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Should I take the series 65 or series 66 exam ?

There are several key differences between the series 65 and series 66 exams. Determining which exam you should take will depend on your particular circumstances. 

The Series 65 is the Uniform investment adviser exam and qualifies a candidate to act as an investment adviser representative. Upon passing the series 65 the agent may represent an investment adviser and receive fee based compensation. The fee based compensation may be based on a percentage of the assets under management or as an hourly or flat fee for providing a personalized financial plan. There are no pre requisites for taking the series 65 exam and the candidate does not need to be sponsored by a FINRA member firm to take the test. 

The series 65 is a 130 question test with a time limit of 180 minutes and a passing score is a 72%. The questions on the series 65 exam focus on the following areas:

  • Ethics and Legal Guidelines – 40 Questions
  • Economics and Analysis – 19 Questions
  • Investment Vehicles – 31 Questions
  • Investment Recommendations and Strategies – 40 Questions


TOTAL 130 Questions 

The series 66 is the uniform combined state law exam and qualifies a candidate to represent both an investment adviser and a broker dealer. After passing the series 66 an agent may receive both fee based compensation for representing an investment adviser and transition based compensation for executing customer orders. The series 66 is a combination of the series 63 exam and the series 65 exam. The series 66 exam is 100 questions with a time limit of 150 minutes and a passing score of 73%. The questions on the series 66 exam focus on the following areas:

  • Economic Factors and Business Information – 5 Questions
  • Investment Vehicle Characteristics – 15 Questions
  • Client Investment Recommendations and Strategies – 30 Questions
  • Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices – 50 Questions

TOTAL – 100 Questions 

Candidates do not have to be sponsored by a FINRA member firm to take the series 66 exam. However, the series 7 exam is the co-requisite for the series 66 exam and a candidate who has passed the series 66 exam may not conduct any business until they have passed the series 7 exam. All candidates must be sponsored to take the series 7 exam. 

So which exam is right for you?

If you have passed the series 7 exam and have not taken the series 63 exam, the series 66 may be the right exam to take. Keep in mind that while the series 66 has fewer questions than the series 65 the passing score is slightly higher. 

If you have not passed the series 7 or will not be taking the series 7 exam you must take the series 65 exam. While the series 65 is a larger test the passing score is only 72%. Additionally, many candidates find the material tested on the series 65 exam to be a bit more interesting and straight forward than some of the topics tested on the series 66 exam. 

So is the series 65 or 66 exam right for you? Only you can decide No matter which exam you decide to take, our series 65 and 66 exam training materials offer a money back pass guarantee

Requirements for ERISA Advisers and Service Providers

Advisers and other service providers to most ERISA-covered plans must disclose their fees, following a U.S. Department of Labor (DOL) regulation that became effective July 1, 2012. These regulations are designed to dovetail with corresponding regulations that require plans to disclose service provider information to DOL in a timely manner. A service provider’s failure to comply with these disclosure requirements automatically labels the advisory contract or other service arrangement as a “prohibited transaction” and subjects the service provider to a punitive excise tax.

Advisers should review revised DOL Rule 408-b-2, which sets forth rules implementing the “prohibited transaction” exemption in Section 408(b)(2) of the Act for “services or office space.” Rule 408(b)(2)-(c) describes the conditions under which a “reasonable contract or arrangement” between an adviser and a covered plan will not be challenged as a “prohibited transaction.”
Highlights of the new regulations include the following:

Disclosure Statement. The Rule requires that the adviser provide to the Plan a series of disclosures about services and fees in a timely manner. The DOL did not specify a particular form of disclosure.

Services Covered
. The new regulation is designed to be as comprehensive as possible to give plan sponsors a clear idea of the total range of services provided and fees charged by the adviser and its affiliates. It introduces the concept of a “Covered Service Provider,” which enters into a contract or arrangement with the covered plan and reasonably expects $1,000 or more in compensation, direct or indirect, to be received in connection with providing one or more services, regardless of whether these services will be performed, or compensation received, by the Covered Service Provider, an affiliate, or a subcontractor. These services may include:

  • Services as a fiduciary or registered investment adviser
  • Certain recordkeeping or brokerage services
  • Other services ” accounting, auditing, actuarial, banking, etc. ” for indirect compensation

Disclosure requirements. The Covered Service Provider must disclose the following information to a Responsible Plan Fiduciary in writing:

  • Status
  • Compensation: direct compensation, indirect compensation, compensation paid among related parties, compensation for termination of contract or arrangement
  • Recordkeeping services
  • Plan investment disclosure

Timing of initial disclosure requirements and changes. A Covered Service Provider must disclose the required information to the Responsible Plan Fiduciary reasonably in advance of the date the contract or arrangement is entered into, and extended or renewed.

Reporting and disclosure information and timing
. Upon written request, the Covered Service Provider must furnish any other information relating to the compensation received in connection with the contract or arrangement that is required for the covered plan to comply with the reporting and disclosure requirements. The information must be disclosed reasonably in advance of the date that the Responsible Plan Fiduciary or covered plan administrator states that it must comply or as soon as practicable in extraordinary circumstances.

Disclosure errors
. No contract or agreement will fail to be “reasonable” because the Covered Service Provider, acting in good faith, makes an error or omission in disclosing required information. The correct information must be disclosed no later than 30 days after the Covered Service Provider becomes aware of the error or omission.

Consequences of failure to disclose
. If a Covered Service Provider fails to disclose the information required by the Rule, the contract or arrangement will not be ”’reasonable” unless the failure satisfies the Rule’s cure provision for inadvertent disclosure errors and omissions. The service contract or arrangement will not qualify for relief from ERISA’s prohibited transaction rules provided by Section 408(b)(2) of the Act. The resulting “prohibited transaction” will have consequences for both the Responsible Plan Fiduciary and the Covered Service Provider.

Required termination provisions in the contract or arrangement
. The Rule states that no contract or arrangement is “reasonable” within the meaning of section 408(b)(2) of the Act and the Rule if it does not permit termination by the plan without penalty to the plan on “reasonably short notice” under circumstances that prevent the plan from becoming locked into an arrangement that has become disadvantageous.

Important questions to consider

For advisers and other service providers to ERISA plans, the advent of these regulations raises a variety of issues:

  • How are arrangements to be judged as “reasonable?”
  • What is an accepted form of disclosure?
  • What procedures should be adopted to make sure information is kept current?
  • What is the effect on affiliated entities participating in service to the covered plan?
  • What do these disclosures do to the provider’s relationship and communications with the plan sponsor?

For those whose business is reliant on services provided to ERISA plans, familiarity with the detail of these regulations is essential, as well as access to advice from knowledgeable experts on how the regulations are being applied and interpreted.

What is a condor spread

A condor spread is similar to a butterfly spread and is the simultaneous establishment of both a bull spread and a bear spread on the same underlying security. A condor spread however, has two inner strikes in the center of the position instead of one in a butterfly spread. A condor spread contains four options with four strike prices and is effectively two spreads stacked on each other. A sophisticated options trader would establish a long condor spread when they expect the underlying security or index to remain in a period of low volatility. An investor who establishes a long condor spread is effectively neutral on the underlying security and does not expect a large price move. A long condor spread is established as a debit spread. Like all debit spreads, the investor’s maximum loss will be equal to the net debit paid to establish the position. The investor’s maximum gain for the position will be the same as for other spreads, the difference between the strike prices minus the net debit.  A condor spread, like a butterfly spread and a straddle, will have two breakeven points. The breakeven point for the upper end of the position will be the higher strike price  minus the debit. The breakeven point for the lower end of the position will be the lower strike price plus the debit. A long condor spread could be established as follows:

Buy 1 XYZ June 85 call at 2
Sell 1 XYZ June 80 call at 4
Sell 1 XYZ June 75 calls at 6
Buy 1 XYZ June 70 call at 9

Debit         Credit

2                     4

9                     6

1

The investor established the position for a net debit of 1 or $100. Using the above formulas, we determine that the investor will:

  • Have a maximum loss of 1 or $100
  • Have a maximum gain of $400 (5 point spread – debit)
  • Have a lower breakeven of 71 (lower strike price + debit)
  • Have an upper breakeven of 84 (higher strike price – debit)

The investor will realize the maximum gain on a long condor position when the underlying security is between the two short strike prices at expiration

TAKE NOTE!
An investor would establish a short condor if they expect a large move in the price of the underlying security. The seller of the condor like all option sellers has a maximum gain equal to the net credit received. The seller will realize the maximum gain if the underlying security is above or below the outer strike prices or the wings of the position at expiration.

 

 

Questions on condor spreads can appear on both the series 4 and series 9 exams. Be sure you are ready to pass your exam with our text books and exam prep software.

 

Good Luck on your exam !

 

The Securities Institute of America, Inc.

Must know money market instruments

The money market is a place where issuers go to obtain short-term financing. An issuer who needs funds for a short term, typically under one year, will sell short-term instruments known as money market instruments to obtain the necessary funds. Corporations, Municipalities, and the US Government will all use the money market to obtain short-term financing.

Money Market Instruments

Money market instruments are highly liquid, fixed-income securities issued by governments and corporations with high credit ratings. Because of the high quality of the issuers and because of the short-term maturities, money market instruments are considered very safe.

Corporate Money Market Instruments

Both corporations and banks sell money market instruments to obtain short term financing. These money market instruments issued will include:

  • Banker’ acceptances
  • Negotiable certificates of deposit
  • Commercial paper
  • Federal funds loans
  • Repurchase agreements
  • Reverse repurchase agreements

Banker’s Acceptances

Corporations, in order to facilitate foreign trade, import/export, use Banker’s acceptances. The Banker’s acceptance acts like a line of credit or a post-dated check. The BA (Banker’s Acceptance) is a time draft that will be cleared by the issuing bank on the day it comes due to whomever presents it for payment. The maturity dates on banker’s acceptances range from as little as one day to a maximum of 270 days (9 months).

Negotiable Certificates of Deposit

A negotiable CD is a time deposit with a fixed interest rate and a set maturity ranging from 30 days to 10 years or more. A negotiable CD, unlike the traditional CD, may be exchanged or traded between investors. The minimum denomination for a negotiable CD is $100,000. Many negotiable CDs are issued in denominations exceeding $1,000,000 but FDIC only insures the first $250,000.

Commercial Paper

The largest and most creditworthy corporations use commercial paper as a way to obtain short-term funds. Commercial paper is an unsecured promissory note or an IOU issued by the corporation. Corporations will sell commercial paper to finance such things as short-term working capital or to meet their cash needs due to seasonal business cycles. Commercial paper maturities range from one day to a maximum of 270 days. It is issued at a discount to its face value and has an interest rate that is below what a commercial bank would typically charge for the funds. Commercial paper is typically issued in book entry form. There are two types of commercial paper: direct paper and dealer paper. With direct paper, the issuer sells it directly to the public without the use of a dealer. Dealer paper is sold to dealers who then resell the paper to investors.

Federal Fund Loans

Federal fund loans are loans between two large banks that are typically made for short periods of time in amounts of $1,000,000 or more. Should the lender wish to sell the fed funds loan the loan may be exchanged in the money market between investors.

Repurchase Agreements

A repurchase agreement is a fully collateralized loan made between a dealer and a large institutional investor. These loans are usually collateralized with US Government securities that have been sold to the lender. The borrower (Seller) agrees to repurchase the securities from the lender at a slightly higher price. The slightly higher price represents the lender’s interest.

Reverse Repurchase Agreement

In a reverse repurchase agreement, the institutional investor initiates the transaction by selling the securities to the dealer and agrees to repurchase them at a later time. In a reverse repurchase agreement the borrower (seller) is the institution, not the dealer.

Fixed Vs. Open Repurchase Agreements

With a fixed repurchase agreement, the borrower (seller) agrees to repurchase the securities at a fixed price on a specified date. With an open repurchase agreement, the date of the repurchase is not fixed and the open repurchase agreement becomes a demand note for the lender and may be called in.

Note:
Corporate issues with less than one year to maturity, regardless of the original maturity, may be traded in the money market.

Government Money Market Instruments

The Government and many of its agencies will go to the money market to obtain short-term funds. Some of the government money market instruments include:

  • Treasury Bills
  • Treasury and agency securities with less than one year remaining
  • Short term discount notes issued by government agencies

Municipal Money Market Instruments

State and local government will sell securities in the municipal money market to obtain short-term financing. The municipal money market instruments are:

  • Bond anticipation notes
  • Tax anticipation notes
  • Revenue anticipation note
  • Tax and revenue anticipation notes
  • Tax exempt commercial paper

Government and municipal issues with less than one year to maturity, regardless of the original maturity, may be traded in the money market.

International Money Market Instruments

Often large institutions will place US dollars in foreign accounts to earn a higher rate of interest. These dollars being held outside of the US are known as Eurodollars. A US dollar denominated account outside of the US is known as a Eurodollar deposit. These deposits typically have maturities of up to 180 days and they are traded between large European banks and institutions, much like federal fund loans in the US.

 

Be sure you are ready to pass your exam with our textbooks, exam prep software and video training class.

 

Good Luck on  your exam !

The Securities Institute of America, Inc.

Must know Tips for Margin Accounts

If you are taking The SIE exam, the Series 7 series 24 or series 99 exam, here are the must know facts about margin accounts to ensure you pass your exam.

The Federal Reserve Board sets the amount that must be deposited when customers purchase securities using borrowed funds. This is known as the initial margin requirement.  The initial margin requirement has been equal to 50 percent of the purchase price for many years. For example, if a customer wanted to purchase $50,000 worth of stock on margin, the customer would be required to deposit $25,000 and the broker dealer could loan the customer the rest. Alternatively, if the customer wanted sell stock short in the hope that the securities would fall in value, the customer would be required to deposit 50 percent of the price of the stock sold short. For example, if the customer sold a stock short with a market value of $60,000, the customer would be required to deposit, $30,000 to hold the position. Once a position has been established in a margin account, customers are required to maintain a minimum level of equity. The minimum equity requirement is set by the NYSE and FINRA in both new and established margin accounts.
Customers who want to establish a new margin account must have at least $2,500 in equity prior to the broker dealer loaning the customer any funds.  Customers who have established margin accounts and who purchase securities on margin are required to maintain equity equal to 25 percent of the long market value. Going back to our customer who purchased $50,000 worth of stock on margin, the minimum equity requirement at the $50,000 level would be $12,500. Alternatively, customers who have sold stock short, would be subject to a minimum equity requirement of 30 percent of the short market value. The investor who sold $60,000 worth of stock short would be subject to a minimum equity requirement of $18,000. Investors whose equity falls below the minimum level will be required to deposit additional money to restore the account to at least the minimum level. This is known as a margin call. When the equity in an account is below the initial requirement of 50 percent and above the minimum equity requirement, the account is said to be a restricted margin account. The term restricted only refers to the relationship of the equity to the market value. No limitations are placed on the account and the investor is free to increase his /her positions at will by depositing 50 percent of the price of the new securities.

To calculate how low the value of a stock or portfolio can fall to be at the minimum equity for investors who establish long margin accounts use the following formula

Debit Balance / .75

Our investor above who purchased $50,000 worth of stock and deposited the $25,000 margin requirement, therefore had a loan or debit balance of $25,000.  Using the above formula, we get $25,000 / . 75 = $33,333. That is to say that the account can fall in value to $33,000 and the investor will be at the minimum margin requirement. The customer will not get a call at this level. Should the stock fall $1 more the investor will be required to deposit more money.

 

To calculate how high the price of a stock or portfolio can rise to be at the minimum equity for investors who have established short positions use the following formula:

Credit Balance / 1.3

Going back to our investor above who sold $60,000 worth of stock short, the investor was required to deposit $30,000 to hold the position. The result of the the short sale and the required deposit created a credit balance of $90.000. Using the formula above the we get $90,000 / 1.3 = $69,230. The value of the short stock can rise to this level and the investor will not be subject to a call. If the stock increases by $1 more the investor will be required to deposit more money to hold the short position.

Special rules apply for customers who sell low priced stock short. A customer who sells a stock short worth $5 or less is subject to a margin are requirement of the greater of $2.50 per share or 100 percent of the value of the stock sold short.  For example, a customer who sold 1,000 shares of stock short at $3 per share would be required to deposit $3,000.

Take note A customer can never be required to pay more than 100 percent of the stock price when purchasing a stock on margin. A customer who purchased 1,000 shares of stock at $2 in a new margin account would be required to deposit $2,000. As the minimum equity is $2,500 prior to any loan being made by the customer.

If you master the above concepts you will be sure to pass your SIE, Series 7 or series 99 exams. Be sure your are ready to pass with all of our exam prep products with our Greenlight money back pass guarantee

 

Good Luck on your exam !

 

The Securities Institute of America, Inc.

 

 

Series 24 Test tip Member offerings

Offering of Securities by FINRA Members When a FINRA member firm wishes to raise money by offering securities for sale to investors special rules apply to the offering. When a FINRA member firm goes public it may not underwrite its own securities. The member wishing to go public must engage the services of a qualified lead underwriter. A qualified lead underwriter is a FINRA member who has been the book running lead underwriter in at least 3 offerings in the last 3 years. The member’s participation in those offerings must have been for at least 50 percent of the shares being sold. The proceeds of member offerings must be placed in escrow and may not be released for use by the member until the member has completed a net capital computation and submitted it to FINRA. The computation must show that the member has AI:NC does not exceed 10:1 or that its net capital is greater than 120 percent of its required net capital. When calculating the net capital the member may use the funds being held in escrow as part of the calculation. If the net capital computation shows AI:NC of greater than 10:1 or if its net capital is less than 120 percent of its required net capital the offering will be canceled and the funds returned to investors. If the member calculates net capital using the alternative method the offering will be canceled if the member’s net ca[ital.is less than 7 percent of aggregate debit items. When a FINRA member is offering securities for sale the member who is issuing the securities must file the underwriting agreement with FINRA’s Corporate Finance Department. If the member is raising money for itself through a member private offering (MPO) the member must file the private placement memorandum or term sheet with FINRA’s CFD 10 calendar days prior to it being given to potential investors. If no offering documents are to be used FINRA must be notified of that fact

Series 63 Question of the Week

Under the Uniform Securities Act, which of the following would not have to be disclosed when filing a registration by qualification?

A. A statement analyzing the issuer’s profit margin over the last three years compared to the profit margins of its primary competitors

B. The capitalization and long-term debt of the issuer and any significant subsidiary

C. The general character and location of the issuer’s business and a statement of the general competitive conditions within the industry or business in which it operates

D. The estimated cash proceeds to be received by the issuer from the offering

Correct Answer(s):

A. A statement analyzing the issuer’s profit margin over the last three years compared to the profit margins of its primary competitors

Explanation:

An analysis of the issuer’s profit margin as compared to competitors’ would not be required. All other items listed would be required when filing a registration by qualification.

Series 4 Question of the Week

An investor has a margin account as follows. Regulation T is 50%.

Long 100 XYZ @ 80\tab Debit Balance $11,700

Long 100 PDQ @ 100\tab SMA -0-

He sells 20 shares of PDQ for $2,000. The SMA can be credited with:

A. $0

B. $1,000

C. $500

D. $2,000

Correct Answer(s):

B. $1,000

Explanation:

The investor’s account is restricted however 50% of all sale proceeds must be credited to SMA.

Series 9 Question of the Week

An investor establishes the following:

Short 700 ONST at 39.20

Short 7 ONST May 37.50 puts at 2.90

Which of the following are not false?

I. The investor has the potential for an unlimited gain

II. The investor’s potential loss exceeds their potential gain

III. The Investor is bearish

IV. The investor is fully hedged

A. I and IV

B. II and IV

C. II and III

D. III and IV

Correct Answer(s):

C. II and III

Explanation:

The investor is short stock and short puts so their potential loss far exceeds their potential gain. The investor is bearish and wants the stock to go down. The other statements are false.

Series 10 Question of the Week

Your firm is a market maker and is participating in an offering of securities as a syndicate member. You firm is acting as a passive market maker and has purchased 12,000 shares which is 98% of its ADTV. An order comes into the firm’s trading desk to sell 3,000 shares at 2:40. Which of the following is true ?

A. Your firm may not purchase the stock as it would cause the firm to exceed its purchase limit

B. Your firm may purchase the stock

C. Your firm may purchase the stock so long as it finds an offsetting customer order within 30 seconds

D. Your firm may purchase the stock so long as it finds an offsetting customer order within 90 seconds

Correct Answer(s):

B. Your firm may purchase the stock

Explanation:

The firm may execute any single order even if that order would cause it to exceed its volume limitations. Once they have exceeded the volume limits they must withdraw for the rest of the day.

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