Wiley FINRA Series 62 Exam Review 2017

About the Series 62 Exam xv About This Book xix About the Test Bank xxi About the Securities Institute of America xxiii Chapter 1 Equity Securities 1 What Is a Security? 1 Equity = Stock 2 Common Stock 2 Corporate Timeline 2 Values of Common Stock 4 Rights of Common Stockholders 5 Why Do People Buy Common Stock? 11 What Are the Risks of Owning Common Stock? 12 How Does Someone Become a Stockholder? 12 Preferred Stock 14 Dividend Distribution 18 Warrants 20 American Depositary Receipts (ADRs)/American Depositary Shares (ADSs) 22 Real Estate Investment Trusts (REITs) 22 Structured Retail Products/SRPs 24 Limited Partnerships 25 Pretest 33 Chapter 2 Debt Securities 39 Corporate Bonds 39 Types of Bond Issuance 40 Bond Certificate 41 Bond Pricing 41 Bond Yields 43 Bond Maturities 46 Types of Corporate Bonds 47 Zero-Coupon Bonds 49 Guaranteed Bonds 49 Convertible Bonds 49 The Trust Indenture Act of 1939 52 Bond Indenture 52 Ratings Considerations 52 Retiring Corporate Bonds 53 Collateralized Mortgage Obligation (CMO) 55 Exchange-Traded Notes (ETNs) 57 Other Asset Backed Securities 58 Pretest 59 Chapter 3 Government Securities 63 Series EE Bonds 63 Series HH Bonds 64 Treasury Bills, Notes, and Bonds 64 Treasury Notes 65 Treasury Bonds 65 Treasury Bond and Note Pricing 65 Treasury Strips 66 Treasury Receipts 66 Treasury Inflation-Protected Securities (TIPS) 66 Agency Issues 67 Pretest 69 Chapter 4 The Money Market 71 Money Market Instruments 71 Corporate Money Market Instruments 71 Government Money Market Instruments 73 Municipal Money Market Instruments 74 International Money Market Instruments 74 Interest Rates 74 Pretest 77 Chapter 5 Economic Fundamentals 79 Gross Domestic Product 79 Economic Indicators 81 Economic Policy 83 Tools of the Federal Reserve Board 83 Fiscal Policy 86 International Monetary Considerations 88 London Interbank Offered Rate/Libor 88 Yield Curve Analysis 88 Pretest 91 Chapter 6 Issuing Corporate Securities 95 The Securities Act of 1933 95 The Prospectus 96 The Final Prospectus 96 SEC Disclaimer 97 Misrepresentations 97 Tombstone Ads 98 Free Riding and Withholding/FINRA Rule 5130 98 Underwriting Corporate Securities 99 Exempt Securities 104 Review of Underwriting Agreements by FINRA 104 Exempt Transactions 105 Crowdfunding 110 Rule 415 Shelf Registration 111 Securities Offering Reform Rules 111 SEC Rule 405 111 Offering of Securities by FINRA Members 112 Private Placements by Member Firms 113 Pretest 115 Chapter 7 Trading Securities 119 Types of Orders 119 The Exchanges 122 Priority of Exchange Orders 123 The Role of the Designated Market Maker 123 The Dmm Acting As a Principal 124 The Dmm Acting As an Agent 124 Crossing Stock 126 Do Not Reduce (DNR) 127 Adjustments for Stock Splits 127 Stopping Stock 128 Commission House Broker 129 Two-Dollar Broker 129 Registered Traders 129 Super Display Book/SDBK 129 Short Sales 130 Threshold Securities 133 Block Trades 134 Trading Along 134 Circuit Breakers 135 Listing Requirements for the NYSE 136 Reading the Consolidated Tape 137 Exchange Qualifiers 138 The Nasdaq Market 139 The Alternative Display Facility (ADF) 145 Trade Reporting and Comparison Service (TRACS) 146 Electronic Communication Networks (ECNS) 146 Unlisted Trading Privileges 147 Market Centers 147 SEC Regulation NMS 148 SEC Regulation ATS 148 Direct Market Access 149 Nasdaq International 150 Non-Nasdaq OTC BB 151 Pink OTC Market 152 Third Market 152 Fourth Market 153 Market Maker Regulations and Responsibilities 153 Times for Entering a Quote 153 The Opening Cross 154 Order Imbalances 154 The Nasdaq Official Opening Price (NOOP) 154 The Closing Cross 155 The Nasdaq Halt Cross 156 Withdrawing Quotes 156 Handling and Displaying Customer Limit Orders 157 The Manning Rule 159 The Order Audit Trail System (OATS) 160 Automated Confirmation System/ACT Market Center Trade Reporting Facility 161 ACT/TRF Trade Scan 161 Avoiding Double Reporting 163 Market Making During Syndication 167 Trade Reporting and Compliance Engine (TRACE) 172 Broker vs. Dealer 173 FINRA 5% Markup Policy 174 Markups/Markdowns When Acting As a Principal 174 Riskless Principal Transactions 175 Net Transactions with Customers/FINRA Rule 2124 176 Proceeds Transactions 176 Dominated and Controlled Markets 177 Net Transactions with Customers 177 Firm Quote Rule 178 The Firm Quote Compliance System (FQCS) 179 Trade Complaints Between Members 179 Rogue Trading Prevention 180 Arbitrage 180 Pretest 183 Chapter 8 Customer Accounts 187 Opening a Customer Account 187 Holding Securities 189 Mailing Instructions 190 Types of Accounts 190 Death of a Customer 192 Partnership Accounts 192 Corporate Accounts 192 Trading Authorization 193 Accounts for Employees of Other Broker Dealers 198 Numbered Accounts 198 Day Trading Accounts 198 Account Transfer 199 Option Accounts 200 Margin Accounts 201 Commingling Customer s Pledged Securities 202 Wrap Accounts 202 Regulation S-P 202 Pretest 205 Chapter 9 Margin Accounts 211 Regulation of Credit 211 Establishing a Long Position in a Margin Account 214 Establishing a Short Position in a Margin Account 220 Combined Margin Accounts 225 Margin Requirements for Day Trading 226 Portfolio Margin Accounts 226 Securities Backed Lines of Credit 227 Minimum Margin for Leveraged ETFs 227 Pretest 229 Chapter 10 Retirement Plans 233 Individual Plans 233 Individual Retirement Accounts (IRAs) 234 Keogh Plans (HR-10) 239 Tax Sheltered Annuities (TSAs)/Tax Deferred Accounts (TDAs) 240 Employee Retirement Income Security Act of 1974 (ERISA) 245 The Department of Labor Fiduciary Standards 247 Health Savings Account 248 Pretest 249 Chapter 11 Brokerage Office Procedure 253 Executing an Order 253 Clearly Erroneous Reports 255 Execution Errors 255 Corporate and Municipal Securities Settlement Options 256 When-Issued Securities 257 Government Securities Settlement Options 258 Accrued Interest 258 Rules for Good Delivery 261 Delivery of Round Lots 262 Delivery of Bond Certificates 262 Rejection of Delivery 263 Don t Know Procedures (DK) 263 Fail to Deliver/Fail to Receive 263 Due Bills 263 Customer Account Statements 263 Carrying of Customer Accounts 264 Proxies 265 Pretest 267 Chapter 12 Fundamental and Technical Analysis 271 Fundamental Analysis 271 Changes in the Balance Sheet 274 Technical Analysis 280 Efficient Market Theory 284 Capitalization Weighted Index 285 Price Weighted Index 285 Pretest 287 Chapter 13 Customer Recommendations, Professional Conduct, and Taxation 289 Professional Conduct in the Securities Industry 290 Fair Dealings with Customers 290 Recommendations to an Institutional Customer 294 Recommending Exchange Traded Funds (ETFs) 294 Information Obtained from an Issuer 295 Disclosure of Client Information 295 Borrowing and Lending Money 296 Gift Rule 296 Outside Employment 297 Private Securities Transactions 297 Customer Complaints 298 Investor Information 298 Know Your Customer 298 Investment Objectives 299 Risk vs. Reward 301 Suitability Standards 304 Recommendations Through Social Media 304 Tax Structure 306 Investment Taxation 306 Calculating Gains and Losses 307 Taxation of Interest Income 309 Inherited Securities 309 Donating Securities to Charity 310 Estate Taxes 310 Withholding Tax 311 Corporate Dividend Exclusion 311 Alternative Minimum Tax (AMT) 311 Taxes on Foreign Securities 312 Pretest 313 Chapter 14 Securities Industry Rules and Regulations 319 The Securities Exchange Act of 1934 319 The National Association of Securities Dealers (NASD) 321 Registration of Agents/Associated Persons 323 Securities Investor Protection Corporation Act of 1970 (SIPC) 339 The Securities Acts Amendments of 1975 340 The Insider Trading and Securities Fraud Enforcement Act of 1988 341 Telemarketing Rules 342 The Penny Stock Cold Call Rule 343 The Role of the Principal 344 Currency Transactions 347 The Patriot Act 348 Identity Theft 349 The Uniform Securities Act (USA) 350 Sarbanes-Oxley Act 350 SEC Regulation S-K 352 SEC Regulation M-A 353 FINRA Rule 5150 Fairness Opinion 354 SEC Regulation S-X 355 Regulation FD Fair Disclosure 355 Pretest 357 Answer Keys 363 Glossary of Exam Terms 375 Index 441