Flashcards
A fund’s total net asset value is calculated by subtracting fund liabilities from fund assets. The net asset value per share is the net value of the fund divided by the number of shares outstanding. NAV per share is also known as the bid price or redemption price.
Net capital requirements are how much in cash, and readily convertible into cash, the firm must maintain under customer protection laws. The SEC or state set net capital requirements for broker-dealers and investment advisers.
Net investment income of a mutual fund is the total dividends received from common and preferred stock held in the portfolio and all interest income received from bonds and other debt instruments. To this sum, any net short-term gains from trading securities are also added. The sum of dividends, interest, and short-term gains is the gross investment income of the fund. The fund will subtract expenses for operation (adviser’s fee, custodial fee, utilities, salaries, accounting costs, etc.). The result is net investment income. Dividends are paid from the net investment income of a mutual fund.
The net present value of an investment looks at the future dollars created, discounts them to their present value, then subtracts the cost of the initial investment. Net present value is a dollar amount, it is not a rate of return. A positive NPV is desirable. A negative NPV is not desirable. If the NPV is equal to zero, the discount rate being used is the investment’s internal rate of return.
A client’s assets minus their liabilities equals their net worth. For a business, the net worth is shareholders’ equity.
New clients must fill out a new account form. The new account form includes the name of the account owner, trading authorization, payment method, and types of securities appropriate for the customer.
A new issue is a security that is being sold to the public for the first time. A prospectus is required when selling a new issue.
A no-load fund is a mutual fund that does not impose a sales charge. In a no-load fund, the bid price is equal to the ask.
The nominal yield is the percentage return stated on the face of a bond. It is fixed from the date of issue. The nominal yield is also called the coupon rate. The nominal yield is the annual interest payment on a bond. Bonds pay interest semi-annually.
A non-exempt security must be registered prior to sale.
Non-fungible tokens (NFTs) are digital assets that reside as code on a blockchain, often, but not exclusively, on the Ethereum blockchain. When an investor buys an NFT, they buy ownership of that particular bit of alphanumeric code associated with whatever has been tokenized. NFTs can be digital representations of artwork, a video, music, or even a tweet. Each NFT is minted by an issuer or creator and bought and sold in primary and secondary marketplaces, generally using cryptocurrency. Each NFT is unique, making the tokens “non-fungible,” meaning an investor can’t exchange one NFT for another just like it, as can be done with dollars or Bitcoin.
Generally, REITs are publicly traded on a financial exchange just like stocks; however, some REITs are not publicly listed. Because non-traded REITs are not traded in the secondary market, they are much more illiquid than their publicly listed counterparts. REITs that are not publicly listed are referred to as non-liquid or non-traded REITs. Non-traded REITs, although not publicly listed, must still be registered with the SEC. They also must still make regulatory filings as well, including quarterly and annual financial reports. Non-traded REITs have an expected investment life, typically 7-10 years.
Nonissuer transactions are secondary market transactions, shareholder to shareholder.
Nonqualified plans do not have to follow ERISA. Deferred compensation is an example of a nonqualified plan. Nonqualified plans are discriminatory.
A nonqualified stock option is a stock option that an employer may grant to its employees. With an NSO the difference between the current market price at the time of exercise and the strike price is reported as wages on the employee’s and the employer’s tax return.
Nonsystematic risks are risks related to the actual investment itself. Also called unsystematic risk, it can be reduced through diversification. Business risk, credit risk, legislative risk, and regulatory risk are all types of nonsystematic risk.
A normal yield curve is an upward sloping curve. Normally, short-term debt pays the lowest yield, mid-term a bit higher and long-term pays the highest yield. Normal yield curves are also called positive yield curves.
NASAA was founded in 1919 in Kansas. It is the oldest investor protection organization. Its members include securities Administrators from over 65 states, territories, and districts in the United States. The Series 63, 65, and 66 exams are written by NASAA and administered by FINRA.
A note is a short-term debt instrument, maturing in five years or less.
Notice filing is required at the state level when an issuer that has previously sold securities will be selling more securities across state lines. Registration by notice filing is also called registration by filing. Federally covered advisers are also required to do notice filings in each state in which they do business, paying fees at the state level in addition to their federal fees.
The NYSE is the New York Stock Exchange. The NYSE has a physical trading floor. Historically trading was conducted by the specialists at auction. Today the NYSE is a hybrid marketplace, with trading occurring both electronically and on the floor. The NYSE is the largest stock exchange in the United States.
An odd lot involves the trading of fewer than 100 shares or five bonds. Odd lot traders are small investors.
Under the Uniform Securities Act an offer includes any attempt to solicit a purchase or sale of a security for value.
The offering price of an open-end mutual fund share is net asset value per share plus the sales charge. The offering price is also known as the ask price. When it is a no-load fund the nav per share is equal to the offering price.
Every broker-dealer must have at minimum one OSJ. The OSJ is where the principal works. The OSJ is responsible for the supervision of the activities of the associated persons at the branch offices of the member firm.
An omnibus account is an account opened for an investment adviser or a broker-dealer for the benefit of their customers. The carrying firm does not know the individual customers’ names or holdings.
An open-end investment company is a mutual fund company that is managed according to a specific investment objective and continuously offers new redeemable shares in the primary market.
The Federal Reserve engages in open market operations, the buying and selling of U.S. government securities, to control the money supply. When buying securities, they are injecting cash into the economy, to fight a recession. When selling securities, they are pulling cash out of the economy, in an attempt to control inflation.
An opening purchase consists of the purchase of a call or a put. To close an opening purchase the investor would engage in a closing sale.
An opening sale consists of the sale of a call or a put. To close an opening sale the investor would engage in a closing purchase.
There are many ongoing expenses related to the day-to-day running of a business, these expenses are referred to as operating expenses.
The option agreement is a form that the customer must sign and return to the broker-dealer within 15 days of being approved for options trading. If the form is not returned, the client will not be able to open any additional positions until it is returned. The options agreement requires the client to abide by options rules, including market position limits and exercise limits.
The holder of an option has the right to buy or sell a security at a predetermined price for a period of time, usually nine months.
The Options Clearing Corporation is the guarantor of all listed options. They issue standardized options contracts.
The Options Disclosure Document is a document that must be given to all options trading clients, at the opening of the account. It is written by the OCC. It includes an explanation of the risks and rewards of investing in options.
The order ticket contains the customer’s instructions regarding a securities transaction. Information that is included on an order ticket includes the customer’s name and account number, description of the security, type of order (buy, sell, short), and any price qualifications (such as stops or limits). The order ticket is also sometimes referred to as the order memorandum.
Ordinary income includes earnings other than capital gains.
An OTC margin security is a security that does not trade on an exchange but that the Federal Reserve Board has approved for margin trading. The Fed publishes a list of marginable securities.
The OTC market is a negotiated market. Both listed and unlisted securities trade in the OTC market. Municipal and U.S. government securities also trade in the OTC market.
An options contract is out-of-the-money when it does not have intrinsic value. When an option is out-of-the-money the owner of the option cannot exercise the option. A call is out-of-the-money when the market price is below the strike price. A put is out-of-the-money when the market price is above the strike price.
Once the stock is sold and in the hands of the public, the stock is outstanding. The total of a company’s outstanding stock is equal to issued stock minus any treasury stock that is held by the company. A company’s market capitalization is determined by taking the outstanding stock and multiplying it by the current market price.
Painting the tape is a form of market manipulation and is prohibited. Painting the tape occurs when a group of investors works together to create the misleading appearance of active trading.
Par value on common stock is an arbitrary dollar value assigned to each share of stock at the time of issuance. Par value also references the face value (principal) amount of a bond, usually $1,000. The par value of preferred stock is $100.
Parity is the intrinsic value of a convertible security in terms of the common stock into which it can be converted. Parity means equal.
Participating preferred stock is preferred stock with a special feature. Issuers like to add special features so that the fixed dividend rate can be lowered. A participating preferred stockholder is entitled to its preferred dividend and also will be paid the common stock dividend, participating in the common stock dividend.
A partnership is a form of business organization. A partnership is considered a general partnership unless a certificate of limited partnership is filed with the state. Partnerships are flow-through tax entities, with the owners receiving form K-1 with their percentage of profits or losses for the year, that they then declare on their personal income tax return.
Passive income includes earnings from a limited partnership received by a limited partner, rental income when the individual does not actively participate in the management of the property, and income from any other enterprise in which the individual does not actively participate. Passive losses can only be used to offset passive income.
The payable date is the date on which the dividend is paid to the owners of the stock that appear on the records of the issuer as of the record date.
Payment for order flow occurs when a brokerage firm directs its retail orders to a wholesaler, who then executes the orders, providing money back to the brokerage firm for its retail business. Not all firms engage in this practice. The SEC notes that wholesalers typically execute trades “without providing any opportunity for other market participants to compete to provide a better price.”
With a payroll deduction plan the employee authorizes the employer to take a deduction from their paycheck and deposit it into the retirement plan. A 401(k) is an example of a payroll deduction plan. It may be a qualified or nonqualified plan.