Wiley FINRA Series 99 Exam Review 2017

About the Series 99 Exam xiii About This Book xvi About the Test Bank xvii About the Securities Institute of America xviii 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 21 The Money Market 36 Limited Partnerships 38 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 52 Disciplinary Actions Against a Registered Representative 53 Termination for Cause 54 Outside Employment 54 Private Securities Transactions 55 Gift Rule 55 Sharing in a Customer s Account 56 Borrowing and Lending Money 56 Order Tickets 57 Executing an Order 57 Becoming a Stockholder 59 Clearly Erroneous Reports 60 Execution Errors 61 Unconfirmed Trades 62 Corporate and Municipal Securities Settlement Options 62 When-Issued Securities 64 Government Securities Settlement Options 65 Accrued Interest 65 Close Outs 66 Customer Confirmations 67 Rules for Good Delivery 68 Rejection of Delivery 70 Reclamation 70 Marking to the Market 71 Customer Account Statements 71 Dividend Distribution 72 Proxies 74 Operations Professionals Covered Persons 75 Operational Red Flags 76 Pretest 77 Chapter 3 Record Keeping, Financial Requirements, and Clearing 81 Blotters 81 General Ledger 82 Customer Accounts 82 Suspense Account 82 Subsidiary (Secondary) Records 82 Securities Position Book (Ledger) Stock Record 83 Order Tickets 83 Confirmations and Notices 83 Monthly Trial Balances and Net Capital Computations 83 Employment Applications 83 Records Required to Be Maintained for 3 Years 84 Records Required to Be Maintained for 6 Years 84 Records Required to Be Maintained for the Life of the Firm 84 Requirement to Prepare and Maintain Records Under SEC 17a-3 and 17a-4 86 Financial Requirements 87 Box Counts 89 Missing and Lost Securities 90 The Customer Protection Rule 91 FINRA Financial Requirements 94 Fidelity Bonds 95 Carrying of Customer Accounts 96 The Depository Trust & Clearing Corporation (DTCC) 97 The Fixed Income Clearing Corporation (FICC) 98 The Option Clearing Corporation (OCC) 99 American vs. European Exercise 99 Expiration and Exercise 100 Pretest 101 Chapter 4 Issuing Corporate Securities 105 The Prospectus 106 The Final Prospectus 106 Prospectus to Be Provided to Aftermarket Purchasers 107 SEC Disclaimer 108 Misrepresentations 108 Tombstone Ads 108 Free Riding and Withholding/FINRA Rule 5130 109 Underwriting Corporate Securities 110 Types of Underwriting Commitments 111 Types of Offerings 113 Exempt Securities 115 Exempt Transactions 115 Rule 137 Nonparticipants 122 Rule 138 Nonequivalent Securities 123 Rule 139 Issuing Research Reports 123 Rule 415 Shelf Registration 124 Securities Offering Reform Rules 124 SEC Rule 405 125 Additional Communication Rules 126 Crowdfunding 127 Pretest 129 Chapter 5 Trading Securities 133 Types of Orders 133 The Exchanges 137 The Role of the Designated Market Maker 138 Crossing Stock 141 Do Not Reduce (DNR) 141 Adjustments for Stock Splits 142 Super Display Book (SDBK) 142 Short Sales 143 Threshold Securities 146 Over the Counter/Nasdaq 147 Electronic Communication Networks (ECNs) 150 Non-Nasdaq OTC Bulletin Board 151 Pink OTC Market 151 Third Market 152 Fourth Market 152 The Order Audit Trail System (OATS) 153 Broker vs. Dealer 153 FINRA s 5% Markup Policy 154 Markups/Markdowns When Acting as a Principal 155 Riskless Principal Transactions 155 Net Transactions with Customers 156 Proceeds Transactions 156 Firm Quote Rule 157 Trade Complaints Between Members 157 Pretest 159 Chapter 6 General Supervision 163 The Role of the Principal 163 Continuing Education 165 Tape Recording Employees 167 Heightened Supervisory Requirements 167 Information Obtained from an Issuer 168 Customer Complaints 168 Investor Information 169 Member Offices 169 Annual Compliance Review 171 Business Continuity Plan 171 Currency Transactions 172 The Patriot Act 172 Identity Theft 174 Pretest 175 Chapter 7 Customer Accounts 179 Opening a New Customer Account 179 Holding Securities 181 The Depository Trust Company (DTC) 182 Mailing Instructions 183 Types of Ownership 183 Death of a Customer 184 Partnership Accounts 185 Trusts 185 Corporate Accounts 186 Trading Authorization 186 Accounts for Employees of Other Broker Dealers 191 Numbered Accounts 191 Prime Brokerage Accounts 191 Account Transfers 192 Bulk Account Transfers 193 Margin Accounts 194 Guaranteeing a Customer s Account 196 Day Trading Accounts 196 Commingling Customer s Pledged Securities 196 Wrap Account 197 Regulation S-P 197 Pretest 199 Chapter 8 Margin Accounts 203 Regulation of Credit 203 House Rules 206 Establishing a Long Position in a Margin Account 206 Establishing a Short Position in a Margin Account 212 Margin Requirements for Day Trading 216 Combined Margin Accounts 217 Portfolio Margin Accounts 218 Securities Backed Lines of Credit 219 Minimum Margin for Leveraged ETFs 219 Pretest 221 Chapter 9 Investment Companies 225 Investment Company Philosophy 225 Types of Investment Companies 226 Investment Company Registration 228 Investment Company Components 230 Mutual Fund Distribution 233 Distribution of Mutual Fund Shares 234 Mutual Fund Prospectus 234 Additional Disclosures by a Mutual Fund 236 Anti-Reciprocal Rule 236 Money Market Funds 237 Valuing Mutual Fund Shares 237 Mutual Fund Sales Charges 237 Sales Charge Reductions 239 Voting Rights 243 Portfolio Turnover 244 Recommending Mutual Funds 244 Exchange Traded Funds/ETFs 245 Exchange Traded Notes/ETNs 245 ETFs That Track Alternatively Weighted Indexes 245 Alternative Funds 246 Floating Rate Bank Loan Funds 246 Structured Retail Products/SRPs 247 Pretest 249 Chapter 10 Variable Annuities and Retirement Plans 253 Annuities 253 Recommending Variable Annuities 257 Retirement Plans 262 ERISA 404C Safe Harbor 275 Department of Labor Fiduciary Rules 276 Health Savings Accounts 276 Pretest 279 Chapter 11 Securities INDUSTRY Rules and Regulations 283 The Securities Exchange Act of 1934 283 Becoming a Member of FINRA 287 Registration of Agents/Associated Persons 288 State Registration 289 Retail Communications/Communications with the Public 289 Securities Investor Protection Corporation Act of 1970 294 The Securities Acts Amendments of 1975 295 The Insider Trading and Securities Fraud Enforcement Act of 1988 296 Firewalls 296 Telemarketing Rules 297 The Penny Stock Cold Call Rule 298 Violations and Complaints 299 Political Contributions 303 Investment Adviser Registration 304 Investment Adviser Representatives 306 Investment Adviser Advertising and Sales Literature 307 Soft Dollars 308 The Uniform Securities Act 310 Pretest 311 Answer Keys 315 Glossary of Exam Terms 323 Index 389