Chapter One - Equity Securities 7
What is a Security? 7
Equity = Stock 7
Common Stock 8
Corporate Time Line 8
Authorized Stock 8
Issued Stock 8
Outstanding Stock 8
Treasury Stock 9
Values of Common Stock 9
Book Value 9
Par Value 10
Rights of Common Stockholders 10
Preemptive Rights 10
Exercised 11
Sold 11
Expire 11
Characteristics of a Rights Offering 11
Determining The Value of a Right Cum Rights 11
Determining The Value of a Right Ex Rights 12
Voting 13
Methods of voting 13
Limited Liability 14
Freely Transferable 14
The Transfer Agent 14
The Registrar 14
CUSIP Numbers 15
Inspection of Books and Records 15
Residual Claim to Assets 15
Why do people buy common stock? 15
Income 15
What Are The Risks of Owning Common Stock? 16
Dividends May Be Stopped or Reduced 16
Junior Claim on Corporate Assets 16
How Does Someone Become a Stockholder? 16
Trade Date 16
Settlement Date 16
Payment Date 17
Violation 17
Preferred Stock 17
Features of all preferred stock 17
Par Value 17
Payment of Dividends 18
Distribution of Assets 18
Perpetual 18 Non-Voting 18
Interest Rate Sensitive 18
Types of Preferred stock 18
Straight / Non-Cumulative 19
Cumulative Preferred 19
Participating Preferred 19
Convertible Preferred 19
Callable Preferred 20
Types of Dividends 20
Cash 20
Stock 20
Property / Product 21
Dividend Distribution 21
Declaration Date 21
Ex-Dividend Date 21
Record Date 21
Payment Date 22
Stock Price and the Ex Dividend Date 22
Taxation of Dividends 22
Selling Dividends 22
Dividend Disbursement Process 23
Warrants 23
How Do People Get Warrants? 23
Units 23
Attached to Bonds 23
Secondary Market 23
Possible Outcomes of a Warrant 23
Rights vs. Warrants 24
American Depository Receipts (ADR’s)/
American Depository Shares (ADS’s) 24
Currency Risks 24
Functions of The Custodian Bank Issuing ADRs 24
Real Estate Investment Trusts / REITs 25

Chapter Two - Debt Securities 31
Debt Securities / Bonds 31
Corporate Bonds 31
Types of Bond Issuance 31
Bearer Bonds 31
Principal Only Registration 32
Fully Registered 32
Book Entry / Journal Entry 32
Bond Certificate 32
Bond Pricing 33
Par Value 33
Discount 33
Premium 33
Corporate Bond Pricing 36
Bond Yields 34
Nominal Yield 34
Current Yield 34
Yield to Maturity 35
Yield to Maturity – Premium Bond 35
Yield to Maturity – Discount Bond 36
Calculating The Yield to Maturity 36
Calculating the Yield to Call 37
Bond Maturities 37
Term Maturity 37
Serial Maturity 37
Balloon Maturity 37
Series Issue 38
Types of Corporate Bonds 38
Secured Bonds 38
Mortgage Bonds 38
Equipment Trust Certificates 38
Collateral Trust Certificates 38
Unsecured Bonds 39
Subordinated Debentures 39
Income / Adjustment Bonds 39
Zero Coupon Bonds 39
Guaranteed Bonds 39
Convertible Bonds 40
Converting Bonds into Common Stock 40
Parity Price: 40
Advantages of Issuing Convertible Bonds 41
Disadvantages of Issuing Convertible Bonds 41
Convertible Bonds and Stock Splits 41
The Trust Indenture Act of 2239 41
Bond Indenture 42
Ratings Considerations 42
Retiring Corporate Bonds 43
Redemption 43
Refunding 43
Prerefunding 43
Calling in Bonds 43
Putting Bonds to The Company 44
Tender Offers 44
Open Market Purchases 44

Chapter Three - Government Securities 49
The United States Government 49
Series EE Bonds: 49
Series HH Bonds 49
Treasury Bills, Notes, and Bonds 49
Purchasing Treasury Bills 50
Treasury Notes 50
Treasury Bonds 50
Treasury Bond and Note Pricing 51
Treasury Strips 51
Treasury Receipts 51
Treasury Inflation Protected Securities / TIPS 52
Agency Issues 52
Government National Mortgage Association
(GNMA) 52
Federal National Mortgage Association (FNM) 53
Federal Home Loan Mortgage Corporation
(FHLMC) 53
Federal Farm Credit System 53

Chapter Four - Municipal Securities 55
Municipal Bonds 55
Types of Municipal Bonds 55
General Obligation Bond 55
Voter Approval 55
Property Taxes 56
Overlapping Debt 56
Revenue Bonds 56
Industrial Development Bonds/
Industrial Revenue Bonds 57
Lease Rental Bonds 57
Special Tax Bonds 57
Special Assessment Bonds 57
Double Barreled Bonds 57
Moral Obligation Bonds 58
New Housing Authority/
Public Housing Authority 58
Short Term Municipal Financing 58
Issuing Municipal Securities 58
Selecting an Underwriter 59
Creating a Syndicate 60
Syndicate Accounts 60
Submitting The Syndicate Bid 61
Determining The Re Offering Yield 61
Underwriter’s Compensation 62
The Management Fee 62
The Underwriting Fee 62
The Total Takedown 63
The Selling Concession 63
Order Period 63
Allocation Municipal Bond Orders 63
Pre Sale Orders 64
Syndicate Orders / Group Net Orders 64
Designated Orders 64
Member Orders 64
Member Related Orders 64
Sale Date 65
When Issued Confirmations 65
Final Confirmations 65
Other Types of Municipal Underwritings 66
Syndicate Operation and Settlement 66
The Official Statement 66
Bond Counsel 67
The Legal Opinion 68
Potential Conflicts of Interest For
Municipal Bond Underwriters 68
Acting As a Financial Advisor to the Issuer 68
Information Obtained While Acting
As a Fiduciary 68
Acting as a Financial Advisor and Underwriter 6
Municipal Bond Trading 69
Bonafide Quotes 70
Informational Quotes 70
Out Firm Quotes 70
Executing Customer’s Municipal Bond Orders 71
Customer Confirmations 71
Confirmations for Zero Coupon Municipal Bonds 72
Confirmations for Municipal CMOs 72
Confirmations for Variable Rate Municipal Bonds 72
Yield Disclosure 72
Sources of Municipal Bond Market Information 73
Recommending Municipal Bonds 73
Taxation of Municipal Bonds 73
Tax Equivalent Yield 74
Triple Tax Free 74
Original Issue Discount ( OID ) and
Secondary Market Discounts 74
Amortization of a Municipal Bond’s Premium 75
Bond Swaps 75
Analyzing General Obligation Bonds 76
The Debt Statement 76
Self Supporting Debt 76
Net Direct debt 76
Net Total Debt 77
Community Factors 77
Sources of Tax Revenue 77
Determining Property Taxes 78
Important Financial Ratios For
General Obligation Bonds 78
Analyzing Revenue Bonds 79
Types of Revenue Pledge 79
Municipal Securities Rule Making Board/
MSRB 79
Chapter Five - Money Market 89
The Money Market 89
Money Market Instruments 89
Corporate Money Market Instruments 89
Banker’s Acceptances 89
Negotiable Certificates of Deposit 89
Commercial Paper 90
Federal Fund Loans 90
Repurchase Agreements 90
Reverse Repurchase Agreement 90
Fixed Vs. Open Repurchase Agreements 90
Government Money Market Instruments 91
Municipal Money Market Instruments 91
International Money Market Instruments 91
Interest Rates 91
The Discount Rate 92
Federal Funds Rate 92
Broker Call Loan Rate 92
Prime Rate 92

Chapter Six - Economics 95
Gross Domestic Product 95
Expansion 96
Peak 96
Contraction 96
Trough 96
Recession 96
Depression 96
Economic Indicators 97
Leading Indicators 97
Coincident Indicators 97
Lagging Indicators 98
Economic Policy 98
Tools of The Federal Reserve Board 98
Reserve Requirement 98
Changing the Discount Rate 99
Federal Open Market Committee 99
Money Supply 99
Disintermediation 100
Fiscal Policy 100
The Consumer Price Index (CPI) 101
Inflation / Deflation 101
Real GDP 101
International Monetary Considerations 102

Chapter Seven - Options 105
Call Options 105
Put Options 105
Option Classes 105
Option Series 106
Bullish vs. Bearish 106
Bullish 106
Bearish 106
Buyer vs. Seller 107
Possible Outcomes For an Option 107
Exercised 107
Sold 107
Expire 107
Exercise Price 108
Characteristics of All Options 108
Managing an Option Position 108
Buying Calls 108
Maximum Gain Long Calls 109
Maximum Loss Long Calls 109
Determining The Breakeven for Long Calls 109
Selling Calls 110
Maximum Gain Short Calls 110
Maximum Loss Short Calls 110
Determining The Breakeven for Short Calls 110
Buying Puts 111
Maximum Gain Long Puts 111
Maximum Loss Long Puts 112
Determining The Breakeven for Long Puts 112
Selling Puts 112
Maximum Gain Short Puts 112
Maximum Loss Short Puts 113
Determining The Breakeven for Short Puts 113
Option Premiums 114
In The Money Options 114
At The Money Options 114
Out of The Money Options 115
Intrinsic Value and Time Value 115
Using Options as a Hedge 116
Long Stock Long Puts / Married Puts 116
Maximum Gain Long Stock Long Puts 116
Breakeven Long Stock Long Puts 116
Maximum Loss Long Stock Long Puts 117
Long Stock Short Calls / Covered Calls 118
Breakeven Long Stock Short Calls 118
Maximum Gain Long Stock Short Calls 118
Maximum Loss Long Stock Short Calls 119
Short Stock Long Calls 120
Determining The Breakeven
Short Stock Long Calls 120
Maximum Gain Short Stock Long Calls 120
Maximum Loss Short Stock Long Call 121
Short Stock Short Puts 122
Breakeven Short Stock Short Puts 122
Maximum Gain Short Stock Short Puts 122
Maximum Loss Short Stock Short Puts 123
Multiple Option Positions and Strategies 124
Long Straddles 124
Maximum Gain Long Straddle 124
Maximum Loss Long Straddle 125
Breakeven Long Straddle 125
Short Straddles 126
Maximum Gain Short Straddle 126
Maximum Loss Short Straddle 127
Breakeven Short Straddle 127
Spreads 128
Price Spread / Vertical Spread 128
Calendar Spread / Time Spread 128
Diagonal Spread 129
Analyzing Spreads Price Spreads 129
Bull Call Spread / Debit Call Spreads 129
Maximum Gain Bull Call Spread 130
Maximum Loss Bull Call Spread 130
Breakeven Bull Call Spread 130
Spread Premiums Bull Call Spread 131
Bear Call Spread / Credit Call Spreads 131
Maximum Gain Bear Call Spread/
Credit Call Spread 132
Maximum Loss Bear Call Spread 132
Breakeven Bear Call Spread 132
Spread Premiums Bear Call Spread 133
Bear Put Spreads / Debit Put Spread 133
Maximum Gain Bear Put Spread/
Debit Put Spread 134
Maximum Loss Bear Put Spread 134
Breakeven Bear Put Spread 134
Spread Premiums Bear Put Spread 135
Bull Put Spread / Credit Put Spread 135
Maximum Gain Bull Put Spread 135
Maximum Loss Bull Put Spread 136
Breakeven Bull Put Spread 136
Spread Premiums Bull Put Spread 136
Combinations 137
Using a T Chart to Evaluate Option Positions 138
Index Options 142
Index Option Settlement 142
Exercising An index Option 143
Index Option Positions 143
Capped Index options 144
Interest Rate Options 144
Price Based Options 144
Premiums Price Based Options Treasury Notes
and Bonds 144
Premiums Priced Based Options Treasury Bills 145

Rate Based Options 145
Foreign Currency Options 146
Foreign Currency Option Basics 146
Buying Foreign Currency Calls and Puts 147
The Option Clearing Corporation 147
The Options Markets 148
The Chicago Board Option Exchange 148
Order Book Official 149
Specialist 149
Options Market Makers 149
Commission House Broker 149
Two Dollar Broker 149
Spread Broker 149
Opening and Closing Option Prices 149
AutoEx 150
Expiration and Exercise 150
American Vs. European Exercise 151
Position and Exercise Limits 151
Stock Splits and Stock dividends 151
Taxation of Options 152
Closing an Option Position 152
Exercising a Call 152
Exercising a Put 152
Protective Puts 152
Covered Calls 153
Option Compliance 153
Option Agreement 153
Chapter Eight - Mutual Funds 161
Investment Company Philosophy 161
Types of Investment Companies 161
Face Amount Company/
Face Amount Certificates 162
Unit Investment Trust (UIT’S) 162
Management Investment Companies
(Mutual Funds) 162
Open End Vs. Closed End 163
Diversified Vs. Non Diversified 163
Investment Company Registration 164
Registration Requirements 164
Investment Company Components 165
Board of Directors 166
Investment Advisor 166
Custodian Bank 166
Transfer Agent 167
Mutual Fund Distribution 167
Selling Group Member 167
Distribution of No Load Mutual Fund Shares 167
Distribution of Mutual Fund Shares 168
Mutual Fund Prospectus 168
A Mutual Fund Prospectus: 169
Characteristics of Open End
Mutual Fund Shares 169
Additional Characteristics of
Open End Mutual Funds 169
Equity Funds 170
Equity Income Fund 170
Sector Funds 170
Index Funds 170
Growth and Income (Combination fund) 171
Balanced Funds 171
Asset Allocation Funds 171
Other Types of Funds 171
Bond Funds 171
Corporate Bond Funds 171
Government Bond Funds 172
Municipal Bond Funds 172
Money Market Funds 172
Money Market Guidelines 172
Valuing Mutual Fund Shares 173
Changes in the NAV 173
Increases in the NAV 174
Decreases in the NAV 174
No Affect on the NAV 174
Closed End Funds 174
Front End Loads 174
Back End loads 175
Other Types of Sales Charges 175
Calculating A Mutual Funds Sales Charge
Percentage 175
Finding the Public Offering Price 176
Sales Charge Reductions 176
Breakpoint Schedule 176
Letter of Intent 177
Back Dating a Letter of Intent 177
Breakpoint Sales 177

 

Rights of Accumulation 178
Automatic Reinvestment of Distributions 178
Combination Privileges 178
Conversion or Exchange Privileges 179
30-Day Emergency Withdrawal 179
Taxation of Mutual Funds 179
Distribution of Capital Gains 180
Receiving and Reinvesting Distributions 180
Calculating Gains and Losses 181
Cost Base of Multiple Purchases 182
FIFO First In First Out 182
Share Identification 182
Average Cost 182
Purchasing Mutual Fund Shares 182
Lump Sum Deposit 183
Structured Accumulation Plans 183
Voluntary Accumulation Plans 183
Dollar Cost Averaging 183
Contractual Accumulation Plans 184
Sales Charges 184
45-Day Free Look 185
Withdrawal Plans 185
Fixed Dollar Amount 186
Fixed Share 186
Fixed Time 186
Fixed Percentage 186

Chapter Nine - Annuities 191
Annuities 191
Fixed Annuity 191
Variable Annuity 191
Direct Investment 192
Indirect Investment 192
Combination Annuity 192
Single Payment Deferred Annuity 193
Single Payment Immediate Annuity 193
Periodic Payment Deferred Annuity 194
Accumulation Units 194
Annuity Units 194
Annuity Payout Options 194
Life With Period Certain 195
Joint With Last Survivor 195
Factors Affecting The Size of
The Annuity Payment 195
The Assumed Interest Rate (AIR) 195
Taxation 196
Types of Withdrawals 196
Annuitizing The Contract 196
Expenses and Guarantees 197
Mortality Expense Risk Fee 197
Operating Expense Risk Fee 197
Other Charges 198
Sales Charges 198
Investment Management Fees 198

Chapter Ten - Issuing Securities 201
The Prospectus 201
The Final Prospectus 202
Prospectus To Be Provided To Aftermarket
Purchasers 202
SEC Disclaimer 202
Misrepresentations 203
Tombstone Ads 203
Free Riding and Withholding 203
Underwriting Corporate Securities 204
Types of Underwriting Commitments 204
Firm Commitment 204
Market Out Clause 204
Best Efforts 205
Mini-Maxi 205
All or None / AON 205
Standby 205
Types of Offerings 205
Initial Public Offering (IPO) / New Issue 205
Subsequent Primary / Additional Issues 205
Primary Offering vs. Secondary Offering 206
Awarding the Issue 206
The Underwriting Syndicate 206
Selling Group 206
Underwriter’s Compensation 206
Management Fee 206
Underwriter’s Fee 207
Selling Concession 207
Underwriting Spread 207
Factors That Determine The Size of
The Underwriting Spread 207
Exempt Securities 208
Exempt Transactions 208
Private Placements / Regulation D Offerings 208
Rule 144 209
Regulation A Offerings 210
Rule 145 210
Rule 147 Intrastate Offering 210

Chapter Eleven - Trading 215
Types of Orders 215
Market Orders 215
Buy Limit Orders 215
Sell Limit Orders 216
Stop Orders / Stop Loss Orders 216
Buy Stop Orders 216
Sell Stop Orders 216
Stop Limit Orders 217
Other Types of Orders 217
The Exchanges 218
Priority of Exchange Orders 218
The Role of The Specialist 218
The Specialist Acting as a Principal 219
The Specialist Acting As an Agent 219
Crossing Stock 220
Do Not Reduce / DNR 221
Adjustments For Stock Splits 221
Stopping Stock 222
Commission House Broker 222
Two Dollar Broker 222
Registered Traders 223
Super DOT 223
Short Sales 223
Regulation of Exchange Short Sales 223
Affirmative determination 224
Short Against The Box 224
Listing Requirements for The NYSE 225
Nine Bond Rule 225
Over The Counter / NASDAQ 225
Market Makers 225
NASDAQ Subscription Levels 226
NASDAQ Quotes 226
Nominal NASDAQ Quotes 227
Automated Confirmation System / ACT 227
NASDAQ Execution Systems 227
Super Montage / Super SOES 227
SmallCap SOES 228
NASDAQ NMS Short Sales 228
Non NASDAQ OTCBB 228
Pink Sheets 228
Third Market 228
Fourth Market 229
Reading The Consolidated Tape 229
Exchange Qualifiers 230
NASD 5% Markup Policy 231
Mark Ups / Mark downs When Acting as a
Principal 231
Riskless Principal Transactions 232
Proceeds Transactions 233
Arbitrage 233

Chapter Twelve - Customer Accounts 237
Holding Securities 238
Transfer and Ship 238
Transfer and Hold in Safekeeping 238
Hold in Street Name 239
Receipt Vs. Payment / Delivery Vs.
Payment RVP / DVP 239
Mailing Instructions 239
Individual Account 239
Joint Account 239
Joint Tenants With Rights of Survivorship
(JTWROS) 239
Joint Tenants in Common (JTIC) 240
Transfer on Death (TOD) 240
Death of a Customer 240
Partnership Accounts 240
Corporate Accounts 241
Trading Authorization 241
Operating a Discretionary Account 241
Managing Discretionary Accounts 242
Third Party and Fiduciary Accounts 242
Uniform Gift to Minors Account (UGMA) 243
Responsibilities of the Custodian 243
Contributions of a UGMA Account 244
UGMA Taxation 244
Death of a Minor or Custodian 244
Uniform Transfer to Minors Act 244
Accounts for Employees of Other
Broker Dealers 244
Numbered Accounts 245
Account Transfer 245
Option Accounts 245
Margin Accounts 246
The Credit Agreement 246
The Hypothecation Agreement 246
Loan Consent 246
Commingling Customer’s Pledged Securities 247
Wrap Accounts 247
Regulation S-P 247

Chapter Thirteen - Margin Accounts 253
Regulation of Credit 253
Regulation T 253
House Rules 255
Establishing a Long Position in a
Margin Account 255
An Increase in The Long Market Value 256
Special Memorandum Account/
SMA Long Margin Account 257
A Decrease in The Long Market Value 259
Minimum Equity Requirement
Long Margin Accounts 259
Establishing a Short Position in a
Margin Account 260
A Decrease in The Short Market Value 261
Special Memorandum Account/
SMA Short Margin Account 262
An Increase in The Short Market Value 263
Minimum Equity Requirement
Short Margin Accounts 263
Combined Margin Accounts 264

Chapter Fourteen - Retirement Plans 269
Individual Plans 269
Individual Retirement Accounts (IRA’s) 269
Traditional IRA 270
Roth IRA 270
Simplified Employee Pension IRA / SEP IRA 271
Participation 271
Employer Contributions 271
SEP IRA Taxation 271
IRA Contributions 271
IRA Accounts 272
IRA Investments 272
It is Not Wise To Put A Municipal Bond
In an IRA 272
Rollover Vs. Transfer 272
Rollover 272
Transfer 273
Educational IRA / Coverdell IRA 273
529 Plans 273
Keogh Plans (HR-10) 273
Contributions 273
Tax Sheltered Annuities (TSA’s )
Tax Deferred Accounts (TDA’s) 274
Public Educational Institutions (403B) 274
Non Profit Organizations /
Tax Exempt Organizations (501C3) 275
Contributions 275
Tax Treatment of distributions 275
Corporate Plans 276
Non Qualified Corporate Retirement Plans 276
Payroll Deductions 276
Deferred Compensation Plans 276
Qualified Plans 277
Types of plans 277
Defined Benefit Plan 277
Defined Contribution Plan 277
Profit Sharing Plans 277
401K Thrift Plans 278
Rolling Over A Pension Plan 278
Plan Participation 278
Funding 279
Vesting 279
Communication 279
Beneficiaries 279

Chapter Fifteen - Brokerage Office Procedure 283
Executing an Order 283
Order Room / Wire Room 283
Purchase and Sales Department 283
Margin Department 284
Cashiering Department 284
Customer Confirmations 284
Clearly Erroneous Reports 285
Execution Errors 285
Corporate and Municipal Securities
Settlement Options 285
RVP / DVP / COD 286
When Issued Securities 286
Government Securities Settlement Options 286
Accrued Interest 286
Accrued Interest 286
Calculating Accrued interest 287
Accrued Interest for Government Notes
and Bonds 288
Rules For Good Delivery 289
Delivery of Round Lots 290
Delivery of Bond Certificates 290
Rejection of Delivery 290
Don’t Know Procedures / DK 291
Fail to Deliver / Fail to Receive 291
Due Bills 291
Customer Account Statements 291
Carrying of Customer Accounts 292
Proxies 292

Chapter Sixteen - Fundamental &
Technical Analysis 299
Fundamental Analysis 299
The Balance Sheet 299
Capitalization 301
Changes in The Balance Sheet 303
The Income Statement 305
Industry Fundamentals 307
Technical Analysis 307
Market Theories and Indicators 311

Chapter Seventeen - Direct
Participation Programs 315
Limited Partnerships 315
Structuring and Offering Limited Partnerships 316
Types of Limited Partnerships 317
Oil and Gas Sharing Arrangements 319
Equipment leasing programs 320
Tax Reporting for Direct Participation Programs 320
Limited Partnership Analysis 320
Tax Deductions Vs. Tax Credits 321
Other Tax Considerations 321
Dissolving a Partnership 321

Chapter Eighteen - Recommendations 325
Professional Conduct in the
Securities Industry 325
Fair Dealings with Customers 326
Churning 326
Manipulative and Deceptive Devises 326
Unauthorized Trading 327
Fraud 327
Blanket Recommendations 327
Selling Dividends 328
Misrepresentations 328
Omitting Material Facts 328
Guarantees 328
Recommendations to an Institutional Customer 328
Recommending Mutual Funds 329
Periodic Payment Plans 329
Mutual Fund Current Yield 329
Information Obtained From an Issuer 330
Disclosure of Client Information 330
Borrowing and Lending Money 330
Gift Rule 330
Outside Employment 331
Customer Complaints 331
Investor Information 331
Know Your Customer NYSE Rule 405 332
Investment Objectives 333
Income 333
Growth 333
Preservation of Capital 333
Tax Benefits 334
Liquidity 334
Speculation 334
Risk vs. Reward 334
Capital Risk 335
Market Risk 335
Nonsystematic Risk 335
Legislative Risk 335
Timing Risk 335
Credit risk 335
Reinvestment Risk 335
Call Risk 335
Liquidity Risk 336
Alpha 336
Beta 336
Tax Structure 336
Investment Taxation 336
Calculating Gains and Losses 337
Cost Base of Multiple Purchases 337
FIFO First In First Out 337
Share Identification 337
Average Cost 338
Deducting Capital Losses 338
Wash Sales 338
Taxation of Interest income 339
Inherited Securities 339
Donating Securities To Charity 339
Gift Taxes 339
Estate Taxes 340
Withholding Tax 340
Corporate Dividend Exclusion 340
Alternative Minimum Tax / AMT 340
Taxes on Foreign Securities 340

Chapter Nineteen - Industry Regulations 347
The Securities Exchange Act of 1934 347
The Securities Exchange Commission/SEC 347
Extension of Credit 348
The National Association of Securities
Dealers/NASD 348
The Rules of Fair Practice/Rules of Conduct 348
The Uniform Practice Code 349
The Code of Procedure 349
The Code of Arbitration 349
Becoming A Member of The NASD 349
Registration of Agents / Associated Persons 350
Disciplinary Actions Against a Registered
Representative 351
Resignation of a Registered Representative 351
Termination For Cause 351
Retiring Representatives / Continuing
Commissions 351
State Registration 352
Registration Exemptions 352
Persons Ineligible to Register 352
Advertising and Sales Literature 352
Advertising 353
Sales Literature 353
Blind Recruiting Ads 353
Generic Advertising 354
Tombstone Ads 354
Tombstone Ads Must Include: 354
Filing and Retention Requirements 354
Testimonials 355
Free Services 355
Misleading Advertising and Sales Literature 355
Securities Investor Protection Corporation
Act of 1970 (SIPC) 355
Net Capital Requirement 356
Customer Coverage 356
Fidelity Bond 356
The Securities Acts Amendments of 1975 357
Fire Wall 357
Exemption from the Telephone Consumer
Protection Act of 1991 358
The Penny Stock Cold Call Rule 358
The Role of the Principal 359
Violations and Complaints 359
Resolution of Allegations 359
Code of Arbitration 360
The Arbitration Process 360
Simplified Arbitration 361
Larger Disputes 361
Awards Under Arbitration 361
Currency Transactions 361
The Patriot Act 361
US Accounts 362
Foreign Accounts 362
The Uniform Securities Act 362

PRE-TEST ANSWER KEY
Chapter One
Equity Securities 26 369
Chapter Two
Debt Securities 45 371
Chapter Three
Government Securities 54 372
Chapter Four
Municipal Securities 83 373
Chapter Five
Money Market 93 375
Chapter Six
Economics 103 376
Chapter Seven
Options 154 377
Chapter Eight
Mutual Funds 187 379
Chapter Nine
Annuities 199 381
Chapter Ten
Issuing Securities 211 382
Chapter Eleven
Trading 234 383
Chapter Twelve
Customer Accounts 248 384
Chapter Thirteen
Margin Accounts 266 386
Chapter Fourteen
Retirement Plans 280 387
Chapter Fifteen
Brokerage Office Procedure 293 388
Chapter Sixteen
Fundamental &
Technical Analysis 312 390
Chapter Seventeen
Direct Participation
Programs 322 391
Chapter Eighteen
Recommendations 341 392
Chapter Nineteen
Industry Regulations 363 394

GLOSSARY of EXAM TERMS