Flashcards

Soft-dollar compensation is non-cash compensation received by an investment adviser in exchange for brokerage transactions. Soft-dollar compensation is allowed when disclosed to the client in the firm brochure.

A solicited order is one in which the security was recommended to the client by either an agent or an investment adviser representative. Solicited orders must be suitable for the client.

The term specialist is a historical term for the person found on the floor of the NYSE who was in charge of maintaining a fair and orderly marketplace for a company’s stock. Phased out in 2009, the “Specialist” was replaced by the “Designated Market Maker” (DMM). DMMs are still required to maintain a fair and orderly marketplace on the floor of the NYSE, but now they also have market maker obligations and are required to provide capital (inject liquidity into the marketplace).

Stock represents ownership in a corporation.  Stock may be either common or preferred.  Stock is equity and is purchased by investors looking for appreciation.

A stop order is an action that the Administrator can take that would prevent the sale of a security in that state. Stop orders require prior notice to the affected parties and a  hearing with a finding in law.

When a security is held in street name it is held in the name of the broker-dealer and not the individual client. Securities are often held in street name to facilitate their trading.

FINRA rule 2111 is the suitability rule. The suitability rule requires that a firm or associated person have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.  The customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation. A broker’s recommendation is the triggering event for the application of this rule. The three main suitability obligations are reasonable-basis, customer-specific, and quantitative suitability.

A surety bond is a bond that is required under state law for agents. A surety bond protects clients against lost or stolen money or securities. Firms that meet the minimum net capital requirements are not required to post surety bonds at the state level

A suspicious activity report must be filed any time a firm or its registered representatives notice a client whose behavior is commercially illogical. SARs are filed with FinCEN electronically within 30 calendar days of the initial behavior.

Tenants in common is a form of joint ownership. Each owner has an undivided interest in the property but all the interests need not be equal.  There is no right of survivorship. When one of the tenants dies, the interest passes on to the decedent’s estate, going through the probate process.

A tender offer is an offer from the issuer to the securities holders to buy the securities for cash or for cash and securities.

A testimonial is a statement written by a client that is then used in an advertisement attesting to the great work done by a person or firm. In the securities industry, broker-dealers may use testimonials. If more than a nominal fee is paid, the advertisement must disclose the fact that it is a paid testimonial. Investment advisers have not been allowed to use testimonials historically.

The third market is the trading of exchange-listed securities in the OTC market, done to facilitate after-hours trading.

A tombstone is an advertisement that announces a securities offering. It identifies the name of the issuer, the type of security, the underwriters, and where additional information is available. It may be published as soon as the issue is cleared for sale.

The trade confirmation must be sent to the client no later than on or before the settlement date. It is usually sent the business day after the trade date. The trade confirmation includes the settlement date, details of the transactions, and any amount of monies owed.

The trade date is the day on which the terms of a transaction, such as price and quantity, are established.  The transaction will be completed at settlement.

The transfer agent is the person responsible for issuing and redeeming shares of a mutual fund. The transfer agent will have custody of clients’ shares if certificates are not issued. The transfer agent also sends confirmations, distributions, and tax forms to the client.

The Trust Indenture Act of 1939 governs debt offerings. It requires all publicly offered, non-exempt issues to be registered under the Securities Act of 1933. Additionally, it requires that the debt be issued under a trust indenture that protects the bondholders.

A trustee is a person who is appointed to act on a beneficiary’s behalf. A trustee may be an individual of legal age and a sound mind. A business may also be granted trusteeship.

UGMA is a law adopted in most states that permits a direct gift to a minor without a trust or guardianship. The donor appoints a custodian to manage the gift until the minor reaches the legal age. There are certain tax rules for these accounts. Some states are UGMA states while others are UTMA states (Uniform Transfer to Minors Act). The major differences between UGMA and UTMA states are the age at which the asset can belong to the minor and the type of investments that can be held.

The Uniform Practice Code is the FINRA code designed to make uniform the customs, practices, and trading techniques among members in the securities business, such as regular way settlement.

The Uniform Securities Act is a state’s securities law. State securities laws are also called blue-sky laws. States have the option of adopting the legislation in its entirety or adapting it as needed.

In an unsolicited order the client places the trade. Unsolicited orders are initiated by the client.

To vacate means to cancel or annul a judgment or penalty.

A wash sale occurs when the investor sells a security at a loss but has purchased substantially identical securities within a certain time period. The IRS will disallow a loss if the investor repurchases substantially identical securities within 30 days before or after the sale of the security in which the loss was claimed, for a total of 61 days.

A wrap account is a client account that is charged one fee for both transactions and advice. When an investment adviser charges a wrap fee they must prepare Appendix 1 of Form ADV.