Title Details

ABOUT THIS BOOK XVII

ABOUT THE TEST BANK XIX

ABOUT THE SECURITIES INSTITUTE OF AMERICA XXI

CHAPTER 1 EQUITY AND DEBT SECURITIES 1

What Is a Security? 1

Capitalization 2

Common Stock 3

Preferred Stock 9

Types of Dividends 12

Rights 13

Warrants 14

Options 15

American Depositary Receipts (ADRs)/American Depositary Shares (ADSs) 20

Debt Securities/Bonds 20

The Money Market 35

Limited Partnerships 37

Pretest 45

CHAPTER 2 BROKERAGE OFFICE PROCEDURES AND BACK-OFFICE OPERATIONS 49

Hiring New Employees 49

Resignation of a Registered Representative 50

Registration Exemptions 51

Persons Ineligible to Register 51

Disciplinary Actions Against a Registered Representative 52

Termination for Cause 53

Outside Employment 53

Private Securities Transactions 53

Gift Rule 54

Sharing in a Customer’s Account 55

Borrowing and Lending Money 55

Order Tickets 55

Executing an Order 56

Becoming a Stockholder 57

Clearly Erroneous Reports 59

Execution Errors 59

Unconfirmed Trades 60

Corporate and Municipal Securities Settlement Options 61

When-Issued Securities 62

Government Securities Settlement Options 62

Accrued Interest 63

Close Outs 64

Customer Confirmations 64

Rules for Good Delivery 66

Rejection of Delivery 67

Reclamation 67

Marking to the Market 67

Customer Account Statements 68

Dividend Distribution 68

Proxies 71

Operations Professionals Covered Persons 71

Pretest 73

CHAPTER 3 RECORD KEEPING, FINANCIAL REQUIREMENTS, AND CLEARING 77

Blotters 77

General Ledger 78

Customer Accounts 78

Suspense Account 78

Subsidiary (Secondary) Records 78

Securities Position Book (Ledger) Stock Record 79

Order Tickets 79

Confirmations and Notices 79

Monthly Trial Balances and Net Capital Computations 79

Employment Applications 79

Records Required to Be Maintained for Three Years 80

Records Required to Be Maintained for Six Years 80

Records Required to Be Maintained for the Life of the Firm 81

Requirement to Prepare and Maintain Records Under SEC 17 a-3 and 17a-4 82

Financial Requirements 83

Box Counts 85

Missing and Lost Securities 86

The Customer Protection Rule 87

FINRA Financial Requirements 90

Fidelity Bonds 91

Carrying of Customer Accounts 91

The Depository Trust & Clearing Corporation (DTCC) 92

The Fixed Income Clearing Corporation (FICC) 94

The Option Clearing Corporation (OCC) 94

American vs. European Exercise 95

Expiration and Exercise 95

Pretest 97

CHAPTER 4 ISSUING CORPORATE SECURITIES 101

The Prospectus 102

The Final Prospectus 102

Prospectus to Be Provided to Aftermarket Purchasers 103

SEC Disclaimer 104

Misrepresentations 104

Tombstone Ads 104

Free Riding and Withholding/FINRA Rule 5130 105

Underwriting Corporate Securities 106

Exempt Securities 108

Exempt Transactions 109

Rule 137 Nonparticipants 115

Rule 138 Nonequivalent Securities 115

Rule 139 Issuing Research Reports 116

Rule 415 Shelf Registration 116

Pretest 117

CHAPTER 5 TRADING SECURITIES 121

Types of Orders 121

The Exchanges 125

The Role of the Specialist/DMM 126

Crossing Stock 128

Do Not Reduce (DNR) 129

Adjustments for Stock Splits 129

Super Display Book (SDBK) 130

Short Sales 130

Threshold Securities 134

Over the Counter/Nasdaq 135

Electronic Communication Networks (ECNs) 138

Non-Nasdaq OTC Bulletin Board 138

Pink Sheets 139

Third Market 140

Fourth Market 140

The Order Audit Trail System (OATS) 140

Broker vs. Dealer 141

FINRA’s 5% Markup Policy 142

Markups/Markdowns When Acting as a Principal 142

Riskless Principal Transactions 143

Net Transactions with Customers 144

Proceeds Transactions 144

Firm Quote Rule 144

Trade Complaints Between Members 145

Pretest 147

CHAPTER 6 GENERAL SUPERVISION 151

The Role of the Principal 151

Continuing Education 153

Information Obtained from an Issuer 154

Customer Complaints 155

Investor Information 155

Member Offices 156

Annual Compliance Review 157

Business Continuity Plan 157

Currency Transactions 157

The Patriot Act 158

Pretest 161

CHAPTER 7 CUSTOMER ACCOUNTS 165

Opening a New Customer Account 165

Holding Securities 167

The Depository Trust Company (DTC) 168

Mailing Instructions 168

Types of Ownership 169

Death of a Customer 170

Partnership Accounts 170

Trusts 171

Corporate Accounts 171

Trading Authorization 171

Accounts for Employees of Other Broker Dealers 176

Numbered Accounts 176

Prime Brokerage Accounts 176

Account Transfers 177

Bulk Account Transfers 178

Margin Accounts 179

Guaranteeing a Customer’s Account 180

Day Trading Accounts 181

Commingling Customer’s Pledged Securities 181

Wrap Account 181

Regulation S-P 182

Pretest 183

CHAPTER 8 MARGIN ACCOUNTS 187

Regulation of Credit 187

House Rules 190

Establishing a Long Position in a Margin Account 190

Establishing a Short Position in a Margin Account 196

Margin Requirements for Day Trading 200

Combined Margin Accounts 201

Portfolio Margin Accounts 202

Pretest 203

CHAPTER 9 INVESTMENT COMPANIES 207

Investment Company Philosophy 207

Types of Investment Companies 208

Investment Company Registration 210

Investment Company Components 212

Mutual Fund Distribution 215

Distribution of Mutual Fund Shares 216

Mutual Fund Prospectus 216

Additional Disclosures by a Mutual Fund 218

Anti-Reciprocal Rule 218

Money Market Funds 218

Valuing Mutual Fund Shares 219

Mutual Fund Sales Charges 219

Sales Charge Reductions 221

Voting Rights 225

Portfolio Turnover 226

Exchange Traded Funds / ETFs 226

Exchange Traded Notes / ETNs 226

Pretest 227

CHAPTER 10 VARIABLE ANNUITIES AND RETIREMENT PLANS 231

Annuities 231

Retirement Plans 239

Pretest 251

CHAPTER 11 SECURITIES INDUSTRY RULES AND REGULATIONS 255

The Securities Exchange Act of 1934 255

Becoming a Member of FINRA 259

Registration of Agents/Associated Persons 260

State Registration 261

Retail Communications/Communications with the Public 261

Securities Investor Protection Corporation Act of 1970 266

The Securities Acts Amendments of 1975 267

The Insider Trading and Securities Fraud Enforcement Act of 1988 268

Firewalls 268

The Telephone Consumer Protection Act of 1991 269

The Penny Stock Cold Call Rule 269

Violations and Complaints 270

Political Contributions 274

Investment Adviser Registration 275

Investment Adviser Representatives 277

Investment Adviser Advertising and Sales Literature 278

Soft Dollars 279

The Uniform Securities Act 281

Pretest 283

ANSWER KEYS 287

GLOSSARY OF EXAM TERMS 295

INDEX 361