Flashcards
When an issuer has not sold securities across state lines before they must follow the rules of registration by coordination, under the Uniform Securities Act. Registration by coordination is a form of dual registration, with a full registration statement being filed at both the state and federal levels. The security may be sold in a state when it is cleared for sale federally by the SEC.
When an issuer has sold securities before and will be selling more securities across state lines they must follow the rules of registration by notification, under the Uniform Securities Act. A full registration statement must be filed with the SEC, but at the state level, a short form of registration may be filed (notice filing). The new issue may be sold in a state when it is cleared for sale federally by the SEC.
Registration by qualification is used when an issuer will be selling new securities in one state only, and intrastate offering. The full registration statement is filed with the Administrator. The security may be sold in the state when it is cleared for sale by the state. A security that has been registered by qualification may only be purchased by residents of that state for the first six months. After six months, the issue is freely saleable across state lines.
Before securities can be offered to the public, they must be registered under the Securities Act of l933. The statement that discloses all the pertinent information about the corporation that wants to make the offering is the registration statement. This statement is submitted to the SEC in accordance with the requirements of the l933 Act.
A regressive tax is the same no matter a person’s income. Sales tax is a regressive tax. Regressive taxes hurt low-income earners.
Regular way settlement is a type of delivery that allows two full business days following the trade date for the broker-dealer to deliver the securities and for the buyer to pay for stocks and corporate bonds (T + 2 business days). Government bonds and options settle T + 1 business day, as set by FINRA under the Uniform Practice Code.
A regulated investment company is an investment company that follows IRC Subchapter M, acting as a conduit for income distributions. If 90% of income is passed through to shareholders, the company is not subject to tax on the distributed earnings, only on the earnings that the company retained. If the company does not meet the 90% minimum then 100% of the fund’s net investment income is taxable at the fund level.
SEC Regulation D is the federal private placement rule. A private placement is a type of securities transaction in which very specific rules are followed. A private placement allows for the legal sale of unregistered non-exempt securities. Regulation D allows for the sale of securities to an unlimited number of accredited investors and up to 35 non-accredited investors.
Title V of the Gramm-Leach-Bliley Act (GLBA) required that the SEC and certain other federal agencies adopt rules relating to the privacy of nonpublic personal information of consumers and customers. Regulation S-P includes the securities industry’s privacy rules.
Regulation T is the Federal Reserve Board regulation that governs the amount of credit brokerage firms and dealers may extend to clients for the purchase of securities in a margin requirement. Regulation T sets the initial margin requirement at 50% of the market value or $2,000 whichever is greater, not to exceed the value of the securities being purchased. Regulation T also governs cash accounts by establishing the latest that a customer can pay. A customer purchasing securities must pay no later than by the end of the fourth business day following the trade date (when regular way is T + 2).
The Federal Reserve Board regulation governing loans by banks to brokerage firms to refinance clients’ margin accounts.
Regulatory risk is the risk that a change in regulations could harm the operation of a business.
In a margin account, the client pledges their securities in the margin account as collateral for the loan in a process called hypothecation. Rehypothecation occurs when the broker-dealer pledges those same securities again, this time to the bank, for the loan that the broker-dealer will then offer to the client in their margin account.
Restoring a lapsed policy to its original premium paying status, upon payment by the policy owner, with interest, of all unpaid premiums and policy loans, and presentation of satisfactory evidence of insurability by the insured.
Reinsurance occurs when the insurance company buys insurance on the risks it insures, done to reduce the insurance company’s risk.
For mutual funds, distributions (dividends and gains) may be reinvested in the fund to purchase additional shares instead of being sent to shareholders. Reinvested distributions are subject to tax. Reinvestment distributions increase the investor’s cost basis.
The remainderman is the person to whom the assets in the trust are distributed at the end of the trust’s lifespan.
Remuneration is money paid for work performed.
Term insurance that may be renewed, regardless of health, by paying the next premium based upon the insured’s higher age.
The act of replacing one life insurance policy with another. Replacement is perfectly legal if the rules are followed. Replacement that is to the detriment of the insured is illegal and called twisting.
Representations are the truth to the best of your knowledge. Life and health insurance applications ask the applicant to make representations.
A repurchase agreement is a device for using government securities as collateral for a short term loan; a borrower will sell an investor the securities with the agreement that he will repurchase the securities a few days later at a set price, higher than the original selling price. Repos are money market instruments.
Qualified plans, including traditional IRAs, are subject to the required minimum distribution rules. Unless a participant is still working, minimum distributions from the qualified plan must begin no later than April 1st of the year after the participant turns 73. This age is subject to legislative risk. The age for RMDs is set to rise to age 75 in 2033.
Rescission is the act of buying back securities from a client that were inadvertently sold in violation of state law. To rescind the contract is to make it go away. When offering a client the right of rescission, the registered representative must offer to pay what was paid for the security, plus interest (as set by the Administrator), minus any income received. An offer of rescission is good for 30 days. If the client does not take up the registered representative’s offer, after 30 days the client may no longer sue the representative.
The reserve requirement is how much cash and readily convertible into cash the bank must have on hand. It’s a percentage of the deposits held by the bank.
Funds held by the insurance company to help fulfill future claims.
Resistance is the highest the security’s price has been historically, it is used by technical analysts.
A margin account becomes a restricted account when the ongoing equity falls below Regulation T. When a client sells securities out of a restricted account 50% of the proceeds must be used to pay down the debit balance.
Under FINRA rules a retail communication is a written communication (including electronic) that is distributed or made available to more than 25 retail investors in any 30-calendar day period. Retail communications are subject to the principal pre-approval requirement under FINRA rules.
A retail investor is an individual or a noninstitutional client.
Retained earnings are one of the four components of a company’s shareholders’ equity. Retained earnings represent the cumulative total of the company’s net profits and losses over time. A company’s retained earnings are found on its balance sheet.
Retention of risk is the net amount of any risk that an insurance company does not reinsure but keeps for its own account.
The return of premium rider when added to life insurance ensures that if the insured lives to the end of the policy period all premiums paid will be returned to the insured tax-free. This rider costs extra.
RANs are issued in anticipation of future revenue, such as gate revenue at a stadium.
A revenue bond is a type of municipal bond that is issued to provide capital for the construction of a revenue-producing facility. The interest and principal payments are backed to the extent that the facility produces revenue to pay. Revenue bonds are often used to finance toll roads, stadiums, and airports. Revenue bonds have a higher risk to the investor than general obligation bonds, thus they pay a higher nominal yield.
In a reverse stock split the shareholder will have fewer shares at a higher price per share. Reverse splits are often done to ensure that the stock’s market price does not get so low that the stock gets delisted. In a reverse split, just like in a stock split, the investor’s overall market value remains unchanged.
A beneficiary designation that does not affect the policyowner’s rights. A revocable beneficiary can be changed at any time.
A revocable trust is a trust that may be changed at any time by the grantor. A revocable trust does not offer asset protection. With a revocable trust, the income is distributed to the grantor during his or her lifetime. After the grantor’s death the property transfers to the beneficiaries.
An endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.
Rights, also called stock rights, are stock purchase options issued to existing stockholders only. The right is an option to purchase a company’s new issue of stock at a predetermined price that is less than the price the shares will be offered to the general public. An investor who exercises the rights will maintain proportionate ownership (preventing dilution). The right is issued for a short period of time, normally for 30 days, with the option expiring after that time. Rights may also be sold in the secondary market.
Rights, also called stock rights, are stock purchase options issued to existing stockholders only. The right is an option to purchase a company’s new issue of stock at a predetermined price that is less than the price the shares will be offered to the general public. An investor who exercises the rights will maintain proportionate ownership (preventing dilution). The right is issued for a short period of time, normally for 30 days, with the option expiring after that time. Rights may also be sold in the secondary market.
The right of accumulation allows a client to qualify for reduced sales charges at any time that the aggregate value of the shares previously purchased and the shares currently being purchased in the account go over a breakpoint. If a mutual fund offers the right of accumulation it will describe this right in the fund’s prospectus.
In a rights offering the existing shareholders are given the right to buy additional shares at a fixed price to maintain their proportion of ownership (prevent dilution). A right is a short-term option that is good for 30 days.
Risk is the chance of loss. Pure risk is insurable. Pure risk involves no chance of gain.
Risk-adjusted return is the return on an investment adjusted for the market risk it carries. The Sharpe Ratio is often used to measure risk-adjusted return.
The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individuals insured (e.g., age, occupation, sex, state of health) and then applies the resulting rules to individual applications.
Risk-free return is the rate of return found on a 13-week treasury bill.
The basic premise of insurance, a large number contribute to cover the losses of a few.
The risk premium is the amount of return over the risk-free return that an investor expects to earn to account for the additional risk in the investment.
Risk tolerance is a subjective measurement of how comfortable an investor is with losing some or all of the original amount invested.