Wiley FINRA Series 57 Exam Review 2017 The Securities Trader Examination
The go–to guide to acing the Series 57 Exam!
Passing The Securities Trader Examination (Series 57) qualifies an individual to engage in NASDAQ and OTC Equity trading and to act as a proprietary trader. The exam covers Market Overview and Products, Engaging in Professional Conduct and Adhering to Regulatory Requirements, Trading Activities, Maintaining Books and Records and Trade Reporting. There are no prerequisites to taking the series 57 exam other than being sponsored by a FINRA member firm.
Created by the experts at The Securities Institute of America, Inc., Wiley Series 57 Exam Review 2017 arms you with everything you need to pass this challenging 125–question test. Designed to help you build and fine–tune your knowledge of all areas covered in the exam and to guarantee that you′re prepared mentally and strategically to take the test, it provides:
- Dozens of examples
- Assorted practice questions for each subject area covered in the exam
- Priceless test–taking tips and strategies
- Helpful hints on how to study for the test, manage stress, and stay focused
Wiley Series 57 Exam Review 2017 is your ticket to passing the Series 57 test on the first try with flying colors!
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About This Book xxv
About the Test Bank xxvii
About the Securities Institute of America xxix
Chapter 1 Equity Securities 1
What Is a Security? 1
Equity = Stock 2
Common Stock 2
Corporate Time Line 2
Values of Common Stock 4
Book Value 4
Par Value 5
Rights of Common Stockholders 5
Preemptive Rights 5
Characteristics of a Rights Offering 6
Determining the Value of a Right Cum Rights 7
Determining the Value of a Right Ex Rights 7
Voting 8
Limited Liability 9
Freely Transferable 9
The Transfer Agent 10
The Registrar 10
CUSIP Numbers 11
Inspection of Books and Records 11
Residual Claim to Assets 11
Why Do People Buy Common Stock? 11
Income 11
What Are the Risks of Owning Common Stock? 12
How Does Someone Become a Stockholder? 13
Preferred Stock 14
Features of All Preferred Stock 14
Types of Preferred Stock 16
Callable Preferred 17
Types of Dividends 17
Dividend Distribution 18
Taxation of Dividends 20
Selling Dividends 20
Dividend Disbursement Process 21
Warrants 21
How Do People Get Warrants? 21
American Depositary Receipts (ADRs)/American Depositary Shares (ADSs) 22
Currency Risks 23
Functions of the Custodian Bank Issuing ADRs 23
Real Estate Investment Trusts/REITs 23
Non–Traded REITs 24
Direct Participation Programs and Limited Partnerships 24
Limited Partnerships 24
Tax Reporting for Direct Participation Programs 28
Limited Partnership Analysis 28
Tax Deductions vs. Tax Credits 29
Other Tax Considerations 29
Dissolving a Partnership 30
Pretest 31
Chapter 2 Debt Securities 35
Corporate Bonds 35
Types of Bond Issuance 36
Bond Certificate 37
Bond Pricing 37
Corporate Bond Pricing 38
Bond Yields 38
Yield Spreads 42
The Real Interest Rate 43
Bond Maturities 43
Types of Corporate Bonds 44
Converting Bonds into Common Stock 47
Advantages of Issuing Convertible Bonds 48
Disadvantages of Issuing Convertible Bonds 48
Convertible Bonds and Stock Splits 48
Reverse Convertible Securities 48
Forced Conversion 49
The Trust Indenture Act of 1939 49
Bond Indenture 49
Ratings Considerations 50
Retiring Corporate Bonds 50
Collateralized Mortgage Obligation (CMO) 52
CMOs and Interest Rates 53
Types of CMOs 53
Private–Label CMOs 55
Exchange–Traded Notes (ETNs) 55
Euro and Yankee Bonds 56
Pretest 57
Chapter 3 Government Securities 61
Series EE Bonds 61
Series HH Bonds 62
Treasury Bills, Notes, and Bonds 62
Treasury Bond and Note Pricing 63
Treasury Strips 64
Treasury Receipts 64
Treasury Inflation–Protected Securities (TIPS) 65
Agency Issues 65
Government National Mortgage Association (GNMA) 65
Federal National Mortgage Association (FNMA) 66
Federal Home Loan Mortgage Corporation (FHLMC) 66
Federal Farm Credit System (FFCS) 66
Sallie Mae 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 (GDP) 79
Recession 81
Depression 81
Economic Indicators 81
Schools of Economic Thought 83
Economic Policy 84
Tools of The Federal Reserve Board 84
Fiscal Policy 87
Consumer Price Index (CPI) 88
Inflation/Deflation 88
Real GDP 88
International Monetary Considerations 89
Yield Curve Analysis 89
Pretest 91
Chapter 6 Customer Accounts 95
Holding Securities 97
Mailing Instructions 98
Types of Accounts 99
Commingling Customer s Pledged Securities 109
Wrap Accounts 110
Regulation S–P 110
Day Trading Accounts 111
Pretest 113
Chapter 7 Variable Annuities and Retirement Plans 117
Annuities 117
Bonus Annuity 119
Equity–Indexed Annuity 120
Recommending Variable annuities 121
Annuity Purchase Options 122
Accumulation Units 123
Annuity Units 123
Annuity Payout Options 124
Factors Affecting the Size of the Annuity Payment 125
The Assumed Interest Rate (AIR) 125
Taxation 126
Types of Withdrawals 126
Annuitizing the Contract 127
Sales Charges 127
Investment Management Fees 127
Variable Annuity vs. Mutual Fund 127
Retirement Plans 128
Individual Plans 128
Individual Retirement Accounts (IRAs) 128
Corporate Plans 137
Types of Plans 138
Rolling Over a Pension Plan 140
Employee Stock Options 140
Employee Retirement Income Security Act of 1974 (ERISA) 141
ERISA 404C Safe Harbor 142
The Department of Labor Fiduciary Rules 143
Life Insurance 143
Tax Implications of Life Insurance 146
Health Savings Accounts 146
Pretest 149
Chapter 8 Margin Accounts 153
Regulation of Credit 153
Regulation T 153
House Rules 156
Establishing a Long Position in a Margin Account 156
An Increase in the Long Market Value 157
Special Memorandum Account (SMA) Long Margin Account 159
A Decrease in the Long Market Value 161
Minimum Equity Requirement Long Margin Accounts 161
Establishing a Short Position in a Margin Account 162
A Decrease in the Short Market Value 163
Special Memorandum Account (SMA) Short Margin Account 164
An Increase in the Short Market Value 165
Minimum Equity Requirement Short Margin Accounts 166
Combined Margin Accounts 167
Portfolio Margin Accounts 167
Securities Backed Lines of Credit 168
Minimum Margin for Leveraged ETFs 168
Pretest 169
Chapter 9 Mutual Funds 173
Investment Company Philosophy 173
Types of Investment Companies 174
Open–End vs. Closed–End Funds 175
Diversified vs. Nondiversified 176
Investment Company Registration 177
Investment Company Components 179
Mutual Fund Distribution 181
Selling Group Member 181
Distribution of No–Load Mutual Fund Shares 182
Distribution of Mutual Fund Shares 182
Mutual Fund Prospectus 182
Characteristics of Open–End Mutual Fund Shares 184
Mutual Fund Investment Objectives 185
Other Types of Funds 186
Alternative Funds 187
Floating Rate Bank Loan Funds 187
Bond Funds 187
Valuing Mutual Fund Shares 189
Changes in the NAV 190
Sales Charges 191
12B–1 Fees 193
Calculating a Mutual Fund s Sales Charge Percentage 194
Finding the Public Offering Price 194
Sales Charge Reductions 195
Breakpoint Schedule 195
Letter of Intent 196
Backdating a Letter of Intent 196
Breakpoint Sales 196
Rights of Accumulation 197
Automatic Reinvestment of Distributions 197
Other Mutual Fund Features 198
Cost Base of Multiple Purchases 202
Purchasing Mutual Fund Shares 203
Sales Charges 205
45–Day Free Look 206
Withdrawal Plans 206
Recommending Mutual Funds 207
Structured Retail Products/SRPs 208
Pretest 209
Chapter 10 Issuing Corporate Securities 215
The Prospectus 216
The Final Prospectus 217
Providing the Prospectus to Aftermarket Purchasers 218
SEC Disclaimer 218
Misrepresentations 219
Tombstone Ads 219
Free Riding and Withholding/FINRA Rule 5130 220
Underwriting Corporate Securities 221
Types of Underwriting Commitments 222
Types of Offerings 224
Awarding the Issue 225
The Underwriting Syndicate 225
Selling Group 225
Underwriter s Compensation 226
Underwriting Spread 227
Factors That Determine the Size of the Underwriting Spread 227
Review of Underwriting Agreements by FINRA 227
Underwriter s Compensation 228
Unreasonable Compensation 228
Offering of Securities by FINRA Members 230
Exempt Securities 230
Exempt Transactions 231
Crowdfunding 237
Rule 137 Nonparticipants 239
Rule 138 Nonequivalent Securities 240
Rule 139 Issuing Research Reports 240
Rule 415 Shelf Registration 241
Securities Offering Reform Rules 241
SEC Rule 405 242
Additional Communication Rules 243
DPP Roll–UP Transactions 244
Pretest 245
Chapter 11 Brokerage Office Procedure 249
Executing an Order 249
Customer Confirmations 251
Clearly Erroneous Reports 252
Execution Errors 252
Corporate and Municipal Securities Settlement Options 252
RVP/DVP/COD 253
When–Issued Securities 253
Government Securities Settlement Options 254
Accrued Interest 254
Calculating Accrued interest 255
Accrued Interest for Government Notes and Bonds 256
Rules for Good Delivery 257
Delivery of Round Lots 258
Delivery of Bond Certificates 258
Rejection of Delivery 259
Don t Know (DK) Procedures 259
Fail to Deliver/Fail to Receive 259
Due Bills 259
Customer Account Statements 260
Carrying of Customer Accounts 260
Proxies 261
Pretest 263
Chapter 12 Trading Securities 269
Types of Orders 269
The Exchanges 273
Priority of Exchange Orders 274
The Role of the Designated Market Maker 274
Crossing Stock 277
Do Not Reduce (DNR) 277
Adjustments for Stock Splits 278
Stopping Stock 279
Commission House Broker 280
Two–Dollar Broker 280
Registered Traders 280
Super Display Book (SDBK) 280
Short Sales 281
Affirmative Determination 281
Regulation SHO 282
Rule 200 Definitions and Order Marking 282
Rule 203 Security Borrowing and Delivery Requirements 283
Threshold Securities 284
Block Trades 285
Trading Along 286
Circuit Breakers 286
Limit Up Limit Down (Luld ) 287
Listing Requirements for the NYSE 287
Reading the Consolidated Tape 288
Exchange Qualifiers 290
Over–the–Counter/Nasdaq 290
High Frequency and Algorithmic Trading 301
Market Centers 303
SEC Regulation NMS 304
SEC Regulation ATS 305
Direct Market Access 305
Nasdaq International 307
Non–Nasdaq OTCBB 307
Pink OTC Market 308
Third Market 308
Nasdaq Market Center for Listed Securities 309
Fourth Market 309
Nasdaq Listing Standards 309
Market Maker Regulations and Responsibilities 310
Times for Entering a Quote 310
Withdrawing Quotes 313
Handling and Displaying Customer Limit Orders 314
The Order Audit Trail System (OATS) 316
The Manning Rule 317
Automated Confirmation System (ACT)/Trade Reporting Facility (TRF) 317
ACT Trade Scan 318
Nasdaq Trade Reporting Facility (TRF) 319
Step Out Trades 322
Market Making During Syndication 323
Regulation M, Rule 101 323
Penalty Bids 324
Regulation M, Rule 102 324
Regulation M, Rule 103 324
Passive Market Makers Daily Purchase Limit 325
Regulation M, Rule 104 325
Syndicate Short Positions 327
Regulation M, Rule 105 327
Trade Reporting and Compliance Engine (TRACE) 327
Broker vs. Dealer 330
FINRA 5 Percent Markup Policy 330
Markups/Markdowns When Acting as a Principal 331
Riskless Principal Transactions 332
Proceeds Transactions 333
Dominated and Controlled Markets 333
Net Transactions with Customers 334
Firm Quote Rule 334
The Firm Quote Compliance System (Fqcs ) 335
Trade Complaints Between Members 335
Rogue Trading Prevention 336
Arbitrage 336
Pretest 339
Chapter 13 Options 345
Option Classification 345
Option Classes 346
Option Series 346
Bullish vs. Bearish 346
Possible Outcomes for an Option 347
Characteristics of All Options 348
Managing an Option Position 348
Buying Calls 349
Selling Calls 350
Buying Puts 352
Selling Puts 353
Option Premiums 355
At the Money Options 355
Out of the Money Options 356
Intrinsic Value and Time Value 356
Using Options as a Hedge 357
Long Stock Long Puts/Married Puts 357
Long Stock Short Calls/Covered Calls 359
Maximum Gain Long Stock Short Calls 360
Maximum Loss Long Stock Short Calls 361
Short Stock Long Calls 361
Maximum Gain Short Stock Long Calls 362
Maximum Loss Short Stock Long Call 363
Short Stock Short Puts 363
Maximum Gain Short Stock Short Puts 364
Maximum Loss Short Stock Short Puts 365
Multiple Option Positions and Strategies 366
Long Straddles 366
Short Straddles 368
Spreads 370
Combinations 381
Using a T Chart to Evaluate Option Positions 382
Index Options 386
Interest Rate Options 388
Price–Based Options 388
Rate–Based Options 390
Foreign Currency Options 390
The Option Clearing Corporation 392
The Options Markets 393
The Chicago Board Option Exchange 393
Opening and Closing Option Prices 395
Order Execution 395
Expiration and Exercise 396
American vs. European Exercise 396
Market Volatility Options/VIX 397
Flex Options 397
Weekly Options 398
Mini Options 398
Position and Exercise Limits 399
Stock Splits and Stock Dividends 399
Taxation of Options 400
Closing an Option Position 400
Exercising a Call 400
Exercising a Put 401
Protective Puts 401
Covered Calls 401
Option Compliance 401
Option Agreement 401
Pretest 403
Chapter 14 Securities Industry Rules and Regulations 411
The Securities Exchange Act of 1934 411
The Securities and Exchange Commission (SEC) 412
Extension of Credit 413
The National Association of Securities Dealers (NASD) 413
Becoming a Member of FINRA 415
Hiring New Employees 416
Disciplinary Actions Against a Registered Representative 417
Resignation of a Registered Representative 418
Continuing Education 418
Termination for Cause 420
Retiring Representatives/Continuing Commissions 420
State Registration 420
Registration Exemptions 421
Persons Ineligible to Register 421
Communications with the Public 421
FINRA Rule 2210 Communications with the Public 422
Broker Dealer Websites 425
Blind Recruiting Ads 426
Generic Advertising 426
Tombstone Ads 426
Testimonials 427
Free Services 427
Misleading Communication with the Public 428
Securities Investor Protection Corporation Act of 1970 428
Net Capital Requirement 428
Customer Coverage 429
Fidelity Bond 429
The Securities Acts Amendments of 1975 429
The Insider Trading & Securities Fraud Enforcement Act of 1988 430
Firewall 430
Telemarketing Rules 431
Do Not Call List Exemptions 432
The Penny Stock Cold Call Rule 432
The Role of the Principal 433
Violations and Complaints 433
Resolution of Allegations 433
Minor Rule Violation 434
Code of Arbitration 434
The Arbitration Process 435
Mediation 436
Currency Transactions 437
The Patriot Act 437
U.S. Accounts 439
Foreign Accounts 439
Annual Compliance Review 439
Business Continuity Plan 439
Sarbanes–Oxley Act 440
The Uniform Securities Act 441
Tender Offers 442
Stockholders Owning 5% of an Issuer s Equity Securities 443
Pretest 445
Answer Keys 451
Appendix 467
Glossary of Exam Terms 501
Index 567
Date de parution : 05-2017
Ouvrage de 624 p.
21.5x27.7 cm
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