Flashcards

A boycott is a concerted refusal to deal or a group action designed to pressure another party into doing something by withholding or enlisting others to withhold patronage or services from the target. It can be a method of shutting a competitor out of a market or preventing entry of a new firm into a market. Boycott is an unfair method of competition that is prohibited under state law.

Brady bonds are debt instruments that were issued by Latin American countries in the 1980s, that were backed by U.S. government bonds as collateral.

When trading securities a client’s breakeven is the dollar price at which a transaction produces neither a gain nor a loss. In options, breakeven will vary depending upon the contract. For long calls and uncovered short calls, the breakeven is the strike price plus premium. For long puts and short uncovered puts, the breakeven is the strike price minus the premium.

A breakout occurs when a security’s market price trades above the resistance level or below support. A breakout is taken to signify a continuing move in the same direction.

A breakpoint sale involves the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions so as to share in the higher sales charges applicable. Breakpoint sales are a violation of the Rules of Fair Practice.

Breakpoints are the schedule of sales charge discounts offered by a mutual fund for a lump sum or cumulative investment.  Eligibility requirements for breakpoints must be disclosed in the prospectus.

BRIC is an acronym used to refer to investments in Brazil, Russia, India, and China.

The brochure is the written disclosure document that an investment adviser must deliver to all new clients. The firm brochure is Part 2A of Form ADV.

The brochure supplement is the written disclosure document that must be given to new clients describing the investment adviser representative’s background. The brochure supplement is Part 2B of Form ADV.

The broker is the role of a brokerage firm when it acts as an agent for customers and charges the customers a commission for its services.

A broker-dealer is a person in the business of buying and selling securities, either for themselves or for their clients. Broker-dealers file Form BD to register as a firm. Broker-dealers are registered with the SEC, self-regulatory organizations (SROs), and in each state in which they do business.

Build America Bonds (BABs) were authorized by the American Recovery and Reinvestment Act (ARRA) which was enacted in February 2009. With BABs, the interest was taxable to the investors, but the federal government gave state and local governments the choice of a direct subsidy to cover 35% of the interest cost (Direct Payment Bonds) or to offer bondholders a federal tax credit worth 35% of the interest earned (Tax Credit bonds). BABs were issued through December 2010. The BABs program broadened the market for municipal debt beyond that of just those investors in high-income tax brackets. BABs were purchased by pension funds, endowments, and foreign investors as well.

A bull market is one in which prices of securities are moving higher or are expected to move higher.

The business cycle is a predictable pattern of economic activity. It consists of four phases, that always follow this order: expansion, peak, contraction, trough.

A day the New York Stock Exchange is open for business (trading).

Stockholders in closed corporations (small privately held) often enter into buy-sell agreements with the corporation that are funded by life policies. These buy-sell agreements are funded with partnership life insurance policies. The premiums paid for partnership life insurance are not tax-deductible to the business since it is a policy that benefits the business. Life insurance proceeds are not taxable. The life insurance proceeds are used to buy out the heirs of the deceased stockholder (business partner).

A buy stop order is an order to buy a security at a price that is above the current market price. The order is held on the books of the specialist. Open buy stops are the best way to hedge a short position. If an order should occur at the stop price (or higher) the order will become a market order to buy at the next market price.

A call option is a contract to buy 100 shares of stock at a definite price within a specified period of time (up to 9 months).  The owner of the call has the power to call away (buy) the shares at the strike price should the market price be above the strike. The seller of the call has an obligation to sell shares at the strike price.

The call price is the price paid (usually a premium over the par value of the issue) for callable preferred stock or callable bonds when they are redeemed by the issuer prior to maturity. Issuers call securities when interest rates have fallen.

Call protection is a period of time when the issuer can not call the bond, generally 5-10 years from issuance.

When a security has a call provision the issuing corporation retains the ability to recall (redeem) its issues of equity or debt. The call provision must be clearly stated on the face of the certificate at issue.

A callable bond is a bond that may be paid off early by the issuer. Exactly when a bond can be called is listed in the bond’s indenture. Just because a bond can be called, does not mean it will be called. Issuers call bonds when the interest rates have gone down enough that it makes sense to refinance the debt at a lower nominal yield. The issuer will often pay a little extra to the bondholder when calling a bond. An investor that purchases a bond at a premium in the secondary market should be most concerned with the bond’s yield to call (in this situation it will be referred to as yield to worst).

A policy that may be canceled by the insurer during the policy period.

The CAPM is used to determine a security’s or a portfolio’s expected return based on the investment’s systematic risk.

A capital gain occurs when the selling price of the asset is more than its cost basis. If the asset was held for a period of longer than 12 months, it is considered a long-term gain, taxable at long-term capital gains rates.  Short-term gains are those that occur when the asset was held for 12 months or less, and they are taxed as ordinary income.

A mutual fund may make a capital gain distribution to its shareholders at most one time a year. The capital gain is the result of the sale of assets held within the fund’s portfolio for a year and a day or longer. The distribution is taxable to the shareholder at long-term rates, regardless of the investor’s holding period.

The capital needs approach looks at how much money would be needed if the insured should die tomorrow. Needs include money to pay off the house, put the kids through school, and allow the spouse to take some time off from work. The face amount is determined by these needs.

A company’s capital structure is also referred to as its capitalization. It is the amount of debt and equity issued by a corporation.

A cash account is a brokerage account in which the client must pay for the securities within one business day, under regular way settlement (T + 1).

Cash equivalents are securities that are the most liquid, the “safest” on the risk spectrum. Money market instruments are sometimes referred to as cash equivalents.

The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity. The amount is the cash value stated in the policy minus a surrender charge and any outstanding loans and any interest thereon.

The Chicago Board Options Exchange (CBOE) is where listed options trade in the United States.

A cease and desist order instructs a person to abstain from an action. The Administrator can issue a cease and desist order when he knows or has a reason to believe an individual or firm is about to commit a violation of the Uniform Securities Act. It may be issued with or without a prior hearing.

There are two types of certificates of deposit. Negotiable CDs and bank CDs. Negotiable CDs are issued by commercial banks, representing bank borrowing for a short period of time. Negotiable CDs are sold by the bank to institutional clients. Negotiable CDs have high face amounts and trade in the money market. Negotiable CDs are securities. Bank CDs are sold by the bank to retail clients. With a bank CD, the client has liquidity risk for the time period in which they have committed their deposit. In exchange for this deposit, the bank will pay the client a competitive interest rate. Bank CDs are not securities.

Certificates of Participation (COPs) are tax-exempt bonds issued by state entities usually secured with revenue from an equipment or facility lease. COPs enable governmental entities to finance capital projects without technically issuing long-term debt. COPs are primarily used for transit investments, as transit operations often rely on capital equipment such as rolling stock, buses, or depots that are well suited to lease agreements.

The China Wall is the delineation that a firm must have between the trading desk and the research department. The Chinese wall is also called an information barrier.

Churning occurs when there is trading in a customer’s account that is excessive in size or frequency. The term suggests that the registered representative ignores the objectives and interests of clients and seeks only to increase commissions.   Churning is often done in discretionary accounts.  Churning is a violation of FINRA’s Rules of Fair Conduct.

This can occur when an agent persuades a consumer to borrow against an existing life insurance policy to pay the premium on a new one.

A class A share is a front-loaded mutual fund share, with low to no 12b-1 fees. Class A shares usually have breakpoints and are often recommended to investors who are investing large lump sums of money all at once.

A class B share is back-end loaded (contingent deferred sales charge). Class B shares have the highest 12b-1 fees, paying the lowest dividends. Class B shares will convert to class A shares after being held for a period of time as described in the prospectus.

A class C share may be front-loaded or back-end loaded. It has a middle 12b-1 fee. It never converts to an A share.

A beneficiary designation. Instead of specifically naming beneficiaries the owner designates a class or group of beneficiaries, for example “the children of Will and Jada.”

A class of options includes all options of the same type (puts or calls) that cover the same underlying security.  For example, all AAPL calls or all GOOG puts.

A closed-end investment company is a management investment company that is operated in much the same manner as a conventional corporation.  The closed-end fund will issue a fixed number of shares for sale (fixed capitalization).  The shares may be of several classes.  Shares are bought and sold in the secondary marketplace; the fund does not offer to redeem shares.

A closing purchase is done to close an options transaction that began with an opening sale.

A closing sale is done to close an options transaction that began with an opening purchase.

A CMO is a type of mortgage backed security.

FINRA’s code of arbitration provides a method of handling securities-related disputes or clearing controversies between members, public customers, clearing corporations, or clearing banks.  Any claim, dispute, or controversy subject to arbitration is required to be submitted to arbitration. FINRA members and registered representatives must arbitrate.  If the customer has signed a pre-dispute arbitration agreement as part of the account opening process, then the customer must also arbitrate.  There is no appeal.

FINRA’s code of procedure has the penalties for violation of FINRA rules.

Coercion is an unfair trade practice that occurs when a producer applies physical or mental force or threat of force to persuade another to buy insurance.