Securities

Stocks
Bonds
MFs
ETFs
Variable Annuity
Variable Life Insurance
Options
Warrants
Rights
CMO (mortgage)

NOT
- Fixed Annuity
- Life Insurance
EQUITY- STOCK
- Authorized stock shares 100
- IPO (company issues shares): number of authorized shares company
chooses to issue 70
- Treasury Stock: Shares corp. has bought back 20
- Outstanding stock: 100-70+20=50
- EPS(earning per shares)= NI(net income)/(outstanding stock)
RIGHTS WHEN OWNING STOCK
- Voting Rights
o Board Members
o Independent Auditor
o Issuance of Bonds
o Stock split
o Mergers
o Major Policy Changes
Statutory Voting Rights (1 vote for each share: 500 for P
500 for VP 500 for S 500 for T)
Cumulative Voting Rights (Shares x Number of Positions:
500 x 4 positions= 2000 votes that can be used however
the stock holder wants: 1,500 for P and 250 for VP and 250
for T)
-

Preemptive Rights
o If new shares are issued, you have right to buy new shares to
maintain your position in the company
Limited Liabilities

o Only liable for your investment in the stock of the company

Right to Transfer
o Transfer Agents
Keep track of stock splits
CUSIP
Inspect Books (Balance sheet/income statement etc)
Residual Claims to Firm

CUMULATIVE PREFERRED
- When company decides to start paying dividend again, company has to
make up for years that they didnt pay a dividend. (Better for
shareholders than NON CUM PREF)
DONT COUNT WEEKENDS OR HOLIDAYS WHEN COUNTING TRADE DAYS
ONLY COMMON STOCK HOLDERS HAVE VOTING RIGHTS, NOT PREFERRED
- Kinda like bonds, but bonds have maturity dates and stock is
perpetual
- Preferred stock are interest rate sensitive (inverse correlation)
Participating Preferred stock
- As companies earnings increase, dividend also increases
DIVIDENDS
- Taxed as ordinary income at income tax rate
STREET NAME
- How accounts are owned in a brokerage account.
WARRANT
- Gives you the right to buy a stock (Usually pretty long term)
- Above the current market price
- Kind of like an In-the-money option
RIGHTS
- Also gives you the right to buy stock (Short term)
- Below the current market price
- Kind of like an out-of-the-money option
ADR
- When US bank buys foreign stock and turns around and issues shares
denominated in US dollars
- American Depository Receipt

Bearer certificate to Registered certificate (Registered has your name

on it, bearer is like a 100 dollar bill)
Long ticker symbol that ends with a Y
Many cross listings (Toyota, BP) are also ADRs

REIT
- Investment in real estate
- 75% actually has to be invested in real estate
- 90% of income has to be paid out to shareholders
BONDS
- Can be registered by principle only
- Bond prices and interest rates are inversely correlated
- Usually priced as percent (105%= $1,050)
- Real return= Return rate without inflation
- Inflation=Nominal return-real return
CURRENT YIELD
- Assume annual
- Payment(annual)/Current price
YIELD TO MATURITY YTM
- Annualized return if you buy bond today and keep it until maturity rate.
- Total of all coupon payments and return on maturity date
- Discount bond (coupon lower than YTM)
- Premium bond (coupon higher than YTM)
CALLABLE BONDS
- In the best interest of the issuer
- Usually exercised if interest rates fall and they can reoffer bond at
lower coupon rate
- Call date is announced prior to selling, company cannot call at any
time before this date
GOVT SECURITIES
- EE Savings bond
- HH Semi-annual payments
BILLS: Maturity (call date) is in 1 year or less
- Sold at a discount because they dont make payments
NOTES: Maturity in 2-10 years
- Make two semi-annual payments
BONDS: More than 10 years
- Make two semi-annual payments
STRIPS
- Own right to interest payments and right to get $1,000 back
- Strips are when you separate these two rights, and you can transfer
one of these rights to another party

TIPS
- Amount of money you get back adjusts every year for inflation.
- Treasury bond whose maturity value increases by the inflation right.
(Youll get more than 1,000 dollars back at maturity)
- Payment also goes up by par value
AGENCIES
- GNMA
- FNMA
- Sallie May
MUNI BONDS
- G.O: General Obligation (Safer than Revenue), backed by the ability to
tax
- Revenue Bonds: Toll Roads, hospitals, water/sewer, transit systems.
Depends on the ability to project to generate revenue
SYNDICATE: A group of underwriters
- Management fee per bond which goes to lead underwriter managing
the syndicate
- Underwriter fee
SELLING CONCESSION: The money that goes to the dealers from the spread
NO federal taxes and no state or local taxes on MUNI BONDS
Muni yield is less than equivalent risked corporate bond because you dont
have to pay taxes on Muni Bonds.
Municipal Bonds are only suitable for people in high tax brackets
MONEY MARKET INSTRUMENTS
- Generally something that will mature within a year
SECURITIES ACT OF 1993- Anything dealing with the issuance of new
securities
1934 ACT- Regulates secondary trade markets (SCC)
CERTIFICATE OF DEPOSIT (CD)
- Essentially a savings account with a maturity date
- Deposit money into CD, and cant take money out until maturity
- Guaranteed by the FDIC (federal deposit insurance coporation): for
banks
- SPIC (securities insurance protection corporation): for broker-dealers
o Doesnt protect against market losses

FEDERAL FUNDS
- Rate charged to banks borrowing overnight from other banks
- Example of money market investment
OPEN MARKET OPERATIONS
- Buying and selling of treasury bills
- Fedl government tool used to manipulate federal funds rate
Repurchase agreement (REPO)
- Dealer sells a loan to the bank, and promises to buy the loan back at a
later date
o Reverse REPO is the opposite
- FIXED REPO
o Interest rate is always fixed, but date is also fixed
- OPEN REPO
o Interest rate also fixed, but date is open
TBILL
- Matures in 3 months
MONEY MARKET FUND
- Where cash goes in a brokerage account if youre not investing in
securities
- Totally liquid
- Can buy fractional shares
- Technically a mutual fund with no commission
BROKERS CALL RATE
- Rate at which bank will lend money to brokerage funds for letting
people borrow on margin account
DISCOUNT RATE
- Rate at which banks are charged to borrow from federal reserve
PRIME RATE
- What bank will charge as interest to its best customers
- Lowest rate customers can borrow at
GDP
-

Value of all the goods and services sold in American economy

Includes Consumptions+Investments
Measure of how well the economy is doing
Average GDP growth is around 3%

THINGS THAT DO WELL IN A RECESSION

- Pharmaceuticals and healthcare

- Alcohol tobacco and gambling
- Basic household necessities
- Consumer staples
DEPRESSION
- Prolonged recession
- 18 months of consecutive negative GDP growth
FISCAL POLICY
- Regulating the Margin Rate
o Raising margin rate decreases money supply
- Moral suasion
o Verbal statements from fed that can influence money supply
MONETARY POLICY
- Fed tools
o Reserve Requirement
Raising reserve requirement decreases the money supply.
o Discount Rate (Rate which banks borrow from fed overnight)
If you raise discount rates, money supply goes down
o Target Fed Funds
o Open Market Operations
Most used tool of the federal reserve
Buying and selling of Treasury bills
If fed buys treasury bills, money supply goes up
M1 MONEY SUPPLY
- Cash
- Demand Deposit
M2 MONEY SUPPLY
- Money Markets
- Time deposit<$100,000
- Overnight Repo
- Negotiated CD over $100,000
M3 MONEY SUPPLY
- Negotiated CD under $100,000
- All time deposits
- Repo more than 1 night
DISINTERMEDIATION
- Crowd funding
CONSUMER PRICE INDEX

Essentially a measure of inflation

What Americans pay for a normal basket of goods

NOMINAL RATE
- Includes inflation
REAL RATE
- Excludes inflation
FALLING INTEREST RATES ARE GOOD FOR STOCKS
FALLING INTEREST RATES INCREASE MONEY SUPPLY
FALLING TAXES GOOD FOR STOCKS
MUTUAL FUNDS
- Pool of securities
- Open Ended
o Create shares for you when you invest
- Closed Ended
1933 ACT
- Deals with initial offerings of securities
CASH vs MARGIN
CASH
- Pay for Everything
MARGIN
- Borrow to buy stock
- 1934 Reg T: 50 %
- Short sales
- Margin is only used in secondary markets
- NON MARGINABLE
o IPOS
o Options
o Non-NASDAQ over-the-counter securities
- Individual brokerage firms can make rules more strict (must put 70%
down) but they cannot make rules more lenient (30% down)
LONG MARGIN
- Buy $12,000 of IBM
o $6,000 cash OR
o $12,000 worth of another marginable security
- EXCEPTION: Have to put at least $2,000 down

o Buy $3,500 of IBM on margins

o Have to put $2,000 down still
LONG MARKET VALUE
- Total value of amount youve put down and amount youve borrowed
DEBIT BALANCE
- Amount that youve borrowed from the brokerage firm when you buy
on margin
- You pay interest on debit balance because youve borrowed money
EQUITY
- =Long market value-debit value
LMV
DB
EQUITY
12,000 - 6,000 = $6,000
15,000 - 6,000 = $9,000
10,000 - 6,000 = $4,000
<RESTRICTED ACCOUNT
8,000 - 6,000 = $2,000
<MARGIN CALL
3,000 - 6,000= $-3,000
Margin call would happen at $8,000 (4/3 * 6,000)
RESTRICTED ACCOUNT
- When you double your debit balance and that number is larger than
your LMV
- Cant take any money out of it
- Cant buy any stock in their without paying the full REG T on the new
one
MARGIN CALL
- Have to put money into margin account on same day
SMA-

SPECIAL MEMO ACCT

Excess Equity
+ Dividends
+ Interest
+ Deposits
+ Sale Proceeds
- Dividends (If you short a stock and it pays a dividend, belongs to
actualy person that owns the stock)
- - Interest Payment (last day of the month)
- - Withdraw
- - Purchase

BUYING POWER
- SMA x 2

If you have 6,000 dollars worth of SMA, you can buy 12,000 dollars
worth of stock

SHORT MARKET VALUE

- Not a debit balance, but a credit balance
REG T
Short $40,000 of MMM
Deposit $20,000 cash OR $40,000 or another marginable security
EQUITY= CREDIT- SHORT MARKET VALUE
$20,000=
$60,000-$40,000
$30,000= $60,000-$30,000 (MMM value goes down) <EXCESS EQUITY
$10,000= $60,000-$50,000 (MMM value goes up) <RESTRICTED ACCOUNT
MARGIN CALL= 30% (SMV at that time)
(When you short sale, you get money for selling of stocks, plus the 50%
margin you put down. So in this case, 40,000+20,000=60,000 which is your
credit value)
(YOU WANT SHORT MARKET VALUE TO BE 0)
LMV SMV CRED BAL DEBIT BAL EQUITY
+
+
=
40,000 20,000 + 30,000 10,000 = 40,000
HYPOTHECATION
ACT 1933
- Cannot misrepresent an offering
PROSPECTUS
- Financial information described in the IPO
- All the details about the offering
SEC DISCLAIMER
- SEC never makes any recommendation of whether or not you should
buy something
- Have not been approved or disapproved by the SEC and SEC cant
confirm the accuracy of fund information
- SEC DOES NOT APPROVE/DISAPROVE ANYTHING

TOMBSTONE AD
- Name of company
- How many shares have become available
- Underwriters listed
MARKET ORDERS
- Buy/sell shares at the market price
- Used when you want to guarantee trade to go through
- Used when youre not particularly price sensitive
LIMIT ORDER (BUY 100 IBM @135 OB)
- When price hits 135 or lower, it will automatically buy 100 shares of
IBM
- Most you could pay is 135
- If it never hits 135, youll never get it
- SELL 400 JNJ @95 OB (or better)
- Can get partial orders
o Can also used Day limits, which cancel trade if it doesnt happen
that day
o GTC (good til cancel) trade stays active until they are physically
cancelled
- Orders take precedence by time. If two orders come in simultaneously,
the larger order takes precedence.
STOP
-

ORDER
If position slides below stop price, it sells the stock.
Used to protect your losses
LONG 100 MSFT @45
SELL STOP MSFT @38

SHORT 100 MSFT @45

BUY STOP 100 MSFT @55

Puts Que (line) to buy stock if it hits stop price

Can put special condition saying ALL OR NONE (tells them not to split
up order)

Can mark trade IMMED or CANCEL (likely to get partial shares on

something like that)

FILL or KILL (want it all filled immediately). Difference between this and
ALL or NON is time.

WHAT CAN I DO TO PROTECT MYSELF IN A SHORT SELL

- Put option to cover
- Limit Stop order
- Cover it
SPECIALIST OR DESIGNATED MARKET MAKER
- There to maintain an orderly market
CROSSING STOCK
- When you simultaneously have someone that wants to buy 300 and
someone who wants to sell 300, so you dont take it in your inventory
(if youre a specialist) and just act as a broker.
STOCK SPLITS
- Order also splits
- BEFORE: Buy 100 IBM @135 OB
- AFTER: Buy 200 IBM @67.50 OB
STOPPING STOCK
- Guarantees a certain price, but gives market maker time to see if there
is a better deal
DK NOTICE
- Dont know. When a trade goes off and you cant find the
counterparty
COMMISSION HOUSE BROKER
- Brokers doing trade for their clients
- 2 dollar broker- An independent contractor who will do trades for
anybody
TRADER
- Buys/sells stock for a short period of time either independently or
commissioned by a firm
SUPER DISPLAY BOOK
- Small orders that are completely computerized
RISK MANAGING:
RULE 200
- Have to have entire book marked whether youre long or short
ODC NASDAQ
LEVEL 1: Best Price

LEVEL 2: All prices and place orders

LEVEL 3: Market Makers
EX-DIVIDEND DATE
- 2 days before the record
QUESTIONS
-

never imply that FINRA or the SEC recommends everything

everyone is liable if there is false information in the prospectus
money market funds that can trade (short term, maturity of less than a
year, bankers acceptance)
Bills, notes, bonds. Increasing maturities
Federal Reserve Board to stimulate economy (change discount rate,
purchase bonds in secondary market, change the margin requirement)
NEVER would change reserve requirement
Balanced fund invests in stocks and bonds based on predetermined
formula
FINRA takes disciplinary action against a member, the decision
becomes final in 45 days
If an investor can lose part or all of his capital, it is called capital risk
Market risk is based on beta
Reinvestment risk is based on interest rates
Credit risk: bankruptcy and defaulting on bond debt
Market-makers function as dealers or principals. They do accept roundlot orders
Ex-legal: no legal opinion was obtained
Recourse loan: could require additional payments
Treasury STRIP: government-issued zero-coupon bonds. Issued at a
discount and mature at 1000.
If collateral in a portfolio of a private label CMO is guarantees, there is
not guarantee that customer will receive interest payments in a timely
manner.
Factors that determine underwriters spread would NOT include
managments ownership of the company
STRADDLE: Long/put same day same amount
Strike price-premium= PUT break-even
What can trade in money market?: Bankers acceptance
A business must hire an underwriter to advise about what types of
securities should be issues
DMM: designated market maker
Workout quote: dealer has time to settle price within a range
Joint Tenant with Rights of Survivorship: Guaranteses that surviving
pary will become the sole owner of all assets in the event of ones
death
Five percent mark-up policy- Guide-line, not bylaw

Third market securities: Listed securities over the counter (NASDAQ)

Fourth Market: institution to institution
T-Bills: Short term, not interest rate senstitive
Purchase of MUNI bond at a premium: Must amortize the premium over
time
Investor buys 100M treasury bonds: Becomes owner on next business
day. TREASURY BONDS settle next day.
EVERYTHING ELSE SETLLES T+3