ABOUT THE SERIES 99 EXAM XIII
ABOUT THIS BOOK XVI
ABOUT THE TEST BANK XVII
ABOUT THE SECURITIES INSTITUTE OF AMERICA XVIII
CHAPTER 1
EQUITY AND DEBT SECURITIES 1
What Is a Security? 1
Capitalization 2
Common Stock 3
Preferred Stock 9
Types of Dividends 12
Rights 13
Warrants 14
Options 15
American Depositary Receipts (ADRs)/American Depositary Shares (ADSs) 20
Debt Securities/Bonds 20
The Money Market 35
Limited Partnerships 37
Pretest 45
CHAPTER 2
BROKERAGE OFFICE PROCEDURES AND BACK-OFFICE OPERATIONS 49
Hiring New Employees 49
Resignation of a Registered Representative 50
Registration Exemptions 51
Persons Ineligible to Register 51
Disciplinary Actions Against a Registered Representative 52
Termination for Cause 53
Outside Employment 53
Private Securities Transactions 53
Gift Rule 54
Sharing in a Customer’s Account 55
Borrowing and Lending Money 55
Order Tickets 55
Executing an Order 56
Becoming a Stockholder 57
Clearly Erroneous Reports 59
Execution Errors 59
Unconfirmed Trades 60
Corporate and Municipal Securities Settlement Options 61
When-Issued Securities 62
Government Securities Settlement Options 62
Accrued Interest 63
Close Outs 64
Customer Confirmations 64
Rules for Good Delivery 66
Rejection of Delivery 67
Reclamation 67
Marking to the Market 67
Customer Account Statements 68
Dividend Distribution 68
Proxies 71
Operations Professionals Covered Persons 71
Pretest 73
CHAPTER 3
RECORD KEEPING, FINANCIAL REQUIREMENTS, AND CLEARING 77
Blotters 77
General Ledger 78
Customer Accounts 78
Suspense Account 78
Subsidiary (Secondary) Records 78
Securities Position Book (Ledger) Stock Record 79
Order Tickets 79
Confirmations and Notices 79
Monthly Trial Balances and Net Capital Computations 79
Employment Applications 79
Records Required to Be Maintained for Three Years 80
Records Required to Be Maintained for Six Years 80
Records Required to Be Maintained for the Life of the Firm 81
Requirement to Prepare and Maintain Records Under SEC 17 a-3 and 17a-4 82
Financial Requirements 83
Box Counts 85
Missing and Lost Securities 86
The Customer Protection Rule 87
FINRA Financial Requirements 90
Fidelity Bonds 91
Carrying of Customer Accounts 91
The Depository Trust & Clearing Corporation (DTCC) 92
The Fixed Income Clearing Corporation (FICC) 94
The Option Clearing Corporation (OCC) 94
American vs. European Exercise 95
Expiration and Exercise 95
Pretest 97
CHAPTER 4
ISSUING CORPORATE SECURITIES 101
The Prospectus 102
The Final Prospectus 102
Prospectus to Be Provided to Aftermarket Purchasers 103
SEC Disclaimer 104
Misrepresentations 104
Tombstone Ads 104
Free Riding and Withholding/FINRA Rule 5130 105
Underwriting Corporate Securities 106
Exempt Securities 108
Exempt Transactions 109
Rule 137 Nonparticipants 115
Rule 138 Nonequivalent Securities 115
Rule 139 Issuing Research Reports 116
Rule 415 Shelf Registration 116
Pretest 117
CHAPTER 5
TRADING SECURITIES 121
Types of Orders 121
The Exchanges 125
The Role of the Specialist/DMM 126
Crossing Stock 128
Do Not Reduce (DNR) 129
Adjustments for Stock Splits 129
Super Display Book (SDBK) 130
Short Sales 130
Threshold Securities 134
Over the Counter/Nasdaq 135
Electronic Communication Networks (ECNs) 138
Non-Nasdaq OTC Bulletin Board 138
Pink Sheets 139
Third Market 140
Fourth Market 140
The Order Audit Trail System (OATS) 140
Broker vs. Dealer 141
FINRA’s 5% Markup Policy 142
Markups/Markdowns When Acting as a Principal 142
Riskless Principal Transactions 143
Net Transactions with Customers 144
Proceeds Transactions 144
Firm Quote Rule 144
Trade Complaints Between Members 145
Pretest 147
CHAPTER 6
GENERAL SUPERVISION 151
The Role of the Principal 151
Continuing Education 153
Information Obtained from an Issuer 154
Customer Complaints 155
Investor Information 155
Member Offices 156
Annual Compliance Review 157
Business Continuity Plan 157
Currency Transactions 157
The Patriot Act 158
Pretest 161
CHAPTER 7
CUSTOMER ACCOUNTS 165
Opening a New Customer Account 165
Holding Securities 167
The Depository Trust Company (DTC) 168
Mailing Instructions 169
Types of Ownership 169
Death of a Customer 170
Partnership Accounts 171
Trusts 171
Corporate Accounts 172
Trading Authorization 172
Accounts for Employees of Other Broker Dealers 176
Numbered Accounts 176
Prime Brokerage Accounts 177
Account Transfers 177
Bulk Account Transfers 178
Margin Accounts 179
Guaranteeing a Customer’s Account 181
Day Trading Accounts 181
Commingling Customer’s Pledged Securities 181
Wrap Account 182
Regulation S-P 182
Pretest 183
CHAPTER 8
MARGIN ACCOUNTS 187
Regulation of Credit 187
House Rules 190
Establishing a Long Position in a Margin Account 190
Establishing a Short Position in a Margin Account 196
Margin Requirements for Day Trading 200
Combined Margin Accounts 201
Portfolio Margin Accounts 202
Pretest 203
CHAPTER 9
INVESTMENT COMPANIES 207
Investment Company Philosophy 207
Types of Investment Companies 208
Investment Company Registration 210
Investment Company Components 212
Mutual Fund Distribution 215
Distribution of Mutual Fund Shares 216
Mutual Fund Prospectus 216
Additional Disclosures by a Mutual Fund 218
Anti-Reciprocal Rule 218
Money Market Funds 218
Valuing Mutual Fund Shares 219
Mutual Fund Sales Charges 219
Sales Charge Reductions 221
Voting Rights 225
Portfolio Turnover 226
Exchange Traded Funds / ETFs 226
Exchange Traded Notes / ETNs 226
Pretest 227
CHAPTER 10
VARIABLE ANNUITIES AND RETIREMENT PLANS 231
Annuities 231
Retirement Plans 239
Pretest 253
CHAPTER 11
SECURITIES INDUSTRY RULES AND REGULATIONS 257
The Securities Exchange Act of 1934 257
Becoming a Member of FINRA 261
Registration of Agents/Associated Persons 262
State Registration 263
Retail Communications/Communications with the Public 263
Securities Investor Protection Corporation Act of 1970 268
The Securities Acts Amendments of 1975 269
The Insider Trading and Securities Fraud Enforcement Act of 1988 270
Firewalls 270
The Telephone Consumer Protection Act of 1991 271
The Penny Stock Cold Call Rule 271
Violations and Complaints 272
Political Contributions 276
Investment Adviser Registration 277
Investment Adviser Representatives 279
Investment Adviser Advertising and Sales Literature 280
Soft Dollars 281
The Uniform Securities Act 283
Pretest 285
ANSWER KEYS 289
GLOSSARY OF EXAM TERMS 297
INDEX 363
