Must Know Concepts for the Series 62 Exam

Introduction

Investors, who do not purchase their stocks and bonds directly from the issuer, must purchase them from another investor. Investor-to-investor transactions are known as secondary market transactions. In a secondary market transaction, the selling security owner receives the proceeds from the sale. Secondary market transactions may take place on a traditional exchange or in the over the counter market known as NASDAQ. While both facilitate the trading of securities, they operate in a very different manner. We will begin by looking at the types of orders that an investor may enter and the reasons for entering the various types of orders.

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Over The Counter / NASDAQ

Securities that are not listed on any of the centralized exchanges trade over the counter or on the NASDAQ. NASDAQ stands for National Association of Securities Dealers Automated Quotation System. It is the inter-dealer network of computers and phone lines that allows securities to be traded between broker dealers. NASDAQ is not an auction market it is a negotiated market, and has been granted exchange status by the SEC. One broker dealer negotiates a price directly with another broker dealer. None of the other interested parties for that particular security have any idea of what terms are being proposed. The broker dealers may communicate over their NASDAQ workstations or can speak directly to one another over the phone. The normal business hours for the NASDAQ market are from 9:30 AM to 4:00 PM EST.

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Warrants

A warrant is a security that gives the holder the opportunity to purchase common stock. Like a right, the warrant has a subscription price. However the subscription price on a warrant is always above the current market value of the common stock when the warrant is originally issued. A warrant has a much longer life than a right and the holder of a warrant may have up to ten years to purchase the stock at the subscription price. The long life is what makes the warrant valuable, even though the subscription price is higher than the market price of the common stock when the warrant is issued.

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Introduction

Prior to executing a customer’s order, the firm must open an account for the customer. The representative opening the account should try to obtain all vital financial information relating to the customer. Series 62 candidates can expect to see 10 to 20 questions dealing with customer accounts on their exam.

Prior to opening an account for any new customer, a registered representative must complete and sign a new account form. Account ownership is divided into five main types:

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