Career

Primary Market – New securities sold for the first time (IPOs, APOs).

Secondary Market – Securities traded between investors (NYSE, NASDAQ).

Third Market – Exchange-listed securities traded OTC by institutions.

Fourth Market – Direct trades between institutions, often via ECNs (no brokers).

Summary

SIPC: protects $500K total ($250K cash max), broker failure — not market losses.

FDIC: protects $250K per bank depositor

SEC Act of 1934: secondary markets, created the SEC.

Securities Act of 1933: regulates new issues (IPOs = primary market).

Insider Trading: illegal to trade on material, nonpublic info; Tipper + Tippee liable.

MSRB: writes rules for munis; FINRA/SEC enforce for dealers.

FINRA Rule 2210: communication types (institutional = go ahead, retail = get approval).

Correspondence: ≤ 25 people in 30 days = supervise, not pre-approve.

TCPA: Do Not Call list; no calls before 8 AM or after 9 PM.

Margin Account: requires credit agreement, hypothecation agreement; loan consent is optional.

Freeriding: buying/selling without payment; 90-day account freeze.

Gift Limit: $100 per year per person (entertainment if rep is present = not capped). (G-37): >$250 = two-year ban from muni business for municipalities

Selling Away: private transactions outside firm = prohibited without written approval.

Form U4: registers reps; must amend for address, felony charges, bankruptcies.

Form U5: termination form; must be filed within 30 days.

Privacy Notices (Reg S-P): deliver at account opening and annually.

Business Continuity Plan (BCP): required written plan to survive disasters; emergency contacts required.

Prospectus Delivery: IPO = by settlement; aftermarket = 25–90 days depending on listing.

Equity
  • Security: Tradable financial asset like stock (ownership), bond (debt), or option (right to ownership)
    • Commodities and futures based off commodities don’t count
  • Common stock is ownership in company with voting rights and maybe dividends. Low priority if default.
    • Authorized – max shares a company can issue.
    • Issued – shares actually sold to investors.
    • Outstanding – issued shares still held by investors.
    • Treasury – shares repurchased by the company.
  • Sizes: large-cap ($10B+), mid ($2B–$10B), small ($300M–$2B), micro ($50M–$300M), and penny stocks (under $5/share, often under $300M market cap).
  • Dividend types include cash (paid in money), stock (paid in additional shares).
  • DERP: Declaration (Board can do this), Ex-Dividend (FINRA or exchange set, must buy before to receive), Record, and Payable
  • Preferred stock is a hybrid security with fixed dividends and priority over common stock in payments but usually no voting rights.
    • Straight (non-cumulative) – no missed dividend recovery.
    • Cumulative – unpaid dividends accrue and must be paid before common.
    • Participating – may receive extra dividends if profits allow.
    • Convertible – can be exchanged for common stock.
    • Callable – company can repurchase at a set price.
Other Equity + Corporate Actions
  • ADRs (American Depositary Receipts) are U.S.-traded certificates representing shares in a foreign company, subject to currency risk.
  • Rule 144 lets insiders or holders (non affiliates are not affected) of restricted stock sell shares legally by normal means if they meet these conditions. Must file Form 144 if selling over 5,000 shares or $50,000 in 3 months:
    • Restricted securities: must be held for 6 months (if the issuer is public).
    • Control securities: owned by insiders (officers, directors, or 10%+ holders).
    • Volume limit: can sell the greater of 1% of outstanding shares or average weekly trading volume over 4 weeks.
  • A right (maintain same ownership) gives short-term, discounted purchase access to new shares; a warrant offers long-term, often above-market price purchase rights, usually as a sweetener with bonds or preferred stock.
  • Tender offer is buying ownership directly from owner
  • Buyback: Issuer buys back their own stock
  • No taxes unless anyone receives cash/money of some sort
Debt
  • Par is the bond’s face value (usually $1,000); maturity is when it must be repaid; coupon is the promised interest; accrued interest is the interest earned but not yet paid since the last payment. Bond’s are higher in precedence if default.
  • Yield is how much you actually make, if callable then it might get called, if not you use yield to maturity, which is average annual percent return
    • Less coupon and longer maturity make bond prices more volatile
  • Risks: Interest (discount) rate (inverse effect), default, and purchasing power (erosion)
  • Secured debt (asset as collateral): Mortgage (House), Equipment, Collateral Trust
  • Unsecured: Debenture (trust me bro, though senior), guaranteed (third party “cosigns”), Income, Subordinated (junior, pays more)
  • Pecking Order: secured debt, unsecured debt, subordinated debt, preferred stock, common stock.
  • T-bills mature in under 1 year and are sold at a discount, T-notes mature in 2–10 years with semiannual interest, and T-bonds mature in 10–30 years with semiannual interest.
  • Treasury Receipts are zero-coupon bonds issued by brokers, STRIPS are Treasury-backed zero-coupon securities, and TIPS are inflation-protected bonds with principal adjusted by CPI.
  • GNMA (Ginnie Mae) debt is government-backed, mortgage-backed, pays monthly interest and principal, is subject to prepayment risk, and is fully guaranteed by the U.S. government.
  • Municipal bonds are debt issued by states or local governments, often tax-free federally, with lower yields, and include GO bonds (backed by credit) and revenue bonds (backed by specific projects).
  • Money market (short-term, liquid, low-risk debt) Bankers’ Acceptances (BAs), Certificates of Deposit (CDs), Treasury Bills (T-Bills), and Commercial Paper (promissory notes), municipal notes, repurchase agreements (bank temp sells assets), and federal funds (bank’s excess over requirement).
  • CMOs (Collateralized Mortgage Obligations) are mortgage-backed securities divided into tranches, while CDOs (Collateralized Debt Obligations) bundle various debts like mortgages, loans, and bonds into structured investments.
Investment Companies
  • FAC (Face-Amount Certificate) investment company issues debt at a fixed face value and pays investors a set amount at maturity, typically offering low risk and predictable returns.
  • A UIT (Unit Investment Trust) Investment company buys and holds fixed portfolio of securities and issues redeemable units to investors, typically with a set termination date.
    • Fixed means set share amount, unfixed is continuous offering
  • Open-end funds (mutual funds) issue and redeem shares at NAV directly with the fund; closed-end funds trade on exchanges like stocks with prices set by the market.
    • Class A: Front-end load (fee when you buy), best for large and long term
    • Class B: Back-end load (fee when you sell), best for small
    • Class C: Level load (ongoing annual fees), best for shorter term
    • Break Point: Bulk discount, letters of intent show intent to buy (discounts!)
      • Breakpoint sale is sale below breakpoint, representatives must disclose bps
    • NAV = Equity = Assets – Liability, divide by share count to get mutual fund value = POP (Public offering price) + SC (Sales charge, is a %)
    • Expenses: Shareholder record and service, advising, maybe 12-b (marketing)
  • Full (statutory) Prospectus – Complete legal document with all disclosures, need this to solicit sale
  • Summary Prospectus – Shortened version with key facts; must reference the full prospectus.
  • Statement of Additional Information (SAI) – Supplement with extra details not in the main prospectus (not required to be distributed, but must be available).
  • Omitting Prospectus – Advertisement-style; has performance data, excludes full details; must reference how to obtain the full prospectus.
  • Conduit Theory – Not a prospectus type; theory where investment companies are tax-exempt if 90%+ of income passed to shareholders
  • Fixed – Guaranteed payouts; low risk, has inflation risk.
  • Variable – Payouts vary with market; higher risk, is a security, need life insurance license to sell
  • Taxing Annuities: Taxed based off of profit, taxed at withdrawal
  • Tax-deferred growth, Early withdrawal penalties (<59½), typically used for retirement income, Backed by insurance companies, not FDIC
    • SAAPI: sex, age, amount, payout option (lifetime, joint, etc), interest/investment
Options
  • Price of contract = Premium per share * 100
  • Call is long, put is short, options are rights not obligations
  • Intrinsic value = Strike (plus or minus) Price, subtract premium for your profit
  • European (sell only at expiration), American (continuous), Bermuda (at set times)
  • Customer has 15 days for agreement once BD principal approves for opening options account
  • OCC guarantees options performance
Other Investments
  • 529 Saving: Educational institution manages, matches inflation, doesn’t lose value
  • College Savings plan: You invest but have to use it for school
  • Local government investment pools (LGIPS), trust that operates like money market
  • ABLE Account (Achieving a Better Life Experience): Tax advantaged account for disabled (diagnosed before 26), not deductible, earnings tax free
  • Default payout: Secured creditor -> Other creditor -> Limited partner -> Partner
  • Direct Participation Program (DPP): A business venture like real estate, oil & gas, or equipment leasing that passes income, losses, deductions, and credits directly to investors, avoiding corporate taxation, often structured as limited partnerships.
    • Depreciation recapture is not a tax advantage
  • REITs – Real estate investment trusts; own income-producing properties; pay out 90% of taxable income, taxed like conduit.
  • ETFs – Exchange-traded funds; basket of assets; trades like a stock, low fees, marginable.
  • ETNs – Exchange-traded notes; unsecured debt tied to an index; no ownership of assets, credit risk of issuer, they mature.
Issuing
  • Primary Market (Set by Securities Act 1933): Corporations get money
  • Issuers can be corps, municipalities, fed gov, or agencies
  • Underwriters (research, evaluate, quantify financial risk) like BDs or Investment Bankers
    • Best Efforts – Underwriter sells what it can, no guarantee.
    • Firm Commitment: Underwriter buys entire issue, and takes risk.
    • All-or-None: If full amount isn’t sold, deal canceled.
    • Mini-Max: Sale must meet minimum; can go up to a max.
    • Standby – Underwriter buys leftovers in a rights offering.
    • Syndicate – Multiple share in the risk
  • Qualified Institutional Buyer manages 100 million +
  • Accredited investor (securities act of 1940 schedule D): 200k+ income (300k if married) or 1m+ liquid net worth or licensed or an insider of he security
  • IPO order: Registration Statement (file with SEC), Cooling-Off Period (SEC review, no sales, no binding), Effective Date (SEC approval, sales begin), followed by 3 Phases of Underwriting – Agreement (terms set), Pricing (final price decided), Distribution (shares sold).
  • IPOs need prospectuses, APOs don’t since they already have one
  • Exempt from underwriting: US government securities, municipalities, nonprofits, commercial paper, banks, and intrastate offerings
Trading
  • Secondary market: Where investors buy and sell securities
  • Employees of the exchange are not members, members trade (like brokers)
  • Market makers have inventory in stock and trade it, if you sell from inv you’re a mm
  • Dark pools are anonymous trades done direct buyer to seller
  • Carrying Broker – Holds customer funds/securities, clears trades, maintains accounts.
  • Fully Disclosed Broker – Introduces clients to a carrying firm; doesn’t hold assets.
  • Prime Broker – Offers bundled services (custody, lending, clearing) to institutional clients.
  • Transfer Agent – Handles recordkeeping, name changes, and mailings for securities.
  • Registrar – Ensures share totals match company records; prevents over-issuance.
  • Regular settlement is T + 1 (no weekends)
  • Stock or bond power can allow certificates to be transferred
Accounts
  • Individual – Owned by one person.
  • Joint Tenants with Rights of Survivorship (JTWROS) – Equal ownership; survivor gets all assets.
  • Tenants in Common (TIC) – Unequal ownership allowed; deceased’s share goes to estate.
  • Trust Account – Managed by trustee for beneficiaries. (Revocable means Can be changed or canceled by grantor.)
  • Custodial Account (UGMA/UTMA) – Adult manages assets for minor; minor gets control at maturity.
  • Coverdell Education Savings Account (Ed IRA): 2000 annual limit, use by 30, acts like roth
  • Full POA (FPOA): Grants complete control over all financial decisions.
  • Limited POA (LPOA): Grants specific, restricted powers for defined tasks.
  • Durable POA: Remains in effect even if the principal becomes incapacitated.
  • Owners are not fiduciaries, those are seperate
Retirement Accounts
  • Traditional IRA – Tax-deductible contributions, taxed on withdrawal.
  • Roth IRA – After-tax contributions, tax-free withdrawals.
  • 401(k) – Employer-sponsored, pre-tax contributions, taxed later.
  • Roth 401(k) – Employer-sponsored, after-tax contributions, tax-free withdrawals.
  • Pension = Defined benefit plan = Pays for life
  • Profit Sharing Plan: A retirement plan where employers contribute a portion of company profits to employee accounts, contributions are discretionary and can vary year to year.
    • Why it’s Qualified: It meets IRS requirements under ERISA—meaning it gets special tax treatment (e.g., tax-deferred growth, employer contributions are deductible).
    • Qualified Plan = A retirement plan that follows IRS rules for nondiscrimination, vesting, reporting, and distribution in exchange for tax advantages.
Account Features
  • Margin account (Leverage): Borrowing money to trade
    • Need forms: Account application, credit agreement (terms), and Hypothecation
    • Consent to loan: Lets firm loan out your margin securities
    • Hypothecation: Allow BD to hold securities as collateral for loan
      • Options CANT be used for collateral, bonds and stocks can
    • Cannot use margin in accounts with limits (like IRA and custodial)
    • Can borrow the higher of 50% or 2000, 2000 is the minimum you need to put in
  • A maintenance call warns you’re near the minimum equity, while a margin call means you’ve dropped below it and must act immediately.
  • Wrap fee account (kind of like full service broker)
  • Solicited trade means it has been recommended
  • Discretionary trade: AAA, Action (B/S), Amount, Asset, if any of these is representative’s discretion it’s discretionary
Economics
  • Business cycle: expansion (growing), peak (good and flat), contraction (decline), and trough (bad but flat).
  • Recession (2 quarters GDP decline), Depression is 6
  • GDP = C + I + G + (X – M) → measures all output within a country’s borders.
  • GNP = GDP + net income from abroad → includes income by citizens globally.
  • Leading – Stock market, building permits, new unemployment claims
  • Coincident – GDP, industrial production, personal income
  • Lagging: Unemployment rate, corporate profits, CPI inflation (monthly)
  • More demand for currency increases price, how would demand/supply move
  • Keynesian theory: Government should enact policies to correct demand to help economy
  • Supply Side: The market should determine demand
  • The Federal Reserve (Act of 1913): Maximize employment and control inflation
    • M1 – Most liquid: cash, checking deposits, demand deposits.
    • M2 – M1 + savings accounts, time deposits < $100K, money market funds.
    • M3 – M2 + large time deposits, institutional money market funds, and other big liquid assets (discontinued in 2006 by the Fed).
  • Regulation T: Sets rules for margin, deposit min 50% of purchase price when using borrowed funds, enforced by Federal Reserve
  • Rates: Discount rate (Fed to bank), prime rate (bank to best customer), federal funds rate (bank-to-bank overnight ), broker call rate (rate brokers pay to borrow for margin loans)
Returns and Taxes
  • Ordinary income (wages, interest), earned income (salaries, commissions), investment income (dividends, capital gains), and passive income (rental, limited partnerships) all taxed differently. Earned has payroll taxes, investment often lower capital gains rates, passive can have deduction limits.
  • Tax Loss Harvesting – Selling securities at a loss to offset capital gains and reduce taxes.
  • Wash Sale Rule – Disallows the loss if you buy a “substantially identical” security within 30 days before or after the sale.
Recommendations
  • Systematic Risks (affect entire market): Market risk (overall downturn), interest rate risk (rising rates hurt bonds), inflation risk (purchasing power erosion).
  • Unsystematic Risks (specific to a company or sector): Credit (default), capital (lack of funding), business (poor performance), liquidity (can’t sell assets), regulatory/legislative/political (rule changes or instability), sovereign (country defaults).
  • Other Risks: Call risk (bond redeemed early), reinvestment risk (can’t reinvest at same rate), prepayment risk (early loan payoff affects returns), currency risk (foreign exchange losses).
    • Mitigate risks with options and diversification
  • Factors for Financial Advice: Risk tolerance, time horizon, financial goals, income, tax situation, liquidity needs, and investment experience.
  • Regulation BI (Best Interest Securities Exchange Act of 1934), broker-dealers must act in retail clients interest when making recommendations, no conflicts or sales-first mentality.
  • Obligations: Disclosure (tell the truth), Care (client’s best interest), Conflict of Interest (identify and mitigate), Compliance (make policies to enforce).
  • Benchmarks: S&P 500 (large-cap), DJIA (blue-chip), NASDAQ (tech), Russell 2000 (small-cap), MSCI EAFE (international), Bloomberg Agg (bonds), Wilshire 5000 (total market).
Registration and Education
  • Form U4: Register individual with FINRA; disclose personal, employment, and disciplinary history. Does not ask for martial status
  • Fingerprinting – Required for most registrants to check for criminal background, submit to US attorney general. Anyone involved in sale/cash or supervisors. Exclusive Mutual fund, variable annuity, and DDP people exempt.
  • Disqualifying Events – Felonies, certain misdemeanors, regulatory bans, or lying on Form U4 block registration.
  • Form U5 – Filed when a registered rep leaves or is terminated; discloses the reason for departure and any potential misconduct—must be submitted to FINRA within 30 days. You may be investigated until 2 years after leaving industry
  • Continuing Education: Required for registered professionals, consisting of Firm Element (firm-specific training) and Regulatory Element (industry and compliance updates).
  • Firm Commitment – Underwriting arrangement where the underwriter buys the entire issue of securities and assumes the risk of unsold shares.
Government and Regulation
  • Securities Exchange Act of 1934 created the SEC to regulate secondary markets and enforce fair trading, if a broker-dealer (BD) violates, they face penalties including fines, suspension, or permanent expulsion
  • The Securities Exchange Act of 1934 governs trading of securities after their initial sale, regulates stock exchanges, broker-dealers, insider trading, and mandates public companies’ ongoing disclosure to protect investors and maintain market integrity.
  • FinCEN (Financial Crimes Enforcement Network – combats money laundering terrorist financing) IRS (Internal Revenue Service – collects federal taxes, enforces tax laws) OCC (Office of the Comptroller of the Currency – regulates/supervises national banks and federal savings associations)
    • Securities Act of 1933 (regulate initial offering of securities to the public; full and fair disclosure)
    • Securities Exchange Act of 1934 (regulate secondary market trading, create SEC to enforce securities laws)
    • Investment Company Act of 1940 (regulates mutual funds and investment companies to protect investors)
    • Investment Advisers Act of 1940 (regulates investment advisers by requiring registration and disclosure of conflicts of interest)
    • Single Premium Immediate Annuity (SPIA) (insurance contract providing guaranteed income payments typically starting immediately after a lump-sum premium)
    • Bank Secrecy Act of 1970 (requires financial institutions to assist in detecting and preventing money laundering by maintaining records and filing reports like CTRs and SARs)
    • Insider Trading and Securities Fraud Enforcement Act of 1988 (increases penalties for insider trading and mandates internal compliance procedures)
    • USA PATRIOT Act of 2001 (strengthens anti-money laundering rules and requires customer identification programs at financial institutions)
  • CTR (Currency Transaction Report): filed for cash transactions over $10,000 in one day.
  • SAR (Suspicious Activity Report): filed when suspicious or potentially criminal financial behavior is detected.
  • Three Stages of Money Laundering: placement (introducing illicit funds), layering (concealing through complex transactions), integration (returning clean money to the economy).
  • SDN (Specially Designated Nationals): list of individuals and entities blocked from U.S. financial dealings due to sanctions, maintained by OFAC (Office of Foreign Assets Control)
  • Uniform Securities Act of 1956: model law to standardize state securities regulation, focusing on registration of securities, firms, and anti-fraud provisions.
  • Blue Sky Laws were created to stop these fake deals by making securities get real review and registration at the state level, named after people selling made up things as valuable as the sky
  • SIPC (Securities Investor Protection Corporation): protects brokerage customers up to $500,000 total (including $250,000 cash) if a broker fails not against losses from investments. Does not protect commodities
  • FDIC (Federal Deposit Insurance Corporation): insures bank deposits up to $250,000 per depositor, per insured bank, against bank failure.
Self Regulators
  • FINRA: regulates broker-dealers, licenses reps, enforces compliance, and resolves disputes in the securities industry.
    • Conduct Rules: set ethical standards for dealing with customers and firms.
    • Uniform Practice Code (UPC): governs technical trade execution, settlement, and clearing between firms.
    • Code of Procedure (COP): outlines how FINRA investigates and disciplines rule violations. NAC for appeals, then SEC, federal court
    • Code of Arbitration (COA): formal process to resolve monetary disputes outside court.
  • MSRB (Municipal Securities Rulemaking Board): writes rules for municipal securities dealers and advisors, but relies on FINRA and SEC to enforce
  • Exchanges (ex NYSE, Nasdaq): Create/enforce own trading and membership rules under SEC.
  • Record Retention
    • Lifetime: corporate foundational documents (articles of incorporation, partnership agreements, minute books, stock certificate books).
    • Six Years: key financial and customer records (blotters, general ledgers, customer account info, securities ownership, employee records)
    • Four Years: customer complaints (FINRA req)
    • Three Years: operational records (advertising, U4/U5 forms, order tickets, trade confirmations, trial balances).
Communication
  • FINRA Rule 2210: governs all member firm communications with the public (advertising, retail, institutional, correspondence).
    • Institutional Communication: only sent to institutions; no pre-approval required but must have procedures to supervise.
    • Retail Communication: sent to more than 25 retail investors in 30 days; generally must be principal-approved before use.
    • Correspondence: sent to 25 or fewer retail clients in 30 days; supervision required, but pre-approval not mandatory.
    • Social Media: treated based on content — static posts (like profiles) = retail communication (needs pre-approval); interactive posts (comments, tweets) = correspondence (supervised but no pre-approval).
  • TCPA (Telephone Consumer Protection Act of 1991): restricts telemarketing practices, bans cold-calling certain numbers, limits calling times (8 AM–9 PM local time), and requires firms to maintain and honor Do Not Call lists.
  • Customer Account Record Rules: Must collect essential information (name, address, DOB, investment profile, suitability info), verify/update account information at least every 3 years, retain customer account records for at least 6 years after the account is closed.
  • Trade Confirmation: must be sent to customers at or before completion of each transaction (typically same day).
  • Account Statements: must deliver quarterly (monthly if there’s activity or hold penny stocks).
  • Request to hold mail usually up to three months
  • Regulation S-P: mandates that firms protect customer information, deliver privacy notices, and allow customers to opt out of info-sharing with non-affiliates.
  • Business Continuity Plan (BCP): requires firms to have a written plan detailing how they’ll operate during major disruptions (natural disasters, cyberattacks, etc.), including emergency contacts (at least 2) and alternative communication methods.
  • Confidentiality: firms must keep client data private and disclose it only under legal or customer-authorized conditions.
  • Privacy: customers must receive a privacy notice at start and annually explaining what information is collected, how it’s shared, and how they can opt out
  • Safeguard: firms must implement physical, administrative, and technical protections (like firewalls, secure servers) to secure client data against breaches.
Ethics
  • Front runner: BD or RR placing their order before customer to take advantage
  • Marking open/close: trading near open/close or reporting fictitious trades
  • Selling away: Non approved securities (violation of private securities laws)
  • Backing away: Market maker refusing to buy/sell at the price they quoted
  • Freeriding: buying securities without paying for them, then selling them before the payment is due, using proceeds to cover the purchase. Consequence: account frozen for 90 days, and you must pay upfront (cash or margin) before buying again during the freeze.
  • FINRA Rule 5130: prohibits restricted persons (like BDs, employees, portfolio managers, family) from buying IPO shares at the offering price to prevent insiders from unfairly profiting
  • Insider info is material and nonpublic, penalty is up to triple the profit
  • Special Concern: Mentally/physically impaired or over age 65
  • Trusted contact: Needed for opening account or updating account info
  • Temporary hold: Block up to 15 days if suspected financial abuse of senior
  • RR and Customer may profit/loss share in circumstances, but never BD and customer
  • Non licensed people may NOT determine investment suitability, suggest funds, or place trades
  • No outside business knowledge unless member firms know (due to conflict of interest)
    • Passive investments are exempt
  • If associated person does outside sales transaction must tell employer, describe, disclose if they receive compensation. Like if you have a Roth IRA thye must be able to audit
    • If compensation employer must approve, otherwise they must know
  • Gifts: FINRA caps gifts at $100 per person per year — anything more is a violation unless it’s clearly promotional (like a plaque or trophy). Business entertainment not capped
  • MSRB Rule G-37 prohibits municipal finance professionals from political contributions over $250 to officials who can award business, or their firm faces a two-year ban from that issuer.