Research reports must disclose? Conflicts & compensation.

Analyst trading restriction? Cannot trade securities they cover.

Quiet periods? Limits research after an IPO.

IB influence on research? Prohibited.

Qualified dividends taxed as? Long-term capital gains.

Ordinary dividends taxed as? Ordinary income.

Corporate bond interest taxed? Federal + state.

Treasury interest taxed? Federal only.

Municipal bond interest taxed? Generally tax-free federally.

Long-term capital gain holding period? More than 1 year.

Wash sale rule prohibits? Claiming losses if repurchased within 30 days.

Mutual fund distributions include? Dividends and capital gains.

Bond accretion does what? Increases cost basis.

Bond amortization does what? Decreases cost basis.

Best investment for capital preservation? U.S. Treasuries.

Best for income? Bonds.

Best for tax-free income? Municipal bonds.

Best for growth? Common stock.

Best for aggressive growth? Small-cap stocks.

Most conservative investment? Bank CDs or Treasuries.

Hedge long stock with? Long put.

Hedge short stock with? Long call.

Best for short-term liquidity? Money market funds.

Retiree needing income? Investment-grade bonds.

Variable annuity suitable for? Long-term investors.

Variable annuity unsuitable for? Seniors needing liquidity.

Limited partnership suitable for? Accredited, high-risk-tolerance investors.

Breakeven for long call? Strike + premium.

Breakeven for long put? Strike - premium.

Max loss long call/put? Premium paid.

Max gain long call? Unlimited.

Max gain long put? Strike - premium.

Covered call max gain? Premium + (strike - purchase price).

Protective put breakeven? Stock price + premium.

Option time value formula? Premium - intrinsic value.

Current yield formula? Annual interest ÷ market price.

Dividend yield formula? Annual dividend ÷ stock price.

Price-weighted index example? Dow Jones Industrial Average.

Market-cap-weighted index example? S&P 500.

NAV formula? (Assets - liabilities) ÷ shares outstanding.

POP formula? NAV ÷ (1 - sales charge).

Sharpe ratio measures? Risk-adjusted return.

Alpha measures? Performance vs expected.

Beta measures? Market sensitivity.

Control person owns? At least 10% of company stock.

Insider definition? Officers, directors, 10% shareholders.

Information barrier name? Chinese Wall.

Correspondent firm? Uses another BD for clearing.

Introducing firm? Introduces accounts but does not clear.

Clearing firm? Handles settlement and custody.

Associated person? Any employee of BD except clerical.

Investment adviser under 1940 Act? Provides advice for compensation.