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
