Entities
a federally mandated, non-profit, member-funded, United States corporation created under the Securities Investor Protection Act of 1970 that mandates membership of most US-registered broker-dealers
Securities Investor Protection Corporation (SPIC)
Callable
Determine the outstanding shares
Outstanding shares = issued shares – treasury stock
This act was passed to address consumer complaints concerning the practice of cold calling; required to maintain a Do Not Call list.
Federal Telephone Consumer Protection Act of 1991 (TCPA)
A mutual fund that engages in value investing
Value Fund
The risk that a corporation could call its callable bonds at a time that's not advantageous to investors. Corporations will more likely call their bonds when interest rates decrease.
Call Risk
This regulation requires a broker-dealer to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order in any equity security. This “locate” must be made and documented prior to effecting the short sale
Regulation SHO
This rule considers certain types of securities reclassifications as sales that are subject to the registration & prospectus requirements of the Securities Act of 1933; filing of Form S-4 is required for all transactions
Rule 145
This department insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.
Federal Deposit Insurance Corporation (FDIC)
YTM
Yield to Maturity
Long margin account formula
Long market value (LMV) – debit record (DR) = equity (EQ)
This act regulates new issues of corporate securities. An issuer of corporate securities must provide full and fair disclosure about itself and the offering. Included in this act are rules to prevent fraud and deception.
(Bonus points for giving 2 extra names)
The Securities Act of 1933
Bonus: also called the Truth in Securities Act, the Paper Act, the Full Disclosure Act, the Prospectus Act, and the New Issues Act
A fund that invests in securities that pay a consistent dividend.
Income Fund
The risk of a security declining due to negative market conditions.
Market (Systematic) Risk
SEC provision for simplified registration of small issues of securities.
Regulation A
SEC rule governing the safekeeping of securities in customer margin accounts. It prohibits broker/dealers from (1) using a customer's securities in excess to secure a loan without written permission from the customer, and (2) commingling a customer's securities without written permission from the customer.
Rule 15c2-1
Department practicing the protection against financial and investment fraud, maintaining of fair dealing, monitoring and regulation of insider trading, and promotion and enforcement of the public release of relevant financial information
Securities and Exchange Commission (SEC)
a negotiable security that represents a receipt for shares of stock in a non-U.S. Corporation
American Depository Receipt (ADR)
Short margin account formula
Short market value (SMV) + equity (EQ) = credit record (CR)
This act covers administration of private, qualified retirement accounts, such as a 401(k) plan; provides standards for the funding, vesting, and other aspects of these plans as well as fiduciary responsibilities.
Employment Retirement Security In come Act (ERISA)
Funds which objective is capital appreciation. For people with high risk tolerance that are looking for max capital gains and not income.
Growth Fund
The risk of a corporation failing to perform up to expectations.
Business (Nonsystematic) Risk:
Regulation covering the extensions of credit to customers by securities brokers. It establishes initial margin requirements.
Regulation T
SEC rule governing shelf offerings. The rule allows an issuer to sell limited portions of a new issue over a three-year period.
Rule 415
Fines assessed for convictions involving violations of insider trading laws are paid to the...
Department of Treasury
The practice of using stocks as collateral for a loan. Stock investors must sign a margin agreement to give the brokerage firm permission to do this.
Hypothecation
Calculate the time value of an option
Premium (P) = intrinsic value (I) + time value (T)
This act prohibits bond issues valued at over $5 million from being offered to investors without an indenture. The trust indenture is a written agreement that protects investors by disclosing the particulars of the issue. As part of the Trust Indenture Act of 1939, all companies must hire a trustee who’s responsible for protecting the rights of bondholders.
The Trust Indenture Act of 1939
A fund that is the most conservative least volatile when compared to stock funds. Least amount of volatility and appreciation. Invest in both stocks and bonds.
Balanced Fund
The risk that interest and dividends received will have to be reinvested at a lower rate of return. Zero coupon bonds, T-bills, T-STRIPS, and so on have no reinvestment risk because they don’t receive interest payments.
Reinvestment Risk
The issuer's private placement is exempt if investor is sophisticated & has access to the same financial info that would be found in a prospectus; issuer must be assured the buyer won't make a quick sale; securities may not be sold to more than 35 non-accredited investors; no restriction on number of accredited investors
Regulation D
This rule regulates the sale of restricted stock & control (affiliated) stock; holding period, filing requirements, & volume limitations.
Rule 144
Publicly owned, government-sponsored corporation charted to purchase mortgages fro lenders and resell them to investors.
Federal National Mortgage Association (FNMA)
Net assets of securities divided by the number of outstanding shares.
Net Value Asset (NAV)
Balance sheet formula
Assets = liabilities + stockholder’s equity
This act allowed for the creation of non-exchange SROs; enabled the creation of the MSRB in 1975
Maloney Act of 1938
Invests in securities of a specific industry or specific geographic location and typically does not have income as a primary objective.
Sector Fund
The risk of an investor losing her principal, the amount of funds invested in a security. When compared to the other securities, bonds have the least amount of capital risk. At maturity, the investor would receive the principal amount of the bond.
Capital Risk
This regulates trading practices involving new issues & the firms that initially profit from the sale of new issues; rule covers both IPOs & existing issuers offering additional securities to the public
Regulation M
SEC rule providing that an offering of $1 million to $5 million during any 12-month period may be exempt from full registration. The rule restricts the number of nonaccredited purchasers to 35 but does not restrict the number of accredited purchasers.
Rule 505
The nation's tax collection agency and administers the Internal Revenue Code enacted by Congress. Helps enforce ERISA.
Internal Revenue Service (IRS)
a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, takes care of money or other assets for another person.
Fiduciary
Calculate working capital
Working capital = current assets – current liabilities
This act established the SEC and was enacted to protect investors by regulating the over-the-counter (OTC) market and exchanges, such as the New York Stock Exchange (NYSE).
It regulates: The extension of credit in margin accounts, transactions by insiders, customer accounts, trading activities
The Securities Exchange Act of 1934
A fund that invests primarily in the stocks of one specific company.
Specialized/Sector Fund
The risk that the principal and interest aren’t paid on time. Moody’s, Standard & Poor’s, and Fitch are the main bond-rating companies.
Credit Risk
This regulation states when foreign companies issue securities in their home country, they are subject to all laws that country has in place, not subject to US regulation; clarified that the securities are not required to be registered under Securities Act of 1933
Regulation S
NYSE rule requiring that each member organization exercise due diligence to learn the essential facts about every customer. "Know your customer".
Rule 405
a federally chartered corporation created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Helps to enforce ERISA)
Pension Benefit Guarantee Corporation
Increasing the cost basis of a discount bond for tax purposes.
Accretion
Calculate the time value of an option
Premium (P) = intrinsic value (I) + time value (T)
This act covers the selling of certain low-priced securities to potential new customers; rules require firm to have a signed disclosure document from potential buyers stating that they understand the risks involved
Penny Stock Reform Act of 1990
Funds that invest in short term maturities of 12 month or less.
Money Market Fund
Risk that a debt holder will not receive interest and principal when due.
Default Risk
Limit on the amount of credit that a bank may extend to a customer for purchasing and carrying margin securities.
Regulation U
SEC rule providing that an offering of less than $1 million during any 12-month period may be exempt from full registration. The rule does not restrict the number of accredited or non-accredited purchasers
Rule 504
This is a private American corporation that acts as a self-regulatory organization that regulates member brokerage firms and exchange markets.
Financial Industry Regulatory Authority (FINRA)
AMT
Alternative Minimum Tax
How is dividend yield determined?
Dividend Yield = Annual Dividend (dollar amount of the dividend per share) / current stock prices
These two acts were in the mid 1900s. One regulates companies that are formed to pool investors' money and invest those funds in securities (ex. MF companies). The other defines the term investment adviser (IA) and provides a listing of exclusions from the definition.
Investment Company Act of 1940 and Investment Advisers Act of 1940
A fund whenever the NAV is greater than the Ask.
A closed end fund
The risk of bond prices declining with increasing interest rates. (When interest rates increase, outstanding bond prices decrease.) All bonds (even zero-coupon bonds) are subject to interest risk.
Interest (Money Rate) Risk
The creation and enforcement of day-to-day rules that brokerage firms must follow; purpose is to promote fair and equitable trading practices; do not have the right to arrest or imprison violators (ex. FINRA, MSRB)
SRO Regulation
Any sales literature used by an investment company needs to meet the standards of this rule
SEC Rule 156