securities
Quicksheet
tM
SecuritieS ProductS and
concePtS
deBt
series
7
Outstanding shares Issued shares – Treasury shares (Shares repurchased by corp.) Treasury shares
(Shares repurchased by corp.) Issued shares –outstanding shares Dividends payable as Cash, stock, or
property
Annual Dividend Most recent quarterly dividend × 4 quarters Dividend (Current)
Yield
Annual dividend / Current market value
Ex: XYZ stock trading @ $42 pays a $2 annual
dividend $2 / $42 = 4.76% dividend yield 4 Dividend Dates Determined by Declaration Date Declaration Date Board of Directors Date dividend is declared Ex-Dividend Date FINRA or SRO 2 business days before record date
Record Date Board of
Directors Date trade must settle by for buyer to receive current dividend
Payable Date Board of
Directors
Date dividend is distributed
Stock Dividend Adjustment
Price of stock adjusts down for dividend ■
■
Investor receives addition shares ■
■
Aggregate value remains the same ■
■
Ex: 100 shares @ $55 = $5,500
After 10% dividend, position becomes: 110 shares @ $50 = $5,500
Note: 100 shares × 10% = 10 additional shares
Stock Split Adjustment
Price of stock adjusts down for split ■
■
Investor receives addition shares ■
■
Aggregate value remains the same ■
■
Ex: Even split: 100 shares @ $30 = $3,000
After 2-for-1 even split, position becomes: 200 shares @ $15 = $3,000
Note: $3,000 / 200 shares = $15 adjusted stock price Ex: Uneven split: 100 shares @ $30 = $3,000
After 3-for-2 uneven split, position becomes: 150 shares @ $20 = $3,000
Note: $3,000 / 150 shares = $20 adjusted stock price
Reverse Stock Split Adjustment
Price of stock adjusts up for reverse split ■■
Investor will have fewer shares ■
■
Aggregate value remains the same ■
■
Preferred Shares
Fixed par value ■
■ (assume $100 unless stated different).
Dividends are fixed stated rate (% of par). ■
■
Ex: XYZ 3.5% Preferred .035 × $100 par value =
$3.50 annual dividend
Preferred Share Types
Straight (noncumulative): Missed dividends are
not payable.
Cumulative: Missed dividend (dividends in
arrears and current preferred dividend must be paid before common).
Callable: Issuer may buy back shares after a
specified date at a specified price.
Participating: Issuer may pay more than stated
dividend.
Adjustable rate: Dividend tied to another rate
(Ex: T-bill rate).
Rights and Warrants
Rights Warrants
Available to existing shareholders
Offered with other securities as “sweeteners” Sold as units
(Ex: Bond with warrant) Short term (30 to 45
days)
Long term (2 to 5 years) When issued exercise
price is below CMV (allows purchase at a discount)
When issued exercise price is above CMV (anticipated value with time)
Not marginable Marginable
American Depositary Receipts
(ADRs)
Facilitate US citizens owning foreign shares ■
■
Foreign shares held by bank (bank issues ■
■ receipt)
ADR is US security traded in US markets, ■
■
(quoted in US dollars)
Dividends declared in foreign currency but ■
■
paid in US dollars (ADR holder has currency risk)
Real Estate Investment Trusts
(REITs)
Traded on exchanges or OTC ■
■
Provide liquidity for real estate investors ■
■
75% of assets must be invested in operating ■
■
income producing real estate or mortgages to qualify as a REIT
90% of net operating income must be ■
■
distributed for REIT to avoid taxation as a trust
Par Value
Assume $1,000 unless specified differently ■ ■
Bond Yields
Premium Par Discount Coupon CY YTM YTCCoupon, Nominal, or Stated Yield
Annual interest / Par value ■■
Ex: Bond pays $60 annual interest $60 / $1,000 = 6%
coupon yield
Current Yield
Annual interest / Current market value ■
■
Ex: Bond trading @ $1,200 pays $60 annual interest
$60 / $1,200 = 5% current yield
Bond Quotes
Price quote:
■
■ 1 bond point = 1% of par = $10
Yield quote:
■
■ 1 basis point = .01 of yield
Ex: Price quote: Bond trading @ 92
= 92% of par = .92($1,000) = $920
Ex: Yield quote: Bond trading to yield 3.70
.01(3.70) = .037; 3.7%
Callable Bonds
Issuer can buy back bonds as of a specified date ■
■
prior to maturity at a specified price.
Issuer will call bonds in anticipation of current ■
■
interest rates falling.
Allows issuer to lower the cost of borrowing. ■
■
Facilitates “refunding”; replacing one issue ■
■
with another at a lower net interest cost to the issuer.
Convertible Bonds
Conversion Ratio:
■
■ Par / conversion price
Ex: Bond convertible @ $40
$1,000 / $40 = 25 share conversion ratio
Parity price of common:
■
■ Market price of bond /
conversion ratio
Ex: Bond trading @ $1,100
Conversion ratio = 25 shares
$1,100 / 25 shares = $44 parity price of common
Parity price of bond:
■
■ Conversion ratio ×
common stock price
Ex: Bond has 25 share conversion ratio
Common stock trading @ $44
25 shares × $44 = $1,100 bond parity price
Bond Maturities
Term: Entire issue matures on one date Serial: Issue matures over a period of years
trading
Brokerage SuPPort ServiceS
inveStMent anaLYSiS
Markets
Securities
Markets Listed or Unlisted Concepts
Exchange Listed ■■Physical location Auction market ■ ■ Over-the-counter (OTC) Unlisted ■■No physical location Negotiated ■ ■ market Third market Listed,
traded OTC No physical ■ ■ location Negotiated ■ ■ market Fourth market Listed
and Unlisted Direct trading ■ ■ between financial institutions Use Electronic ■ ■ Communication Networks (ECNs)
Day orders
Cancel any unexecuted portion at end of day
Good till canceled (GTC)
Any unexecuted portion remains working until the last trading day of April or October
Order Types
Order Entered Concept
Market
(Buy or Sell) At the market Execute immediately
■ ■
at next available price
Buy limit Below
CMV
Buy at limit price or ■ ■ better (lower) Execution not ■ ■ guaranteed
Sell limit Above CMV
Sell at limit price or ■ ■ better (higher) Execution not ■ ■ guaranteed
Buy stop Above
CMV Triggered at or above ■ ■ stop price Execute immediately ■ ■
at next available price
Buy stop limit Above CMV Triggered at or above ■ ■ stop price
Execute at limit price ■ ■ or better (lower) Execution not ■ ■ guaranteed
Sell stop Below
CMV Triggered at or below ■ ■ stop price Execute immediately ■ ■
at next available price
Sell stop limit Below CMV Triggered at or below ■ ■ stop price
Execute at limit price ■ ■ or better (higher) Execution not ■ ■ guaranteed
Time-Sensitive Orders
Fill or Kill (FOK)
Execute entire order immediately or cancel entire order
Immediate or Cancel (IOC)
Execute any portion available immediately ■
■
Cancel any balance remaining ■
■
All or None (AON)
Execute all if available ■■
If entire order can not be executed hold order ■
■
as good-till-canceled (GTC)
Market at Open
Execute at or near the open of the day ■
■
Not guaranteed exact opening price ■
■
Market on Close
Execute at or near the close of the day ■
■
Not guaranteed exact closing price ■
■
Markup Policy
Guide for listed and unlisted transaction charges. Applies to markups, markdowns, and
commissions.
Order Tickets
Approved by a principal promptly after execution.
Changes to tickets must be approved by a principal.
Order Flow After Execution:
Order department or wire room:1. After
execution order with trade details returns to order department
Purchase and sales:
2. Issues confirmation with
trade details to customer
Margin department:
3. Calculates any margin
requirement due
Cashier:
4. Takes receipt and delivery of cash and securities
Settlement Dates
Type of Settlement:
Regular way (corporate and municipal): Trade
date + 3 business days (T+3)
Regular way (government): Trade date + 1
business day (T+1)
Cash: Same day; BD approval required Receipt or delivery vs. payment RVP or DVP:
Up to 35 calendar days
Seller’s option: No sooner than first day after
regular way (4th business day for corporate and municipal); no later than date specified in settlement contract
Fundamental Analysis Formulas
Net worth: Assets – Liabilities
Book value: Net worth – (Preferred and
intangibles)
PPN: 10000477
www.kfeducation.com
800-824-8742
© 2010 Kaplan, Inc. All rights reserved.
reguLatorY actS
Securities Act of 1933
Paper act, prospectus act ■
■
Regulates new issues, requires registration of ■
■
securities
Securities and Exchange Act of 1934
People and places act ■
■
Regulates BDs and associated persons, requires ■
■
registration
Antifraud provision, defined inside information ■
■
Trust Indenture Act of 1939
Applicable to corporate bond offerings of ■
■
greater than $5 million in 12 months Establishes a contract between the issuer and ■
■
the trustee for the benefit of the bondholder
Investment Company Act of 1940
Classified three types of ICs ■
■
Regulates ICs ■
■
Investment Advisors Act of 1940
Requires the registration of investment advisors ■
■
who charge fees for investment advice
Securities Investors Protection Act
of 1970
Protects customers from BD failure and ■ ■ insolvency Created SIPC ■ ■
Insider Trading and Securities
Fraud Enforcement Act of 1988
Specifies penalties for inside trading and ■
■
securities fraud
The Employee Retirement Income
Security Act of 1974 (ERISA)
Established to prevent abuse or misuse of ■
■
pension funds
Applicable to private sector retirement plans ■
■
Mandates guidelines for plan; participation, ■
■
funding, vesting, communication, nondiscrimination and beneficiaries
Telephone Consumer Protection
Act of 1991
Administered by the Federal Communications ■
■
Commission (FCC)
Protects consumers from unwanted telephone ■
■
solicitations
Defines the requirements and limitations ■
■
applied when making unsolicited calls
Bank Secrecy Act
Establishes the US Treasury as the lead ■
■
agency for developing anti-money laundering programs
Sarbanes-Oxley Act of 2002
Established enhanced standards for US public ■
■
company boards, management and accounting firms
Requires SROs in the securities industry to ■
■
establish research analysts conflict of interest rules for its members
The Uniform Securities Act
Establishes a framework for state registration ■
■
Applies to securities, broker/dealer (BDs), ■
■
registered representatives (RRs), investment advisers (IAs), and IA reps
BuSineSS daYS, caLendar
daYS, and MonthS to know
Same Business Day
Settlement date for cash transactions
1 Business Day
Regular way settlement for US Government securities and Options
2 Business Days
Ex-dividend date relationship to record date for stock
3 Business Days
Regular way settlement for corporate and municipal securities
5 Business Days
Regulation T: cash purchases must be paid in full
15 Calendar Days
Maximum length of time a customer can place options orders before the signed option agreement is required
20 Calendar Days
Cooling off period: minimum time between filing date and registration
30 Calendar Days
IRS wash sale period before and after a trade
60 Calendar Days
Maximum period of time to roll over holdings from one qualified plan to another
90 Calendar Days
Maximum time for a letter of intent to be ■
■
backdated
Length of time cash account can be frozen for ■
■
nonpayment
6 Months
Frequency IC’s are required to send reports to shareholders
13 Months
Length of time covered by a letter of intent
16 Months
Maximum length of time an IC’s prospectus is valid
PercentageS to know
0.25%
Maximum 12b-1 fee for no load fund
0.75%
Maximum 12b-1 fee
1%
100 basis points for bonds ■
■
Rule 144 sale volume limit ■
■
5%
Markup policy guideline ■
■
No more than 5% of investment company’s ■
■
assets invested in any one company
6%
Penalty for excess IRA contributions
8.5%
Maximum sales charge for open-end (mutual fund) company
10%
Penalty for premature IRA distribution ■
■
Affiliate or control person if owning 10% or ■
■
more of outstanding shares
Maximum sales charge on public limited ■
■
partnerships
Maximum amount of one company’s stock a ■
■
mutual fund can own
25%
Minimum maintenance for long stock position
30%
Minimum maintenance for short stock position
40%
Minimum percentage of mutual fund board members that must be noninterested members
50%
Regulation T ■
■
Penalty for insufficient IRA distribution after ■
■
age 70½
Amount of sales proceeds credited to SMA in a ■
■
margin account
Required cash deposit when withdrawing stock ■
■
from a margin account
70%
Corporate dividend exclusion
75%
Minimum amount of ICs assets that must ■
■
be invested in securities of other issuers to be diversified
Amount of limited partnerships assets that ■
■
must be identified to be a specified program
reguLationS
Regulation S-P
Enacted by SEC to protect the privacy of ■
■
customer information
Requires privacy notice describing privacy ■
■ policies
Regulation SHO
Mandates a locate requirement for securities to ■
■
be sold short prior to the short sale
Regulation NMS
Enacted to bring trading and reporting ■
■
uniformity to US securities markets
Order Protection Rule prohibits a trade-through ■
■
Minimum Increments Pricing Rule establishes ■
■
minimum price increments allowed depending on the price of the security
Regulation A
Small offerings exempt transaction allowing ■
■
issuers to raise up to $5 million in a 12-month period without full registration
Regulation D
Private placement exempt transaction ■
■
Up to 35 non-accredited investors ■
■
Accredited investors must meet minimum net ■
■
worth or annual income criteria Book value per share: Book value / # of
Outstanding shares
Current assets: Cash and equivalents + Accounts
receivable + Inventory
Current liabilities: Accounts payable + Accrued
wages and taxes payable
Working capital: Current assets – Current
liabilities
Current ratio: Current assets / Current liabilities Total capitalization: Long-term debt + Net
worth
Debt ratio: Long-term debt / Total capitalization Earnings per share (EPS): Earnings available to common / total outstanding common shares Price to earnings ratio (PE): CMV / EPS Dividend payout ratio: Common dividends /
EPS
Technical Analysis Concepts
Uses price and volume history to forecast ■
■
future price movements.
Use of charts to plot movement and establish ■
■
points of entry or exit.
Ex: Trend lines, levels of resistance and support,
breakouts, consolidation, and head and shoulder patterns (for reversals)
90%
Minimum of net investment income that a ■
■
mutual fund must distribute by year end under Subchapter M
Minimum amount of profits that must be ■
■
distributed by a REIT by year end
100%
Required equity when purchasing new issues, ■
■
options, and mutual fund shares
Amount of non required cash deposit credited ■
■
to SMA in margin accounts
300%
Maximum penalty amount of profit made or loss avoided under the Insider Trading Act of 1988
securities
Quicksheet
tM
SecuritieS ProductS and
concePtS
deBt
series
7
Outstanding shares Issued shares – Treasury shares (Shares repurchased by corp.) Treasury shares
(Shares repurchased by corp.) Issued shares –outstanding shares Dividends payable as Cash, stock, or
property
Annual Dividend Most recent quarterly dividend × 4 quarters Dividend (Current)
Yield
Annual dividend / Current market value
Ex: XYZ stock trading @ $42 pays a $2 annual
dividend $2 / $42 = 4.76% dividend yield 4 Dividend Dates Determined by Declaration Date Declaration Date Board of Directors Date dividend is declared Ex-Dividend Date FINRA or SRO 2 business days before record date
Record Date Board of
Directors Date trade must settle by for buyer to receive current dividend
Payable Date Board of
Directors
Date dividend is distributed
Stock Dividend Adjustment
Price of stock adjusts down for dividend ■
■
Investor receives addition shares ■
■
Aggregate value remains the same ■
■
Ex: 100 shares @ $55 = $5,500
After 10% dividend, position becomes: 110 shares @ $50 = $5,500
Note: 100 shares × 10% = 10 additional shares
Stock Split Adjustment
Price of stock adjusts down for split ■
■
Investor receives addition shares ■
■
Aggregate value remains the same ■
■
Ex: Even split: 100 shares @ $30 = $3,000
After 2-for-1 even split, position becomes: 200 shares @ $15 = $3,000
Note: $3,000 / 200 shares = $15 adjusted stock price Ex: Uneven split: 100 shares @ $30 = $3,000
After 3-for-2 uneven split, position becomes: 150 shares @ $20 = $3,000
Note: $3,000 / 150 shares = $20 adjusted stock price
Reverse Stock Split Adjustment
Price of stock adjusts up for reverse split ■■
Investor will have fewer shares ■
■
Aggregate value remains the same ■
■
Preferred Shares
Fixed par value ■
■ (assume $100 unless stated different).
Dividends are fixed stated rate (% of par). ■
■
Ex: XYZ 3.5% Preferred .035 × $100 par value =
$3.50 annual dividend
Preferred Share Types
Straight (noncumulative): Missed dividends are
not payable.
Cumulative: Missed dividend (dividends in
arrears and current preferred dividend must be paid before common).
Callable: Issuer may buy back shares after a
specified date at a specified price.
Participating: Issuer may pay more than stated
dividend.
Adjustable rate: Dividend tied to another rate
(Ex: T-bill rate).
Rights and Warrants
Rights Warrants
Available to existing shareholders
Offered with other securities as “sweeteners” Sold as units
(Ex: Bond with warrant) Short term (30 to 45
days)
Long term (2 to 5 years) When issued exercise
price is below CMV (allows purchase at a discount)
When issued exercise price is above CMV (anticipated value with time)
Not marginable Marginable
American Depositary Receipts
(ADRs)
Facilitate US citizens owning foreign shares ■
■
Foreign shares held by bank (bank issues ■
■ receipt)
ADR is US security traded in US markets, ■
■
(quoted in US dollars)
Dividends declared in foreign currency but ■
■
paid in US dollars (ADR holder has currency risk)
Real Estate Investment Trusts
(REITs)
Traded on exchanges or OTC ■
■
Provide liquidity for real estate investors ■
■
75% of assets must be invested in operating ■
■
income producing real estate or mortgages to qualify as a REIT
90% of net operating income must be ■
■
distributed for REIT to avoid taxation as a trust
Par Value
Assume $1,000 unless specified differently ■ ■
Bond Yields
Premium Par Discount Coupon CY YTM YTCCoupon, Nominal, or Stated Yield
Annual interest / Par value ■■
Ex: Bond pays $60 annual interest $60 / $1,000 = 6%
coupon yield
Current Yield
Annual interest / Current market value ■
■
Ex: Bond trading @ $1,200 pays $60 annual interest
$60 / $1,200 = 5% current yield
Bond Quotes
Price quote:
■
■ 1 bond point = 1% of par = $10
Yield quote:
■
■ 1 basis point = .01 of yield
Ex: Price quote: Bond trading @ 92
= 92% of par = .92($1,000) = $920
Ex: Yield quote: Bond trading to yield 3.70
.01(3.70) = .037; 3.7%
Callable Bonds
Issuer can buy back bonds as of a specified date ■
■
prior to maturity at a specified price.
Issuer will call bonds in anticipation of current ■
■
interest rates falling.
Allows issuer to lower the cost of borrowing. ■
■
Facilitates “refunding”; replacing one issue ■
■
with another at a lower net interest cost to the issuer.
Convertible Bonds
Conversion Ratio:
■
■ Par / conversion price
Ex: Bond convertible @ $40
$1,000 / $40 = 25 share conversion ratio
Parity price of common:
■
■ Market price of bond /
conversion ratio
Ex: Bond trading @ $1,100
Conversion ratio = 25 shares
$1,100 / 25 shares = $44 parity price of common
Parity price of bond:
■
■ Conversion ratio ×
common stock price
Ex: Bond has 25 share conversion ratio
Common stock trading @ $44
25 shares × $44 = $1,100 bond parity price
Bond Maturities
Term: Entire issue matures on one date Serial: Issue matures over a period of years
trading
Brokerage SuPPort ServiceS
inveStMent anaLYSiS
Markets
Securities
Markets Listed or Unlisted Concepts
Exchange Listed ■■Physical location Auction market ■ ■ Over-the-counter (OTC) Unlisted ■■No physical location Negotiated ■ ■ market Third market Listed,
traded OTC No physical ■ ■ location Negotiated ■ ■ market Fourth market Listed
and Unlisted Direct trading ■ ■ between financial institutions Use Electronic ■ ■ Communication Networks (ECNs)
Day orders
Cancel any unexecuted portion at end of day
Good till canceled (GTC)
Any unexecuted portion remains working until the last trading day of April or October
Order Types
Order Entered Concept
Market
(Buy or Sell) At the market Execute immediately
■ ■
at next available price
Buy limit Below
CMV
Buy at limit price or ■ ■ better (lower) Execution not ■ ■ guaranteed
Sell limit Above CMV
Sell at limit price or ■ ■ better (higher) Execution not ■ ■ guaranteed
Buy stop Above
CMV Triggered at or above ■ ■ stop price Execute immediately ■ ■
at next available price
Buy stop limit Above CMV Triggered at or above ■ ■ stop price
Execute at limit price ■ ■ or better (lower) Execution not ■ ■ guaranteed
Sell stop Below
CMV Triggered at or below ■ ■ stop price Execute immediately ■ ■
at next available price
Sell stop limit Below CMV Triggered at or below ■ ■ stop price
Execute at limit price ■ ■ or better (higher) Execution not ■ ■ guaranteed
Time-Sensitive Orders
Fill or Kill (FOK)
Execute entire order immediately or cancel entire order
Immediate or Cancel (IOC)
Execute any portion available immediately ■
■
Cancel any balance remaining ■
■
All or None (AON)
Execute all if available ■■
If entire order can not be executed hold order ■
■
as good-till-canceled (GTC)
Market at Open
Execute at or near the open of the day ■
■
Not guaranteed exact opening price ■
■
Market on Close
Execute at or near the close of the day ■
■
Not guaranteed exact closing price ■
■
Markup Policy
Guide for listed and unlisted transaction charges. Applies to markups, markdowns, and
commissions.
Order Tickets
Approved by a principal promptly after execution.
Changes to tickets must be approved by a principal.
Order Flow After Execution:
Order department or wire room:1. After
execution order with trade details returns to order department
Purchase and sales:
2. Issues confirmation with
trade details to customer
Margin department:
3. Calculates any margin
requirement due
Cashier:
4. Takes receipt and delivery of cash and securities
Settlement Dates
Type of Settlement:
Regular way (corporate and municipal): Trade
date + 3 business days (T+3)
Regular way (government): Trade date + 1
business day (T+1)
Cash: Same day; BD approval required Receipt or delivery vs. payment RVP or DVP:
Up to 35 calendar days
Seller’s option: No sooner than first day after
regular way (4th business day for corporate and municipal); no later than date specified in settlement contract
Fundamental Analysis Formulas
Net worth: Assets – Liabilities
Book value: Net worth – (Preferred and
intangibles)
PPN: 10000477
www.kfeducation.com
800-824-8742
© 2010 Kaplan, Inc. All rights reserved.
reguLatorY actS
Securities Act of 1933
Paper act, prospectus act ■
■
Regulates new issues, requires registration of ■
■
securities
Securities and Exchange Act of 1934
People and places act ■
■
Regulates BDs and associated persons, requires ■
■
registration
Antifraud provision, defined inside information ■
■
Trust Indenture Act of 1939
Applicable to corporate bond offerings of ■
■
greater than $5 million in 12 months Establishes a contract between the issuer and ■
■
the trustee for the benefit of the bondholder
Investment Company Act of 1940
Classified three types of ICs ■
■
Regulates ICs ■
■
Investment Advisors Act of 1940
Requires the registration of investment advisors ■
■
who charge fees for investment advice
Securities Investors Protection Act
of 1970
Protects customers from BD failure and ■ ■ insolvency Created SIPC ■ ■
Insider Trading and Securities
Fraud Enforcement Act of 1988
Specifies penalties for inside trading and ■
■
securities fraud
The Employee Retirement Income
Security Act of 1974 (ERISA)
Established to prevent abuse or misuse of ■
■
pension funds
Applicable to private sector retirement plans ■
■
Mandates guidelines for plan; participation, ■
■
funding, vesting, communication, nondiscrimination and beneficiaries
Telephone Consumer Protection
Act of 1991
Administered by the Federal Communications ■
■
Commission (FCC)
Protects consumers from unwanted telephone ■
■
solicitations
Defines the requirements and limitations ■
■
applied when making unsolicited calls
Bank Secrecy Act
Establishes the US Treasury as the lead ■
■
agency for developing anti-money laundering programs
Sarbanes-Oxley Act of 2002
Established enhanced standards for US public ■
■
company boards, management and accounting firms
Requires SROs in the securities industry to ■
■
establish research analysts conflict of interest rules for its members
The Uniform Securities Act
Establishes a framework for state registration ■
■
Applies to securities, broker/dealer (BDs), ■
■
registered representatives (RRs), investment advisers (IAs), and IA reps
BuSineSS daYS, caLendar
daYS, and MonthS to know
Same Business Day
Settlement date for cash transactions
1 Business Day
Regular way settlement for US Government securities and Options
2 Business Days
Ex-dividend date relationship to record date for stock
3 Business Days
Regular way settlement for corporate and municipal securities
5 Business Days
Regulation T: cash purchases must be paid in full
15 Calendar Days
Maximum length of time a customer can place options orders before the signed option agreement is required
20 Calendar Days
Cooling off period: minimum time between filing date and registration
30 Calendar Days
IRS wash sale period before and after a trade
60 Calendar Days
Maximum period of time to roll over holdings from one qualified plan to another
90 Calendar Days
Maximum time for a letter of intent to be ■
■
backdated
Length of time cash account can be frozen for ■
■
nonpayment
6 Months
Frequency IC’s are required to send reports to shareholders
13 Months
Length of time covered by a letter of intent
16 Months
Maximum length of time an IC’s prospectus is valid
PercentageS to know
0.25%
Maximum 12b-1 fee for no load fund
0.75%
Maximum 12b-1 fee
1%
100 basis points for bonds ■
■
Rule 144 sale volume limit ■
■
5%
Markup policy guideline ■
■
No more than 5% of investment company’s ■
■
assets invested in any one company
6%
Penalty for excess IRA contributions
8.5%
Maximum sales charge for open-end (mutual fund) company
10%
Penalty for premature IRA distribution ■
■
Affiliate or control person if owning 10% or ■
■
more of outstanding shares
Maximum sales charge on public limited ■
■
partnerships
Maximum amount of one company’s stock a ■
■
mutual fund can own
25%
Minimum maintenance for long stock position
30%
Minimum maintenance for short stock position
40%
Minimum percentage of mutual fund board members that must be noninterested members
50%
Regulation T ■
■
Penalty for insufficient IRA distribution after ■
■
age 70½
Amount of sales proceeds credited to SMA in a ■
■
margin account
Required cash deposit when withdrawing stock ■
■
from a margin account
70%
Corporate dividend exclusion
75%
Minimum amount of ICs assets that must ■
■
be invested in securities of other issuers to be diversified
Amount of limited partnerships assets that ■
■
must be identified to be a specified program
reguLationS
Regulation S-P
Enacted by SEC to protect the privacy of ■
■
customer information
Requires privacy notice describing privacy ■
■ policies
Regulation SHO
Mandates a locate requirement for securities to ■
■
be sold short prior to the short sale
Regulation NMS
Enacted to bring trading and reporting ■
■
uniformity to US securities markets
Order Protection Rule prohibits a trade-through ■
■
Minimum Increments Pricing Rule establishes ■
■
minimum price increments allowed depending on the price of the security
Regulation A
Small offerings exempt transaction allowing ■
■
issuers to raise up to $5 million in a 12-month period without full registration
Regulation D
Private placement exempt transaction ■
■
Up to 35 non-accredited investors ■
■
Accredited investors must meet minimum net ■
■
worth or annual income criteria Book value per share: Book value / # of
Outstanding shares
Current assets: Cash and equivalents + Accounts
receivable + Inventory
Current liabilities: Accounts payable + Accrued
wages and taxes payable
Working capital: Current assets – Current
liabilities
Current ratio: Current assets / Current liabilities Total capitalization: Long-term debt + Net
worth
Debt ratio: Long-term debt / Total capitalization Earnings per share (EPS): Earnings available to common / total outstanding common shares Price to earnings ratio (PE): CMV / EPS Dividend payout ratio: Common dividends /
EPS
Technical Analysis Concepts
Uses price and volume history to forecast ■
■
future price movements.
Use of charts to plot movement and establish ■
■
points of entry or exit.
Ex: Trend lines, levels of resistance and support,
breakouts, consolidation, and head and shoulder patterns (for reversals)
90%
Minimum of net investment income that a ■
■
mutual fund must distribute by year end under Subchapter M
Minimum amount of profits that must be ■
■
distributed by a REIT by year end
100%
Required equity when purchasing new issues, ■
■
options, and mutual fund shares
Amount of non required cash deposit credited ■
■
to SMA in margin accounts
300%
Maximum penalty amount of profit made or loss avoided under the Insider Trading Act of 1988
securities
Quicksheet
tM
SecuritieS ProductS and
concePtS
deBt
series
7
Outstanding shares Issued shares – Treasury shares (Shares repurchased by corp.) Treasury shares
(Shares repurchased by corp.) Issued shares –outstanding shares Dividends payable as Cash, stock, or
property
Annual Dividend Most recent quarterly dividend × 4 quarters Dividend (Current)
Yield
Annual dividend / Current market value
Ex: XYZ stock trading @ $42 pays a $2 annual
dividend $2 / $42 = 4.76% dividend yield 4 Dividend Dates Determined by Declaration Date Declaration Date Board of Directors Date dividend is declared Ex-Dividend Date FINRA or SRO 2 business days before record date
Record Date Board of
Directors Date trade must settle by for buyer to receive current dividend
Payable Date Board of
Directors
Date dividend is distributed
Stock Dividend Adjustment
Price of stock adjusts down for dividend ■
■
Investor receives addition shares ■
■
Aggregate value remains the same ■
■
Ex: 100 shares @ $55 = $5,500
After 10% dividend, position becomes: 110 shares @ $50 = $5,500
Note: 100 shares × 10% = 10 additional shares
Stock Split Adjustment
Price of stock adjusts down for split ■
■
Investor receives addition shares ■
■
Aggregate value remains the same ■
■
Ex: Even split: 100 shares @ $30 = $3,000
After 2-for-1 even split, position becomes: 200 shares @ $15 = $3,000
Note: $3,000 / 200 shares = $15 adjusted stock price Ex: Uneven split: 100 shares @ $30 = $3,000
After 3-for-2 uneven split, position becomes: 150 shares @ $20 = $3,000
Note: $3,000 / 150 shares = $20 adjusted stock price
Reverse Stock Split Adjustment
Price of stock adjusts up for reverse split ■■
Investor will have fewer shares ■
■
Aggregate value remains the same ■
■
Preferred Shares
Fixed par value ■
■ (assume $100 unless stated different).
Dividends are fixed stated rate (% of par). ■
■
Ex: XYZ 3.5% Preferred .035 × $100 par value =
$3.50 annual dividend
Preferred Share Types
Straight (noncumulative): Missed dividends are
not payable.
Cumulative: Missed dividend (dividends in
arrears and current preferred dividend must be paid before common).
Callable: Issuer may buy back shares after a
specified date at a specified price.
Participating: Issuer may pay more than stated
dividend.
Adjustable rate: Dividend tied to another rate
(Ex: T-bill rate).
Rights and Warrants
Rights Warrants
Available to existing shareholders
Offered with other securities as “sweeteners” Sold as units
(Ex: Bond with warrant) Short term (30 to 45
days)
Long term (2 to 5 years) When issued exercise
price is below CMV (allows purchase at a discount)
When issued exercise price is above CMV (anticipated value with time)
Not marginable Marginable
American Depositary Receipts
(ADRs)
Facilitate US citizens owning foreign shares ■
■
Foreign shares held by bank (bank issues ■
■ receipt)
ADR is US security traded in US markets, ■
■
(quoted in US dollars)
Dividends declared in foreign currency but ■
■
paid in US dollars (ADR holder has currency risk)
Real Estate Investment Trusts
(REITs)
Traded on exchanges or OTC ■
■
Provide liquidity for real estate investors ■
■
75% of assets must be invested in operating ■
■
income producing real estate or mortgages to qualify as a REIT
90% of net operating income must be ■
■
distributed for REIT to avoid taxation as a trust
Par Value
Assume $1,000 unless specified differently ■ ■
Bond Yields
Premium Par Discount Coupon CY YTM YTCCoupon, Nominal, or Stated Yield
Annual interest / Par value ■■
Ex: Bond pays $60 annual interest $60 / $1,000 = 6%
coupon yield
Current Yield
Annual interest / Current market value ■
■
Ex: Bond trading @ $1,200 pays $60 annual interest
$60 / $1,200 = 5% current yield
Bond Quotes
Price quote:
■
■ 1 bond point = 1% of par = $10
Yield quote:
■
■ 1 basis point = .01 of yield
Ex: Price quote: Bond trading @ 92
= 92% of par = .92($1,000) = $920
Ex: Yield quote: Bond trading to yield 3.70
.01(3.70) = .037; 3.7%
Callable Bonds
Issuer can buy back bonds as of a specified date ■
■
prior to maturity at a specified price.
Issuer will call bonds in anticipation of current ■
■
interest rates falling.
Allows issuer to lower the cost of borrowing. ■
■
Facilitates “refunding”; replacing one issue ■
■
with another at a lower net interest cost to the issuer.
Convertible Bonds
Conversion Ratio:
■
■ Par / conversion price
Ex: Bond convertible @ $40
$1,000 / $40 = 25 share conversion ratio
Parity price of common:
■
■ Market price of bond /
conversion ratio
Ex: Bond trading @ $1,100
Conversion ratio = 25 shares
$1,100 / 25 shares = $44 parity price of common
Parity price of bond:
■
■ Conversion ratio ×
common stock price
Ex: Bond has 25 share conversion ratio
Common stock trading @ $44
25 shares × $44 = $1,100 bond parity price
Bond Maturities
Term: Entire issue matures on one date Serial: Issue matures over a period of years
trading
Brokerage SuPPort ServiceS
inveStMent anaLYSiS
Markets
Securities
Markets Listed or Unlisted Concepts
Exchange Listed ■■Physical location Auction market ■ ■ Over-the-counter (OTC) Unlisted ■■No physical location Negotiated ■ ■ market Third market Listed,
traded OTC No physical ■ ■ location Negotiated ■ ■ market Fourth market Listed
and Unlisted Direct trading ■ ■ between financial institutions Use Electronic ■ ■ Communication Networks (ECNs)
Day orders
Cancel any unexecuted portion at end of day
Good till canceled (GTC)
Any unexecuted portion remains working until the last trading day of April or October
Order Types
Order Entered Concept
Market
(Buy or Sell) At the market Execute immediately
■ ■
at next available price
Buy limit Below
CMV
Buy at limit price or ■ ■ better (lower) Execution not ■ ■ guaranteed
Sell limit Above CMV
Sell at limit price or ■ ■ better (higher) Execution not ■ ■ guaranteed
Buy stop Above
CMV Triggered at or above ■ ■ stop price Execute immediately ■ ■
at next available price
Buy stop limit Above CMV Triggered at or above ■ ■ stop price
Execute at limit price ■ ■ or better (lower) Execution not ■ ■ guaranteed
Sell stop Below
CMV Triggered at or below ■ ■ stop price Execute immediately ■ ■
at next available price
Sell stop limit Below CMV Triggered at or below ■ ■ stop price
Execute at limit price ■ ■ or better (higher) Execution not ■ ■ guaranteed
Time-Sensitive Orders
Fill or Kill (FOK)
Execute entire order immediately or cancel entire order
Immediate or Cancel (IOC)
Execute any portion available immediately ■
■
Cancel any balance remaining ■
■
All or None (AON)
Execute all if available ■■
If entire order can not be executed hold order ■
■
as good-till-canceled (GTC)
Market at Open
Execute at or near the open of the day ■
■
Not guaranteed exact opening price ■
■
Market on Close
Execute at or near the close of the day ■
■
Not guaranteed exact closing price ■
■
Markup Policy
Guide for listed and unlisted transaction charges. Applies to markups, markdowns, and
commissions.
Order Tickets
Approved by a principal promptly after execution.
Changes to tickets must be approved by a principal.
Order Flow After Execution:
Order department or wire room:1. After
execution order with trade details returns to order department
Purchase and sales:
2. Issues confirmation with
trade details to customer
Margin department:
3. Calculates any margin
requirement due
Cashier:
4. Takes receipt and delivery of cash and securities
Settlement Dates
Type of Settlement:
Regular way (corporate and municipal): Trade
date + 3 business days (T+3)
Regular way (government): Trade date + 1
business day (T+1)
Cash: Same day; BD approval required Receipt or delivery vs. payment RVP or DVP:
Up to 35 calendar days
Seller’s option: No sooner than first day after
regular way (4th business day for corporate and municipal); no later than date specified in settlement contract
Fundamental Analysis Formulas
Net worth: Assets – Liabilities
Book value: Net worth – (Preferred and
intangibles)
PPN: 10000477
www.kfeducation.com
800-824-8742
© 2010 Kaplan, Inc. All rights reserved.
reguLatorY actS
Securities Act of 1933
Paper act, prospectus act ■
■
Regulates new issues, requires registration of ■
■
securities
Securities and Exchange Act of 1934
People and places act ■
■
Regulates BDs and associated persons, requires ■
■
registration
Antifraud provision, defined inside information ■
■
Trust Indenture Act of 1939
Applicable to corporate bond offerings of ■
■
greater than $5 million in 12 months Establishes a contract between the issuer and ■
■
the trustee for the benefit of the bondholder
Investment Company Act of 1940
Classified three types of ICs ■
■
Regulates ICs ■
■
Investment Advisors Act of 1940
Requires the registration of investment advisors ■
■
who charge fees for investment advice
Securities Investors Protection Act
of 1970
Protects customers from BD failure and ■ ■ insolvency Created SIPC ■ ■
Insider Trading and Securities
Fraud Enforcement Act of 1988
Specifies penalties for inside trading and ■
■
securities fraud
The Employee Retirement Income
Security Act of 1974 (ERISA)
Established to prevent abuse or misuse of ■
■
pension funds
Applicable to private sector retirement plans ■
■
Mandates guidelines for plan; participation, ■
■
funding, vesting, communication, nondiscrimination and beneficiaries
Telephone Consumer Protection
Act of 1991
Administered by the Federal Communications ■
■
Commission (FCC)
Protects consumers from unwanted telephone ■
■
solicitations
Defines the requirements and limitations ■
■
applied when making unsolicited calls
Bank Secrecy Act
Establishes the US Treasury as the lead ■
■
agency for developing anti-money laundering programs
Sarbanes-Oxley Act of 2002
Established enhanced standards for US public ■
■
company boards, management and accounting firms
Requires SROs in the securities industry to ■
■
establish research analysts conflict of interest rules for its members
The Uniform Securities Act
Establishes a framework for state registration ■
■
Applies to securities, broker/dealer (BDs), ■
■
registered representatives (RRs), investment advisers (IAs), and IA reps
BuSineSS daYS, caLendar
daYS, and MonthS to know
Same Business Day
Settlement date for cash transactions
1 Business Day
Regular way settlement for US Government securities and Options
2 Business Days
Ex-dividend date relationship to record date for stock
3 Business Days
Regular way settlement for corporate and municipal securities
5 Business Days
Regulation T: cash purchases must be paid in full
15 Calendar Days
Maximum length of time a customer can place options orders before the signed option agreement is required
20 Calendar Days
Cooling off period: minimum time between filing date and registration
30 Calendar Days
IRS wash sale period before and after a trade
60 Calendar Days
Maximum period of time to roll over holdings from one qualified plan to another
90 Calendar Days
Maximum time for a letter of intent to be ■
■
backdated
Length of time cash account can be frozen for ■
■
nonpayment
6 Months
Frequency IC’s are required to send reports to shareholders
13 Months
Length of time covered by a letter of intent
16 Months
Maximum length of time an IC’s prospectus is valid
PercentageS to know
0.25%
Maximum 12b-1 fee for no load fund
0.75%
Maximum 12b-1 fee
1%
100 basis points for bonds ■
■
Rule 144 sale volume limit ■
■
5%
Markup policy guideline ■
■
No more than 5% of investment company’s ■
■
assets invested in any one company
6%
Penalty for excess IRA contributions
8.5%
Maximum sales charge for open-end (mutual fund) company
10%
Penalty for premature IRA distribution ■
■
Affiliate or control person if owning 10% or ■
■
more of outstanding shares
Maximum sales charge on public limited ■
■
partnerships
Maximum amount of one company’s stock a ■
■
mutual fund can own
25%
Minimum maintenance for long stock position
30%
Minimum maintenance for short stock position
40%
Minimum percentage of mutual fund board members that must be noninterested members
50%
Regulation T ■
■
Penalty for insufficient IRA distribution after ■
■
age 70½
Amount of sales proceeds credited to SMA in a ■
■
margin account
Required cash deposit when withdrawing stock ■
■
from a margin account
70%
Corporate dividend exclusion
75%
Minimum amount of ICs assets that must ■
■
be invested in securities of other issuers to be diversified
Amount of limited partnerships assets that ■
■
must be identified to be a specified program
reguLationS
Regulation S-P
Enacted by SEC to protect the privacy of ■
■
customer information
Requires privacy notice describing privacy ■
■ policies
Regulation SHO
Mandates a locate requirement for securities to ■
■
be sold short prior to the short sale
Regulation NMS
Enacted to bring trading and reporting ■
■
uniformity to US securities markets
Order Protection Rule prohibits a trade-through ■
■
Minimum Increments Pricing Rule establishes ■
■
minimum price increments allowed depending on the price of the security
Regulation A
Small offerings exempt transaction allowing ■
■
issuers to raise up to $5 million in a 12-month period without full registration
Regulation D
Private placement exempt transaction ■
■
Up to 35 non-accredited investors ■
■
Accredited investors must meet minimum net ■
■
worth or annual income criteria Book value per share: Book value / # of
Outstanding shares
Current assets: Cash and equivalents + Accounts
receivable + Inventory
Current liabilities: Accounts payable + Accrued
wages and taxes payable
Working capital: Current assets – Current
liabilities
Current ratio: Current assets / Current liabilities Total capitalization: Long-term debt + Net
worth
Debt ratio: Long-term debt / Total capitalization Earnings per share (EPS): Earnings available to common / total outstanding common shares Price to earnings ratio (PE): CMV / EPS Dividend payout ratio: Common dividends /
EPS
Technical Analysis Concepts
Uses price and volume history to forecast ■
■
future price movements.
Use of charts to plot movement and establish ■
■
points of entry or exit.
Ex: Trend lines, levels of resistance and support,
breakouts, consolidation, and head and shoulder patterns (for reversals)
90%
Minimum of net investment income that a ■
■
mutual fund must distribute by year end under Subchapter M
Minimum amount of profits that must be ■
■
distributed by a REIT by year end
100%
Required equity when purchasing new issues, ■
■
options, and mutual fund shares
Amount of non required cash deposit credited ■
■
to SMA in margin accounts
300%
Maximum penalty amount of profit made or loss avoided under the Insider Trading Act of 1988
