General Securities Representative Exam

1 General Securities Representative ExamSecurities License Exam Manual10th EditionSeries 19/30/2014 3:46:28 PMAt press time, this edition contains the most complete and accurate information currently available. Owing to the nature of license examinations, however, information may have been added recently to the actual test that does not appear in this edition. Please contact the publisher to verify that you have the most current publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be 7 General Securities Representative EXAM LICENSE EXAM MANUAL, 10TH EDITION 2015 Kaplan, text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the you find imperfections or incorrect information in this product, please visit and submit an errata in January 2015 by Kaplan Financial in the United States of : 978-1-4754-2852-0 / 1-4754-2852-9 PPN: 29/30/2014 3:46:28 PMiiiContents1 Equity Securities What Is a Security?

2 3 Equity and Debt Stock 4 Common Stock Common Stock Values Rights of Common Stock Ownership Stock Splits Benefits and Risks of Owning Common Stock Preferred Stock 14 Preferred Stock Characteristics Categories of Preferred Return on Investment Transferability of Ownership 19 Features of Transferable Securities Transfer Tracking Equity Securities 21 Exchange-Listed Stocks Over-the-Counter Stocks Dividend Department Rights and Warrants 27 Characteristics of Rights Characteristics of Warrants American Depositary Receipts 30 Characteristics of ADRs Real Estate Investment Trusts (REITs) 31 Equity, Mortgage, and Hybrid 39/30/2014 3:46:28 PMivContents2 Debt Securities Characteristics of Bonds 43 Issuers Interest Maturities Bond Certificate Pricing Rating and Analyzing Bonds Debt Retirement Bond Yields Corporate Bonds 60 Secured Bonds Unsecured Bonds Guaranteed Bonds Income Bonds Zero-Coupon Bonds The Trust Indenture Trading Corporate Bonds 65 NYSE-Listed Bonds Convertible Bonds Government and Agency Securities 71 Marketable Government Securities Agency Issues Issuance of Government Securities Accrued Interest Calculations 80 Accrued Interest and the Dated Date Corporate and Municipal Collateralized Mortgage Obligations (CMOs) 84 Classes of CMOs CMO Characteristics Collateralized Debt Obligations (CDOs)

3 Nonmarketable Government Securities 88 Series EE Bonds Series I Money Market Securities and Interest Rates 90 The Money Market Money Market Instruments Interest Rates Eurodollars and the Foreign Currency Markets Tracking Debt Securities 97 Corporate Bonds Tracking Government Other Debt Securities 99 Equity-Linked Notes (ELNs) Debt Strategies and Suitability 100 Bond 49/30/2014 3:46:28 PMvContents3 Municipal Securities Municipal Debt Characteristics 109 Types of Municipal Issues Municipal Security Documents Issuing Municipal Securities 122 Negotiated Underwriting Competitive Bidding Sources of Municipal Securities Information Formation of the Underwriting Syndicate Establishing the Syndicate Bid Breakdown of the Spread Order Allocation Payment and Delivery Analysis of Municipal Securities 134 General Obligation Bonds Revenue Bonds Municipal Debt Ratios Other Sources of Information for Municipal Bond Analysis Municipal Trading and Taxation 141 Quotations Reports of Sales Broker/Dealer Regulation Markups and Commissions Confirmations Advertising The Broker/Dealer as Financial Adviser Taxation of Municipal Issues Municipal

4 Securities Rules and Regulations 150 Municipal Securities Rulemaking Board (MSRB) Tracking Municipal Securities 156 Electronic Municipal Market Access (EMMA)4 Options The Options Contract 171 Calls and Puts Single Option Strategies Basic Options Definitions Calls Puts Options Premiums Basic Options Transactions 185 Buying Calls Writing Calls Buying Puts Writing Puts Choices at Expiration Option Exercise Option Expiration Closing Transactions Using Options to Protect a Position Hedging 195 Long Stock, Long Put Long Stock, Short Call Short Stock, Long Call Short Stock, Short Multiple Options Transactions 200 Spreads Straddles Nonequity Options 214 Index Options Interest Rate Options Foreign Currency Options How the Options Market Functions 221 Standard Features of Options Trading and Settlement Options Trading Personnel Options Clearing Corporation (OCC)

5 Tax Rules for Options 229 Stock Holding Periods 59/30/2014 3:46:28 PMviContents5 Customer Accounts New Accounts 251 New Account Form Opening New Accounts Types of Accounts Special Account Situations Opening Accounts for Other Brokers Employees Account Designations 260 Account Registration Discretionary Accounts Death of an Account Holder Uniform Gift and Uniform Transfers to Minors Act 266 Characteristics of Custodial Accounts 6 Margin Accounts Extension of Credit in the Securities Industry 277 Types of Margin Accounts Margin Agreement Regulation T Initial Requirements Deadlines for Meeting Margin Calls Margin Accounting 282 Long Margin Accounting Pattern Day Traders Short Sales and Margin Requirements Combined Accounts Customer Portfolio Margining (CPM) Special Memorandum Account Pledging Customer Securities for Loans 69/30/2014 3:46.

6 28 PMviiContents7 Issuing Securities The Regulation of New Issues 311 The Legislative Framework The Three Phases of an Underwriting 311 Registration of Securities The Cooling-Off Period The Underwriting Process 316 Investment Banking Participants in a Corporate New Issue Types of Offerings Public Offerings and Private Placements Underwriting Sequence The Underwriting Syndicate 321 Syndicate Formation Types of Underwriting Commitments 322 Firm Commitment Standby Best Efforts Underwriting Compensation Over Allotments (Greenshoe Option/Provision) Exemptions from the Securities Act of 1933 327 Exempt Issuers and Securities Exempt Transactions Antifraud Regulations of the Acts of 1933 and 1934 8 Trading Securities The Regulation of Trading 343 The Securities Exchange Act of 1934 Securities Markets and Broker/Dealers 344 Securities Markets Comparison of Listed and OTC Markets Role of the Broker/Dealer NYSE Euronext 347 Exchange Listing Requirements Floor Personnel Auction Market Volatile Market Conditions Arbitrage Floor Structure and Order Types 350 Role of the Specialist or Designated Market Maker (DMM) Types of Orders Time-Sensitive Orders Short Sale Rules Other Domestic and Regional Exchanges 364 Regional Exchanges Computerized Order Routing 365 Super Display Book (SDBK)

7 The Consolidated Tape The Over-the-Counter Market 366 Nasdaq OTC Market Makers Quotations 368 Bids, Offers, and Quotes Quotation Spread and Size 5% Markup Policy Automated Quotation System 375 Nasdaq Quotation Service Nasdaq Market Maker Requirements 79/30/2014 3:46:29 PMviiiContents9 Brokerage Support Services Processing an Order 387 Transactions and Trade Settlement Transaction Settlement Dates and Terms Proxy Department Don t Know (DK) Rules of Good Delivery 397 Physical Requirements Certificate Negotiability CUSIP Regulations Legal Opinion: Municipal Securities Fail to Deliver Reclamation 10 Investment Company Products Investment Company Purpose 409 Types of Investment Companies Investment Company Registration 415 Registration with the SEC Restrictions on Operations Management of Investment Companies 418 Board of Directors Investment Adviser Custodian Transfer Agent (Customer Services Agent)

8 Underwriter Information Distributed to Investors 421 Prospectus Financial Reports Additional Characteristics of Mutual Funds and the Mutual Fund Concept 422 Investment Comparing Mutual Funds 427 Performance Costs Portfolio Turnover Services Offered Mutual Fund Marketing and Pricing 429 Marketing Mutual Fund Shares Sales at the POP Determining the Value of Mutual Fund Shares Sales Charges Reductions in Sales Charges Redemption of Fund Shares Mutual Fund Distributions and Taxation 438 Distributions from Mutual Funds Mutual Fund Purchase and Withdrawal Plans 442 Types of Mutual Fund Accounts Tracking Investment Company Securities 445 Index Tracking Funds Leveraged Funds Inverse (Reverse) Hedge Funds 447 Hedge Fund Lock-Up Provisions Blank-Check Or Blind-Pool Hedge Other Structured Products 449 Holding Company Depository Receipts (HOLDRs) 89/30/2014 3:46.

9 29 PMixContents11 Retirement Plans Retirement Plans 459 Retirement Plan Contribution Limits Nonqualified Retirement Plans Individual Retirement Accounts (IRAs) 460 Contributions Distributions Rollovers and Transfers Roth IRA Education Savings Accounts Simplified Employee Pensions (SEP IRAs) Keogh (HR-10) Plans Tax-Sheltered Annuities (403(b) Plans) Corporate Retirement Plans 468 Defined Benefit Plan Defined Contribution Plan The Employee Retirement Income Security Act of 1974 (ERISA) 47012 Variable Annuities Types of Annuity Contracts 477 Fixed Annuity Variable Annuity Combination Annuity Similarity of Variable Annuities to Mutual Purchasing Annuities 482 The Two Phases of Variable Annuities Receiving Distribution from Annuities 483 Payout and Assumed Interest Rate (AIR) Payout Options Taxation of Annuities Suitability Variable Life 489 Waiver of Premium13 Direct Participation Programs Characteristics of Limited Partnerships 497 Tax Reporting for Partnerships Forming a Limited Partnership Dissolving a Limited Partnership Investors in a Limited Partnership Types of Limited Partnership Programs 505 Real Estate Partnerships Oil and Gas Partnerships Equipment Leasing Programs Analysis of Limited Partnerships Cash Flow Basis 99/30/2014 3:46.

10 29 PMxContents14 Economics and Analysis Economics 521 Business Cycles Economic Theories and the Business Cycle Economic Policy 526 Monetary Policy Fiscal Policy 529 International Monetary Factors Technical Analysis 532 Market Averages and Indexes Charting Stocks Technical Market Theories Fundamental Analysis 537 Industry Analysis Corporate Analysis 538 Financial Statements Capital Structure Income Statement Financial Ratios and Analyzing Corporate Equity 549 Capitalization Ratios Liquidity Ratios Valuation Ratios15 Ethics, Recommendations, and Taxation Ethics in the Securities Industry 565 Ethical Business Practices Prohibited Business Practices Fair Dealing Other Unethical Trading Practices Investment Considerations and Suitability 572 Know Your Customer Customer Investment Outlook Suitability.