Series 7 Flashcards

All 50 terms

General Securities Representative (GS)

The registration the Series 7 qualifies you for; with the SIE co-requisite it permits selling the full range of securities products.

Form U4

The registration application a sponsoring firm files through CRD; it opens the 120-day exam window.

SIE exam

FINRA's general-knowledge co-requisite: registration requires passing both the SIE and the Series 7, in either order.

FINRA

The self-regulatory organization (SRO) overseeing broker-dealers under SEC supervision; it administers the Series 7.

Regulation Best Interest (Reg BI)

SEC rule requiring recommendations to retail customers to serve the customer's best interest, not the firm's.

Retail communication

A communication to more than 25 retail investors within 30 days; generally needs prior approval by a registered principal.

Correspondence

A communication to 25 or fewer retail investors within 30 days; supervised and reviewed rather than pre-approved.

Institutional communication

Communication distributed only to institutional investors; exempt from pre-approval but still supervised.

Customer Identification Program (CIP)

Requires verifying each customer's name, date of birth, residential address and an ID number such as an SSN.

JTWROS

Joint account in which a deceased owner's interest passes to the survivors; in a tenancy in common it goes to the estate.

Custodial account (UTMA/UGMA)

One custodian manages assets for one minor, the beneficial owner; no margin, and gifts into the account are irrevocable.

Discretionary account

Written authorization lets the rep choose the security, amount or action; picking only time or price is not discretion.

Margin account

The customer borrows part of the purchase price and pledges the securities, after signing the margin agreement.

Regulation T

The Federal Reserve rule setting the initial deposit on margin purchases and payment deadlines in cash accounts.

Maintenance margin

FINRA's minimum ongoing equity: 25% of market value long, 30% short; firms may impose stricter house levels.

SMA

A bookkeeping line of credit recording excess margin equity; it preserves buying power even if the market later falls.

Preferred stock

Equity paying a fixed dividend with priority over common for dividends and liquidation; usually non-voting.

Warrant

A long-term right to buy the issuer's stock at a price set above the market at issuance; rights are short-term and below market.

American depositary receipt (ADR)

A US-traded receipt for foreign shares; it trades and pays dividends in dollars but still carries currency risk.

Ex-dividend date

The first day a stock trades without its pending dividend; buy before it to receive the dividend.

Current yield

Annual interest or dividend divided by the current market price; between coupon rate and YTM for a bond away from par.

Yield to maturity (YTM)

A bond's total annualised return if held to maturity, including amortisation of any purchase discount or premium.

Convertible bond

A bond exchangeable for a set number of common shares; the conversion right lets it carry a lower coupon.

Accrued interest

Interest the buyer pays the seller up to, but not including, settlement; corporates and munis use 30/360, governments actual days.

TIPS

Treasuries whose principal adjusts with CPI inflation; the fixed coupon rate is paid on the adjusted principal.

CMO

Mortgage-pool cash flows split into tranches with different priorities and different prepayment and extension risk.

General obligation (GO) bond

A muni backed by full faith, credit and taxing power; typically voter-approved and subject to debt limits.

Revenue bond

A muni repaid only from the financed facility's earnings; analysed via coverage ratios, feasibility and rate covenants.

Official statement

The disclosure document for a new municipal issue, describing the offering, the issuer's finances and the security behind it.

Legal opinion

Bond counsel's statement that a municipal issue is legally valid and its interest is exempt from federal income tax.

Net asset value (NAV)

Fund assets minus liabilities per share; open-end orders fill at the next NAV computed after arrival (forward pricing).

Breakpoint

A purchase level where a fund's sales charge drops; recommending a buy just below one is a prohibited breakpoint sale.

Letter of intent (LOI)

A pledge to reach a breakpoint within 13 months, earning the lower charge immediately; backdatable up to 90 days.

12b-1 fee

An annual distribution and marketing fee deducted from fund assets; unlike a load, it reduces returns every year.

Variable annuity

An insurance contract whose value tracks a separate account; earnings grow tax-deferred and payouts vary with results.

Assumed interest rate (AIR)

The benchmark in a variable annuity payout: beat it and the next payment rises, lag it and the payment falls.

1035 exchange

A tax-free exchange between qualifying insurance or annuity contracts, deferring recognition of accumulated gains.

Direct participation program (DPP)

A limited partnership passing income and losses straight through to investors; illiquid, judged on economic viability.

General partner (GP)

The partnership's manager: unlimited personal liability and a fiduciary duty to the limited partners.

Call option

The right to buy 100 shares at the strike before expiration; buyers profit when the stock rises.

Put option

The right to sell 100 shares at the strike before expiration; buyers profit when the stock falls or hedge long stock.

Intrinsic value

The amount an option is in the money; premium minus intrinsic value equals time value.

Covered call

Selling a call against owned stock for premium income; it caps the upside at the strike plus the premium.

Protective put

Buying a put against long stock as insurance; maximum loss is the distance to the strike plus the premium paid.

Straddle

A call and a put, same strike and expiration; long profits from a big move either way, short from a flat market.

Options Clearing Corporation (OCC)

Issuer and guarantor of listed options; it standardises contracts and allocates exercise notices randomly among short firms.

Stop order

Activates at the stop price, then executes at the market; a stop-limit fills only at the limit price or better.

Regular way settlement

One business day after the trade date (T+1) for equities and corporate and municipal bonds; cash settlement is same-day.

ACATS

The automated account-transfer service: the receiving firm submits the instructions and the carrying firm validates them.

Wash sale

Selling at a loss and rebuying the same or a substantially identical security within 30 days; the loss is disallowed and added to basis.