Margin account must sign hypothecation; minimum $2k and day trader $25k

Opening discretionary margin account new account form, margin agreement (hypothecation, loan
consent, credit agreement) and power attorney
Custodial accounts (UGMA/UTMA) always cash
Fiduciary who incurs losses w prudent man rule must restore those losses
JTWROS surviving member will inherit the total
JTIC (tenants in common) no survivorship rights
Regulation T
- Governed by Fed
- Loan amount of 50%
- Cash trades settle same day paid in full
Maintenance Rules:
- 50% long MV
- greater $2.5 or 100% of MV for short stock < $5
- greater $5 or 30% MV for short stock > $5
- greater 5% principal or 30% for short bond
- LEAPS (9months) 75% cash
- Options 100% cash
- Short equity and narrow index options 20% cash
- Short broad based index options 15% cash
- Short interest rate options 10% cash
Treasury 3% initial margin; IG/Convertible bonds 30% margin
Margin account cannot be used for IPO stock 30 days or stock under $5
SIPC provides protection if broker dealer fails of $500k per account
Bank qualified muni issue up to $10M, commercial banks deduct 80% of interest cost paid to depositors
of the funds
Regulation NMS prohibit trade through protected quote (inside market)
Rule enforcement SEC/FINRA for broker-dealers
Comptroller currency for federal banks
FRB for member banks
FDIC for member banks
Annuity withdrawal before 59.5 = 10% penalty
IRA withdrawal must begin at 70.5 or be subject to 50% penalty
o Roth IRA no required minimum withdrawal
Withdrawal from tax deferred account ALWAYS at ordinary income rate
o After tax contributions have return on capital
If a net loss is established, can only deduct $3k from ordinary income in 1 tax year
ETN subordinate debt linked to perf of currency, commodity, index & does not pay coupon
Accrued Interest
Corporate / munis use 30/360
Govt use actual/365
CMO

PAC (planned) tranche directs irregularities towards support tranches (most safe, receive principal first)
Tac (targeted) tranche sinking fund but also callable
Non PAC tranches (support)
Z tranche (accrual) pay no interest until lock out period ends, last tranche usually 20yr maturity

Rules & Regulations

Reg A raising under $5million in 1yr period except from SEC registration file offering circular
Reg D - < $1million exempt; $5mil & more sometimes - if sell to no more than 35 individuals
Private placement must be bought for investment, not resale

Volume

Restricted Share
Unregistered w/ SEC
- Private placement / Reg D
- Employee stock benefits
6months for SEC registered
12months for Non-SEC
N/A

Public
Information
Notice of Sale

Rule 144 must be public information

(10k,10Q)
None

Description:
Holding period:

Control Shares
Insiders (execs, board, 10%+
shareholders)
N/A
Greater of 1% outstanding & avg 4 week
trading volume
N/A
Must file 144 and then 90 day window,
Excempt if 5000 shares or less worth
less than $10k

Portal Market (rule 144a) = able to sell before a year to a qualified institutionalbuyer ($100mm+ in assets)
Sales charge is the difference in bid & offer, expressed as a % of the offer

Margin
Long margin account formula
Long market value (LMV) debit record (DR) = equity (EQ)
Short margin account formula
Short market value (SMV) + equity (EQ) = credit record (CR)

Bonds
U.S. Bonds are quoted in 32nds (95.8=95 and 8/32) can be shown as 95:08 or 95-08)
T-bills (6m or less) not quoted in 32nds
Bond trading at Premium: Nominal, Current, YTM, YTC
Libor = Average fed fund rate of foreign banks lending money to each other in U.S.dollars

REPO (repurchase agreement) = overnight loan (up to 90 days) that is secured by T-bills as collateral
(fed lends banks)
Reverse Repo (matched sale) = banks lend to fed and hold T- Bills as collateral
Interbank market= unregulated market for foreign currency transactions

Rules
Exemptions from listing with the SEC= U.S. securities+ muni + commercial paper +non-profit +banks
issues+ insurance and annuity policies + rule 147 offerings (onlywithin corporations own state) + reg A
offering ($5million or less within 12 months) + reg D (private placement/up to 35 unaccredited investors
and unlimitedaccredited)
Accredited investors= Financial institutions + insiders and family or owners of more than %10 + annual
income over 200,000/ (300,000 joint) + Net worth over a million + Corporation worth over 5 million
Green shoe clause= Underwriters can indicate interest for up to %15 more thansecurities available
Takedown = Profit for syndicate members
Reallowance = profit of non-syndicate sellers
Concession = Profit for selling group member
Managers fee= Fee received by managing under writer for a sale by anyone
Spread= Takedown+ Managers fee
Chapter 4
Unlisted Securities = only trade on the OTC
Muni +Govt bonds always trade on the OTC
Within the secondary markets:
1)First market= listed securities trading on an exchange
2)Second market= unlisted securities trading OTC
3)Third Market= Listed security trading OTC
4)Fourth market= Trading of securities between institutions without using a broker-dealer
Instinet = reporting system for the fourth market
Broker (agent) = does not use own inventory to execute trades
Dealer (principal/market maker) = uses own inventory
Stopping Stock= Specialist guaranteeing a certain price (only done with public orders)
Stops = immediately executed (becomes market order when triggered)
Limits= Specific price or better
Stop limit = when entered starts as a stop order and when triggered becomes a limit order (wont execute
until at a better price than order)
Buy limit and Sell stops (bliss) are reduced on dividend days (SLoBS remain the same)
Inside the market = highest bid and lowest ask (does not include stops)
Size of the market= number of shares available inside the market

Specialist can only bid inside the market

Immediate or cancel order = fill as much as possible and cancel the rest
Not held order = order which the rep has the ability to decide when to execute an order at a price
he thinks is right (power of attorney is NOT needed) (cant be executed by specialist)
SLD on a ticker means a trade occurred out of sequence (cant trigger stop orlimit)
NASDAQ: Level 1= shows inside of the market, Level 2= shows all bid and asks entered, Level 3= Allows
market makers to enter their own quotes
Selling short against the box= selling short a security you already own
Chapter 5
Progressive tax = more you make the more you are taxed
Regressive tax= flat rate
Net capital gains loss you can deduct up to $3000 dollars per year against ordinary income and rollover
the rest (no limit to how much you can roll over)
Ordinary income= Interest on bonds+ dividends
Cash dividends are taxed a maximum of %15 if stock is held for more than 60 days
If corporation buys stock (common or preferred) of another company %70 of dividends are tax free (if
corp. owns over %20 then %80 tax free)
Up to $13,000 per year in gifts per person is tax free
Cost basis gets transferred if gain but if market loss then new cost basis of recipientis market price on day
of transfer (for gift and inheritance)
Withdrawals on retirement plans are taxed as ordinary income
Money withdrawn from a retirement plan before age 59 and a half has a %10 tax penalty
Payout must start the April that the investor has turned 70 and a half (% 50 taxpenalties on what should
have been withdrawn)
Qualified retirement plans = pretax dollars+ withdrawals are fully taxed at investors tax bracket
Non-Qualified retirement plans = after tax dollars + withdrawals are only taxed for money beyond
contributions (capital gains) (both plans are only taxed after withdrawal)
Keogh Plan (Hr-10)= self-employed income only + may deposit $49k per year and up to %20 of gross
income max
IRAs= for employed people + max contribution of $5k w/ excess contribution taxed an extra %6 + joint
account treated like two single accounts with a $10k max. If covered by another retirement plan
deductions are only possible for those making under $56k or jointly making under $89k Iras can only
invest in securities and not: commodities/ life insurance/ stamp and coin collections
Educational IRA (Coverdell) = $2k per child under 18 + must be used before student turns 30 (primary
schooling/HS)

529 educational plan = by the state and similar to a Coverdell (college)

SEP IRA = small business IRA where contributions are made by employer and employee (all contributions
are vested)
Vesting= pension benefits belong to employee even if they leave the company
Fixed annuity= fixed amount of payout
Variable annuity= variable and based on underlying portfolio
ERISA= act that regulates qualified retirement plans (only private pensions)
Defined contribution = variable benefit (based on portfolio)
Defined benefit = employer pays and liable
Rollover= transferring between retirement plans (must be done within 60 days of withdrawal) (have to wait
one year to rollover again
Current ration= current assets/ current liabilities (ratio of over 2 means liquid)
Quick ratio (acid test)= quick assets( current assets- inventory)/ current liabilities(ratio over 1 means
liquid)
Fed funds rate= rate that banks and financial institutions charge each other (usuallyovernight loans)
Call loan rate= rate that banks charge brokerage firms to use for customer margin accounts
Prime rate= rate that banks charge their best customers (usually corporations)
M1= currency+ checking deposits+ NOW accounts (interest paying accounts)
M2= everything in M1 + savings + money market accounts
M3= everything in M2+ jumbo CDs