 [7-16-2019]
statutory disqualification, and makes an individual ineligible for
 An S-corp is a type of direct participation program. Shareholders
receive a pass-through of income and losses, and the S-corp entity
is not taxed. A C-corp is a taxable entity and shareholders receive
dividends that were taxed at the entity level and will be taxed again
at the shareholder level. Double taxation applies to dividends from C-
corps.
 JTWROS and TOD account designations avoid probate. Assets held
this way bypass the estate settlement process and are transferred
directly at death. JTIC account assets are subject to probate and are
distributed as part of the deceased’s estate.
 Private investment in public equity (PIPE) is when a company
sells some of its publicly traded shares at a discount to accredited
investors or hedge funds to raise capital quickly and avoid certain
regulatory requirements.
 In a Municipal serial bond issue, the outstanding bonds mature at
different intervals with a portion of the issue maturing each year. A
bond series is different bond issues backed by the same revenue
source.
 Bureaus within the US Treasury Department include the Internal
Revenue Service (IRS), Office of the Comptroller of the Currency
(OCC) and The Financial Crimes Enforcement Network (FINCEN)
 Stock dividends are not taxed when received by a shareholder.
However, the basis of the investor’s shares is adjusted downward.
For example, assume a stockholder holds 100 shares of stock
valued at $50 per share, and receives a 10% stock dividend. The
$500 value of the total position does not change, so the investor now
has 110 shares with an adjusted basis of $45.45. ($500/110 =
$45.45).
 An investor who owns a call contract subject to a stock dividend will
still own one contract, but the number of shares will increase, and
the strike price will decrease. For example, an ABC 60 call subject to
a 10% stock dividend: Total value of call is 60 x 100 shares =
$6,000. The new number of shares is 106. To find the new strike
price: $6,000/106 =$56.60.
 An investor who participates in a raw land limited partnership is
seeking capital appreciation. The property is not developed, so there
is no income or depreciation from the ownership interest. Land
cannot be depreciated.
 In a deflationary environment an outstanding issue of corporate
bonds is more attractive than a new issue. The new issue would
have a lower coupon, reflecting the decline in interest rates that
accompany deflation.
 Termination from employment with a BD for breaking SEC rules is a
registration.
 If a client of a representative moves to another state, the
representative cannot make a trade for that client until becoming
registered in that state. If the client wishes to trade, the rep should
forward the trade to someone in the firm who is registered in that
state.
 When an issue’s registration statement is made effective by the
SEC, a representative may say that the issue is deemed effective,
but is not approved by the SEC
 If a husband and wife have a joint account with $500,000 in
securities, and each have IRA accounts with $300,000 in securities,
the SIPC coverage in total is $1,100,000. IRA accounts have
separate SIPC coverage.
 A U-4 must be amended within 30 days if a tax lien or other type of
lien is filed against a representative.
 The primary mission of the SEC is to maintain integrity of US
markets and protect investors. FINRA is overseen by the SEC, and
its primary mission is to regulate broker-dealers and registered
representatives. FINRA can make rules but they must be approved
by the SEC before they are effective.
 A company that believes its stock is undervalued may repurchase it
in the open market.
 Mutual fund A-, B-, and C-share classes have different fee
structures. A-shares have front-end loads; B-shares have back-end
loads (aka contingent deferred sales charges or CDSCs); C-shares
have level loads. All share classes have 12b-1 fees, but B- and C-
share 12b-1fees are usually higher than A-share 12b-1 fees. A-
shares are the only share class that can benefit from breakpoints.
 FINRA arbitrators can be from both inside the industry and outside
the industry. Those from outside are called public arbitrators. A law
degree is not a required credential for arbitrators. Industry cases are
decided by industry arbitrators. Cases involving the public must
include arbitrators from the public sector.
 Information regarding the opt-out provisions of Reg S-P must be
provided when the initial relationship is established (typically the
opening of the account) and annually thereafter.
 Public companies must file annual financial statements called 10ks
with the SEC within 90 days of year-end. They must also prepare
annual reports for shareholders.
 Pre-emptive rights are available to current shareholders. They allow
shareholders the right to maintain their proportionate interest when a
company has a follow-on offering. This prevents dilution.
 Adam Smith is considered the founder of classical economic theory.
 ABLE accounts may be opened for persons with disabilities up to the
age of 26.
 STRIPS are zero coupon bonds issued and backed by the US
Government. They are issued at a discount and mature to face
value.
 Hedge fund managers receive management fees and performance
fees which are typically higher than fees charged for other fund
investments.
 An inverted yield curve may predict a recession. It occurs when
short-term rates are higher than long-term rates.
 Order splitting, or breaking a large order into smaller parts, is
permissible to a achieve best execution for a customer.
 A prospectus or a notice of its availability must be delivered with
sales of share for 25 days following an IPO
 [7-15-2019]
 Gross Domestic Product (GDP) is a coincident indicator.
 Treasury stock represents shares that have been repurchased by the
company. As treasury stock increases, the company’s outstanding
share count will decrease.
 A surrender charge is a fee paid by an investor to the insurance
company if the investor withdraws their capital prior to annuitization.
 If an investor makes an excess contribution (e.g. more than $6,000)
to a Traditional or Roth IRA they will be assessed a 6% tax penalty
by the IRS.
 If a registered representative holds non-public material information,
they can accept an unsolicited order from a customer.
 In a forward stock split, the number of shares will increase and the
share price will decrease proportionately.
 A best efforts is a type of underwriting where the underwriters act as
agents and have no financial responsibility for any unsold securities.
 A statutory disqualification will occur if within the past ten years an
individual has been convicted of a felony or securities related
misdemeanor.
 Employees of a FINRA member firm and their immediate family
members are considered restricted persons, which means they
cannot invest in an IPO. Under this rule, immediate family members
include spouse, siblings, children, parents, and in-laws.
 A prime broker is a firm that helps various hedge funds consolidate
their trading positions amongst different executing firms.
 In a limited partnership, limited partners have limited liability, while
the general partner has unlimited personal liability.
 [7-14-2019]
 Interest rates and inflation move in the same direction. As inflation
increases, bond prices will decrease.
 If a tender offer is oversubscribed, the shares are accepted
proportionally from those shareholders who tendered. For example, if
an investor seeks to purchase 10 million shares in a tender offer, but
shareholders collectively tender 100 million shares, only 10% of each
shareholders’ shares would be accepted. If a shareholder tendered
1,000 shares, only 100 of their shares (10%) will actually be
accepted.
 All shareholders receive the exact same price in a tender offer. This
is sometimes referred to as “all holders best price”.
 Up to $6,000 of earned income can be contributed annually to an
IRA. If an investor is 50 or older they can contribute an additional
$1,000 ($7,000 total). The $6,000 was updated this year and
previously was $5,500.
 Distributions must begin from a traditional IRA beginning on the April
1st of the year following an individual’s 70.5 birthday. This is referred
to as the required minimum distribution (RMD). For Roth IRAs, the
RMD is death of the account owner.
 A shelf registration allows an issuer to preregister securities today
and sell them at a later date when market conditions are favorable. A
shelf is good for up to 3 years and can be use for both equity and
debt offerings, but not for an IPO.
 Warrants are never issued with intrinsic value.
 Regulatory element CE must be completed within 120 days of an
individuals second anniversary of registration and every three years
thereafter (e.g. year 2, 5, 8, 11, etc). The firm element must be
completed annually.
 Make sure to know the order of dates in the dividend payment
process: 1) Declaration date 2) Ex-dividend date 3) Record date 4)
Payment date
 Rule 147 allows an in-state business to raise capital in their home
state and avoid SEC registration. Under 147, 100% of the securities
must be sold to state residents who cannot resell outside the state
for six months.
 [7-4-2019]
 Government securities: Government agency securities (e.g. Ginnie
Mae) carry the explicit backing of the U.S. Government. Government
agency securities (e.g. Fannie Mae) carried the implied backing of
the U.S. Government.
 An option is at-the-money when the market value is equal to the
strike price.
 An investor could purchase a no-load fund at the NAV, due to the
lack of a sales charge.
 Firm element continuing education must be completed annually, at a
minimum. Firm policies could require it to be completed more often.
 An outside business activity (i.e. second job) requires notification to
the firm, but not permission.
 A private securities transactions (i.e. doing outside securities
business) requires permission from the firm if it is for compensation.
 [7-2-2019]
 Adjusting Premium Bonds by Amortization: Bonds purchased at
a premium (> $1,000 par) must be amortized over the life of the
bond. Amortization means that the cost basis will be adjusted
downwards each year so that at maturity an investor’s cost basis is
$1,000 par. What will amortization effect? Amortization effects a
bond’s cost basis (downwards) and should the investor sell the bond
prior to maturity, the profit or loss on the transaction. Amortization
does not effect sale proceeds (what a purchaser is willing to pay).
o Example: When an investor purchases a bond at a premium,
the cost basis will be adjusted downward towards par on a
straight line basis. This is referred to as amortization. For
example, a 10-year bond bought at 110 would be adjusted
by one point per year, calculated as: 10 point premium / 10
years to maturity = 1 point per year.
 Accretion of Discount Bonds: Discount bonds will be accreted,
which is similar to amortization, but the cost basis is adjusted
upwards (towards par) each year.
 UTMA/UGMA accounts (Uniform Transfer/Gift to Minors
Accounts): An UTMA/UGMA account is owned by the minor. There
can only be one minor owner (no joint UTMA/UGMA) and there can
only be one custodian (who may, but need not be, the minor’s
parent). The minor is responsible for paying any taxes owed on gains
in the account. At the age of majority, the minor can request the
account be re-title as an individual account to remove the custodian.
 Eurodollar deposit: Eurodollars are U.S. Dollars held in a
depository (bank) abroad. E.g. A Swiss bank account denominated
in U.S. dollars would hold Eurodollar deposits. These are used by
foreign corporations (or individuals) who have US currency abroad.
 Eurodollar bonds: Eurodollar bonds are bonds issued outside the
United States (e.g. Argentina) but denominated in U.S. dollars. Par is
$1,000 USD, coupon payments are made in USD. These are issued
and trade outside the U.S. and are not registered with the SEC.
Issuers use Eurodollar bonds to make their securities more
marketable (e.g. the issuer’s home currency is unstable).
 [6-26-2019]
 Advertising records must be maintained by a broker-dealer for three
years after final use of the ad.
 Equities, corporate bonds and municipal bonds settle T+2
 Treasures and listed options contracts settle T+1
 Reg T settlement (i.e. customer payment) is T+4.
 Penny stocks are defined as OTC equity securities worth less than
$5.00 per share.
 When an investor inherits securities from someone who is deceased,
the investor’s cost basis is adjusted to the value of the security at the
time of death.
 Employees of a firm who do not handle securities or money or
records of entry of securities or money (e.g. order tickets)
are not required to be fingerprinted. For example, a silent partner
investor of a broker-dealer does not need to be fingerprinted.
 Non-qualified corporate plans do not meet ERISA guidelines and
therefore carry credit risk if the employer is insolvent.
 Mutual funds can invest in equities, corporate bonds and other
registered securities. Mutual funds cannot sell stock short or borrow
money.
 Roth IRAs are after-tax contributions with tax-free distributions.
 Traditional IRA contributions are usually pre-tax, have tax-deferred
earnings and growth, and all distributions are taxed as ordinary
income.
 [6-15-2019 & Earlier]
 Key differences in preferred stock vs common stock include that
preferred stock is likely to pay a dividend whereas common stock
does not. Also, preferred stock is very sensitive to interest rates
whereas the price of common stock will respond more to company
performance and other economic factors.
 Money market securities are debt securities with one year or less to
maturity. For example, T-Bills are money market securities. T-Bonds
and T-Notes are not.
 Be sure to review the max gain, max loss and breakeven points for
single options positions. The options worksheets in the supplement
are a good way to practice this.
 Hedge funds are suitable investments only for institutional and
sophisticated investors.
 Hedge funds can pursue many different investment strategies,
including purchasing stocks of company that it thinks might go
private.
 A traditional IRA rollover must be completed within 60 days to avoid
an early withdrawal penalty. A rollover occurs when an investor
moves their IRA from one fund to another (e.g. Fidelity to Vanguard).
 The primary investment objective of a REIT is current income in the
form of dividends.
 Except for Roth IRAs, most retirement plans require investors to
begin receiving distributions by age 70.5 to avoid a penalty.
 The maximum annual contribution to a Coverdell Educational
Savings Account is $2,000 per year per student under the age of 18.
 Warrants are typically issued by a company in conjunction with
another security to make that other security more attractive to
investors. For example, a company might use a warrant as a
sweetener for investors as part of a debt deal. Unlike pre-emptive
rights, warrants do not prevent dilution.
 Treasury receipts are zero-coupon bonds that are structured by
broker-dealers but backed by cash flows from Treasury securities.
 The SEC allows a mutual fund to deliver a summary prospectus to
shareholders, which is a compilation of highlights from the longer
prospectus. A summary prospectus includes the fund’s investment
objectives, fee structure, and other pertinent information.
 Cost basis represents the original value of an asset for tax purposes.
If the asset is later sold for a profit, the difference between the cost
basis and sales proceeds reflects the investor’s capital gain, which
they must pay taxes on. Importantly, any dividends reinvested by an
investor would increase their cost basis as the investor will have
already paid tax on that income. For example, if an investor’s original
cost basis in a mutual fund is $1,000 and the investor receives $200
in dividends which they reinvest into the fund, their cost basis would
be adjusted upwards to $1,200.
 Trading ahead is a violation where a broker-dealer or registered
representative trades a security based on nonpublic information
contained in a research report prior to that report being released to
the public.
 Elasticity refers to the sensitivity of supply and demand of a
commodity to a change of price. If a commodity is demand elastic,
that means that as prices change, demand will change. For example,
if prices increase, demand will decrease, and vice versa.
Alternatively, if a commodity is demand inelastic, a change in price
will have no impact on demand for that product.
 Under the telemarketing rule, once an individual is added to the
firm’s internal do-not-call list, they remain there indefinitely.
 A numbered account is a brokerage account that is represented by a
symbol or number, allowing the account holder (e.g. a celebrity) to
remain anonymous. The broker-dealer must still receive a written
statement of ownership and proof of identity from the client.
 The loan consent form is an optional component of the margin
agreement. If signed by the customer, it allows the broker-dealer to
lend stock held in the customer’s account to other investors to
facilitate short sales.
 In the event of a broker-dealer insolvency, the market value used to
determine the amount of an investor’s claim is based on the date the
bankruptcy filing is made with the court.
 When an investor annuitizes, they begin to receive payments from
the insurance company. One factor that impacts their monthly
payment is the payout option the investor has chosen. A life option or
life annuity makes payments for the life of the investor, but no
payments to their beneficiary upon death. In contrast, a joint and last
survivor option guarantees payments over two lives. Once the
investor dies, the insurance company will then make payments to the
beneficiary until their death. Because the life option is expected to
have a short duration and is therefore riskier to the investor, it makes
higher monthly payments.
 When an individual passes the SIE exam, it does not qualify them to
engage in securities business (e.g. solicit new business or enter
transactions). Instead, to become fully registered, the individual must
also pass a top-off exam (e.g. Series 7 or Series 79). Note, the SIE
credential is valid for four years.
 The 1934 Act provides for both civil and criminal penalties for insider
trading. Civil penalties up to a maximum of three times the profits
gained, or losses avoided. This is also referred to as treble damages.
Criminal penalties include up to $5 million in fines and 20 years in
prison.
 A CTR must be filed with FinCEN whenever a financial institution
receives a cash deposit in excess of $10,000 in a single business
day from a customer. This can include a deposit of cash, a traveler’s
check, a cashier’s check, money order, or a combination of the
aforementioned which exceeds the limit. For example, if a customer
deposits a $3,000 money order and $8,000 traveler’s check in a
single day, a CTR must be filed.
 The Customer Identification Program is a provision of the USA
Patriot Act that requires financial institutions to verify the identity of
each customer who opens an account. The purpose is to help the
government fight terrorism and money laundering activities.
 The current yield of a bond is calculated as the annual interest
divided by the market price. If the semiannual coupon is provided,
make sure to multiply by two to annualize.
o Example: A bond is trading at $960 and pays a $15
semiannual coupon. Current yield is calculated as the annual
interest of $30 ($15 x 2) divided by the market price of $960.
Therefore, current yield is 3.1%.
 o Backing away is a violation that occurs if a market maker
fails to honor firm quotes.
 On the morning of the ex-dividend date any orders that are entered
at or below the market are adjusted downwards by the amount of the
dividend. This includes buy limit, sell stop, and sell stop limit orders.
Note that orders entered at or above the market, including sell limit,
buy stop, and buy stop limit orders, are not adjusted.
 Spoofing is a form of market manipulation where a trader enters an
order to manipulate prices to be higher or lower, with no intent to
actually execute at the quoted price. In other words, spoofing refers
to entering orders to entice other participants to join on the same
side of the market, and then trading against the other market
participants’ orders.
 A pump and dump scheme is a form of securities fraud where an
investor uses false or misleading statements to artificially inflate the
price of an owned stock in order to resell the stock at a higher price.
An example is when an investor is randomly solicited with positive
information over email or social media to purchase shares in a penny
stock or other risky investment.
 A registered representative can call an individual on the do-not-call
list if the individual is an existing customer of the firm, the registered
rep has a personal relationship with the individual, or if the individual
has provided prior written consent.
 An individual that donates assets to an UGMA or UTMA account can
be the custodian of the account. For example, a parent can both gift
assets into an UGMA account and be the custodian managing the
account.
 FINRA defines vulnerable investors as those aged 65 and older as
well as any person aged 18 or older who the firm or its reps
reasonably believe has a mental or physical impairment that renders
the individual unable to protect his or her own interests. If the firm
believes that there has been or will be financial exploitation of a
vulnerable investor by a party able to transact the account (e.g. the
account’s trusted contact) then the firm can institute a 15-business
day hold on the account to review the facts and circumstances. If
after the 15-business day hold the firm has reason to believe that the
malfeasance is ongoing, they can extend the hold on the account an
additional 10 business days.
 An individual under age 59.5 with a valid exception (e.g. first-time
home buyer, qualified education expenses, death, disability, and
major medical expenses) can withdraw funds from a Roth IRA that
they have had for less than five years without being subject to a 10%
early withdrawal penalty. However, in this situation the individual will
be taxed on the earnings.
 In a fixed annuity, the investor earns a guaranteed fixed return. The
risk of negative performance of the investments is assumed by the
insurance company. In a variable annuity, the investor earns a
variable return based on the market performance of the investments
they select within the insurance company’s separate account. The
investor bears the risk of any reduced payout.
 When an individual invests money into a variable annuity, the dollars
invested into the insurance company’s separate account purchase
accumulation units. Each unit represents an interest in the underlying
subaccount. The value of each unit will fluctuate based on the value
of the securities in the portfolio. Therefore, both the number of
accumulation units will vary (the number will increase as the
individual invests more money) as will the value of each unit.
 An ABLE account is a tax-advantaged savings account for
individuals with disabilities. It allows for a donor to contribute after-
tax dollars on behalf of an individual with disabilities. The earnings in
the plan grow and accumulate tax-free and distributions for qualified
disability expenses (e.g. education, housing, health care,
transportation, etc.) are completely tax-free at the federal level.
 Registered reps are required to notify compliance of any activity that
may impact their credit. One example of such activity is a short sale
of a home (mortgage) by a registered rep. This occurs if a rep sells a
home for less than the outstanding mortgage balance owed to the
lender (i.e. bank), with the bank then accepting the less-than-full
repayment of the mortgage. Because the rep is unable to pay off
their mortgage balance in full, this will have a negative impact to their
credit.
 After a registered representative is terminated from a firm (i.e. a
Form U5 is filed), the individual must keep their address updated
with FINRA for two years after termination.
 Registered reps are generally prohibited from personally lending
money to clients unless the firm has written procedures in place
allowing for the activity. Assuming that is the case, a registered rep is
allowed to lend or borrow money from a client with no notice or
permission required if the client is a bank or family member. Firm
permission is required if the loan is based on an outside business or
personal relationship with the client or if the client is a registered
person at the same firm.
 If a registered rep is defined as a municipal finance professional
(MFP) they can give a maximum political contribution of $250 per
year to candidates they are eligible to vote for. Note that
contributions made by the spouses of MFPs are not subject to the
$250 limit unless the contribution was directed by the MFP.