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After the Trade Is Made, Revised Ed. by David M. Weiss
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After the Trade Is Made, Revised Ed. by David M. Weiss
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Aug 17, 2006 | ISBN 9781591841272

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Table Of Contents

After The Trade Is Made, Revised Ed.Preface

Chapter I. Overview of the Industry

I-A. Broker/Dealers

I-A-1. What Are Broker/Dealers?
I-A-2. What Are the Types of Broker/Dealers?
I-A-3. What Are the Component Parts of a Typical Broker/Dealer?
I-A-3-a. Front Office
I-A-3-b. Middle Office
I-A-3-c. Back Office
I-A-3-d. Other Key Components

I-B. The Markets

I-B-1. What Are Markets?
I-B-2. What Is a “Two-Sided” Market?
I-B-3. The Different Marketplaces

I-C. Industry Regulators

I-C-1. Who Are the Regulators?
I-C-1-a. Securities and Exchange Commission
I-C-1-b. State Regulators
I-C-1-c. Self-Regulatory Organizations (SROs)
I-C-1-d. The Commodities Futures Trading Commission
I-C-1-e. Other Regulators

I-D. Required Examinations

I-E. Regulatory Reporting

I-E-1. Net Capital
I-E-2. Customer Protection

I-F. Who Are Our Clients?

I-F-1. Clients Who Provide Product
I-F-2. Types of Clients
I-F-3. Main Categories of Clients
I-F-4. Types of Accounts

I-G. What Are The Industry Organizations?

I-G-1. Depositories
I-G-2. Clearing Corporations
I-G-3. Industry Utilities
I-G-4. Banks
I-G-5. The Bond Market Association (TBMA)
I-G-6. Security Industry Association (SIA)

Chapter II. Products That We Offer

II-A. Corporate Securities

II-A-1. Common Stock
II-A-1-a. Voting
II-A-1-b. Dividends
II-A-1-c. Underwriting
II-A-1-d. Trading of Common Stock
II-A-1-e. Common Stock as an Investment Vehicle

II-A-2. Preferred Stock
II-A-2-a. Dividends
II-A-2-b. Underwriting

II-A-2-b-i. Dividend Rate
II-A-2-b-ii. Cumulative and Noncumulative Dividends
II-A-2-b-iii. Callable
II-A-2-b-iv. Convertible
II-A-2-b-v. Participating
II-A-2-b-vi. Adjustable-Rate Preferred
II-A-2-b-vii. Reverse Floating Rate
II-A-2-b-viii. Putable Preferred
II-A-2-b-ix. Self-Liquidating Preferred
II-A-2-c. Summary of Preferred
II-A-3. Rights and Warrants
II-A-3-a. Rights
II-A-3-a-i. Cum Rights
II-A-3-b. Ex-Rights
II-A-3-c. Arbitrage
II-A-3-d. Warrants
II-A-3-e. The Certificate

II-A-4. Corporate Bonds and Notes
II-A-4-a. Payment of Interest
II-A-4-b. The Marketplace
II-A-4-c. Pricing of a Corporate Bond

II-A-4-c-i. Accrued Interest
II-A-4-d. Bond Ratings
II-A-4-e. Indenture
II-A-4-f. Retiring Bonds
II-A-4-g. Bond Security

II-A-4-g-i. Mortgage Bonds
II-A-4-g-ii. Collateral Trust Bonds
II-A-4-g-iii. Equipment Trust Bonds
II-A-4-g-iv. Debenture Bonds
II-A-4-h. Registration
II-A-4-i. Default
II-A-4-j. Other Bond Features

II-A-4-j-i. Callable Bonds
II-A-4-j-ii. Convertible Bonds
II-A-4-j-iii. Zero-Coupon and Floating-Rate Bonds
II-A-4-k. Bonds and Notes Summary
II-A-5. Commercial Paper
II-A-5-a. Issuance
II-A-5-b. Trading
II-A-5-c. Settlement
II-A-5-d. Handling the Certificates
II-A-5-e. Financing
II-A-5-f. Maturity

II-B. Municipal Securities

II-B-1. The Competitive Underwriting
II-B-2. Offering of Municipal Bonds
II-B-3. The Effect of Income Tax Rates
II-B-4. Municipal Bonds
II-B-4-a. Trading Municipal Bonds
II-B-4-b. Basis Pricing
II-B-4-c. Types of Municipal Bonds

II-B-5. Municipal Notes
II-B-6. Municipal Securities Summary

II-C. U.S. Treasury Instuments

II-C-1. The Fed Auction
II-C-2. U.S. Treasury Bonds and Notes
II-C-3. Treasury Strips
II-C-4. U.S. Treasury Bills
II-C-5. Settlement
II-C-6. U.S. Treasury Instruments Summary

II-D. Mortgage-Backed and Asset-Backed Securities

II-D-1. Role of Mortage Banker
II-D-2. TBAs/Forwards
II-D-3. Modified Passthroughs
II-D-4. Collateralized Mortgage Obligations (CMOs)
II-D-5. Interest Only/Principal Only
II-D-6. Puts, Calls, and Standbys
II-D-7. Asset-backed Securities (ABSs)

II-E. Bank-issued Securities

II-E-1. Bankers’ Acceptances (BAs)
II-E-1-a. Use in Importing
II-E-1-b. Trading

II-E-2. Certificates of Deposits (CDs)
II-E-2-a. Types of CDs
II-E-2-b. Trading
II-E-2-c. Interest

II-E-3. Asset-backed Securities and Private Label

II-F. Mutual Funds

II-F-1. Open- and Closed-End Funds
II-F-2. Net Asset Value versus Market Value
II-F-3. Load versus No-Load
II-F-3-a. Load Funds
II-F-3-b. No-Load Funds
II-F-3-c. ABC Funds
II-F-3-d. Quotes

II-F-4. Rule 12b-1
II-F-5. Bond Units
II-F-6. Money Market Funds
II-F-7. Mutual Funds Summary

II-G. Exchange-Traded Funds (ETFS)

II-G-1. Types of ETFs
II-G-2. How They Are Named
II-G-3. Characteristics of ETFs

II-H. Hedge Funds

II-H-1. Goals of Hedge Funds
II-H-2. Pricing Hedge Funds

II-I. Options

II-I-1. Listed versus OTC Options
II-I-2. American versus European Forms
II-I-3. Equity Options
II-I-4. Debt or Interest Rate Options
II-I-4-a. U.S. Treasury Bill Options
II-I-4-b. U.S. Treasury Note and Bond Options

II-I-5. Index Options
II-I-6. Foreign Currency Options
II-I-7. Settlement
II-I-8. Option Clearing Corporation (OCC)
II-I-9. Expiration

II-J. Futures and Forwards

II-J-1. Futures Contracts
II-J-1-a. Types of Futures Contracts
II-J-1-b. Settlement
II-J-1-c. Margin
II-J-1-d. Margin Requirements

II-J-1-d-i. Clearing Corporation Margin Requirements
II-J-1-d-ii. Brokerage Firm Margin Requirements
II-J-1-e. Types of Margin
II-J-1-f. Delivery
II-J-1-g. Daily Trading Limits

II-J-2. Forward Contracts

II-K. Swaps

II-K-1. Interest Rate Swaps
II-K-2. Currency Swaps
II-K-3. Commodity Swaps
II-K-4. Swaps Summary

II-L. Currency

II-L-1. What Is Foreign Exchange (FX)?
II-L-2. Users of the Market
II-L-3. Derivatives
II-L-4. Settlement

II-M. American Depositary Receipts (ADRs), American Depositary Shares (ADSs), and Global Depositary Receipts (GDRs)

II-M-1. American Depositary Receipts and Shares
II-M-2. Global Depositary Receipts

II-N. Restricted Stock

II-N-1. Rule 144 Stock
II-N-2. Rule 145 Stock
II-N-3. Rule 144A Stock

II-O. Summary of Investment Products

Chapter III. The Marketplaces and Order Management

III-A. The Market

III-A-1. Agency Transaction
III-A-2. Principal Transaction

III-B. Order Routing

III-B-1. Retail Order Entry
III-B-2. Institutional Order Entry
III-B-3. Order Requirements
III-B-4. The Quote
III-B-5. The Size
III-B-6. Time Constraints of Orders
III-B-6-a. Day Order
III-B-6-b. Good Through (GTC, GTM, GTW, and so on)

III-B-7. Type of Orders
III-B-7-a. Market Order
III-B-7-b. Limit Order
III-B-7-c. Short Sales
III-B-7-d. Stop Orders
III-B-7-e. Stop Limit Order
III-B-7-f. Fill or Kill (FOK) Order
III-B-7-g. Immediate or Cancel (IOC) Order
III-B-7-h. All or None (AON) Order
III-B-7-i. Not Held (NH) Order
III-B-7-j. At the Opening Orders
III-B-7-k. On the Close Orders
III-B-7-l. Spread Orders
III-B-7-m. Straddle Orders
III-B-7-n. Combination Orders
III-B-7-o. One-Cancels-the-Other (OCO) Order
III-B-7-p. Facilitation Order

III-B-8. Conclusion

III-C. The Exchanges

III-C-1. Types of Exchanges
III-C-2. The New York Stock Exchange
III-C-2-a. House Brokers
III-C-2-b. Independent Brokers
III-C-2-c. Specialists

III-C-2-c-i. Making Markets
III-C-2-c-ii. Executing Orders
III-C-2-d. The Crowds on the Floor
III-C-2-e. The Auction Market
III-C-2-f. Priority, Precedence, and Parity

III-C-2-f-i. Priority
III-C-2-f-ii. Precedence
III-C-2-f-iii Parity
III-C-2-g. The Specialist’s BookIII-C-3. The American Stock Exchange (AMEX)
III-C-4. Chicago Board Option Exchange
III-C-4-a. Opening Rotation
III-C-4-b. The Floor
III-C-4-c. Executing Orders

III-C-4-c-i. Time and Date Entered
III-C-4-c-ii. Buy or Sell
III-C-4-c-iii. Open or Close
III-C-4-c-iv. Quantity, Type, Class, and Series of Option
III-C-4-c-v. Customer, Firm, Market Maker/Specialist
III-C-4-c-vi. Firm Name or Designation

III-C-5. The International Security Exchange
III-C-6. The Future Exchanges

III-D. The Over-The-Counter (OTC) Market

III-D-1-a. NASDAQ Systems
III-D-1-a-i. SOES
III-D-1-a-ii. ACES
III-D-1-a-iii. CAES

III-D-2. Other Over-the-Counter Equity Markets
III-D-2-a. Bulletin Board Securities
III-D-2-b. Electronic Commerce Networks (ECNs) and Alternate Trading Systems (ATSs)

III-D-3 The Debt Market
III-D-3-a. The Corporate Bond Market
III-D-3-b. The Municipal Bond Market
III-D-3-c. The Treasury Market
III-D-3-d. The Mortgage-Backed and Asset-Backed Securities Markets
III-D-3-e. Money Market Instruments

III-D-4. The Derivative Market
III-D-4-a. Options
III-D-4-b. Forwards

III-E. The Third Market

III-F. The Fourth Market

III-G. Odd Lots

Chapter IV. The Trade-Processing System

IV-A. Order Management System

IV-B. Client Account Control

IV-B-1. New Accounts/Name and Address
IV-B-1-a. New Account Form
IV-B-1-a-i. Terms and Conditions
IV-B-1-a-ii. Client Information
IV-B-1-a-iii. Standing Instructions
IV-B-1-a-iv. Type of Account
IV-B-1-a-v. Client’s Signature Block
IV-B-1-b. Types of Accounts
IV-B-2. Client Master Database Information Gathering
IV-B-2-a. Data Entry (NAOW)
IV-B-2-b. Automated Client Account Transfer System (ACATS)
IV-B-2-c. Account Opening Procedure
IV-B-2-d. Account Maintenance
IV-B-2-e. Institutional Accounts/SID/ALERT

IV-C. Security Properties Control
IV-C-1. Security Master Database
IV-C-2. Security Master Database Information Gathering

IV-D. Coding
IV-D-1. Unique Number

IV-E. Trade Figuration
IV-E-1. Agency versus Principal Transactions
IV-E-2. Regualtory Fee
IV-E-3. Equity Trade Figuration
IV-E-4. Bond Figuration
IV-E-5. Money Market Instruments

IV-F. Comparison
IV-F-1. Order Management System
IV-F-2. Equity Comparison
IV-F-3. Workings of the Clearing Corporation
IV-F-3-a. National Securities Clearing Corporation
IV-F-3-a-i. Principal Transactions
IV-F-3-a-ii. Market-Maker Trades
IV-F-3-a-iii. Agency Transactions
IV-F-3-a-iv. Principal Transactions (Modified)
IV-F-3-b. Equity Transaction Comparison
IV-F-3-b-i. What Is Being Compared?
IV-F-3-b-ii. Types of Comparison
IV-F-3-c. Regular Way Contract
IV-F-3-d. Trade Reporting and Compliance Engine (TRACE) Comparison

IV-F-4. Netting
IV-F-5. Continuous Net Settlement (CNS)

IV-G. Balancing of The Customer Side

IV-H. Fixed-Income Clearing Corporation

IV-H-1. Forwards and TBAs
IV-H-2. Mortgage-Backed Security Division of Fixed Income Clearing Corporation
IV-H-2-a. The Allocation
IV-H-3. Government Security Division of Fixed Income Clearing Corporation (GSD)

IV-I. Options
IV-I-1. OTC Options Comparison
IV-I-2. Listed Option Comparison
IV-I-2-a. ROTNs
IV-I-3. Posistion Reconcilement
IV-I-4. Option Exercise
IV-I-5. Ex by Ex

IV-J. Futures Comparison

IV-K. Trade Confirmation

Chapter V. Margin

V-A. Cash Versus Margin Purchases

V-B. Terminology

V-C. Cash Account

V-D. Margin Account

V-E. A Brief Lesson In Margin

V-E-1. Regulation T (“Reg T”)
V-E-2. Maintenance Rules
V-E-3. Loan Value
V-E-4. Margin Excess and Buying Power
V-E-5. Minimum Maintenance Requirement
V-E-6. Restricted Accounts
V-E-7. Special Memorandum Account (SMA)

V-F. Margin—Long Position
V-F-1. Reg T Excess
V-F-2. Buying Power
V-F-3. Minimum Maintenance Requirement
V-F-3-a. A Working Illustration

V-G. Margin—Short Sales
V-G-1. Required Margin
V-G-2. Mark to the Market
V-G-3. Maintenance Requirement

V-H. Maintenance Excess

V-I. Day Trading

V-J. The Margin/Credit Department as Part of Client Relationship Management

V-J-1. Account Maintenance
V-J-2. Sales Support
V-J-3. Clearance for Issuance of Checks

V-K. Margin Department’s Daily Routine
V-K-1. Reports to Produce
V-K-1-a. Exception Report
V-K-1-b. Items Due

V-K-2. Extensions
V-K-3. Close-Outs
V-K-4. Delivery of Securities
V-K-5. The Margin/Credit Workstation

V-L. Option Margin
V-L-1. Option Margin Theory
V-L-2. Margin Calculation for an Uncovered Equity Option
V-L-3. Margin for Spread Positions
V-L-4. Margin for Straddle or Combo Positions

V-M. Future Margin
V-M-1. Standard and Maintenance Margin
V-M-2. Mark to the Market
V-M-3. Variation Margin
V-M-4. Delivery and Payment
V-M-5. Standard Portfolio Analysis of Risk (SPAN) Margin

Chapter VI. Settlement

VI-A. Segregation (SEG)

VI-B. Receive and Deliver

VI-B-1. Preparation for Settlement
VI-B-2. Settlement Cycle Begins
VI-B-2-a. The Projection Report
VI-B-2-b. The Seg Report
VI-B-2-c. Seg Control
VI-B-2-d. Needs Analysis Report

VI-C. Fail To Receive/Fail To Deliver

VI-D. Financing Positions

VI-D-1. Bank Loan
VI-D-2. Stock Loan
VI-D-3. Stock Borrows
VI-D-4. Repos
VI-D-4-a. Government Security DIvision (GSD) of FICC GCF Repo Service
VI-D-4-b. Matched Book

VI-D-5. Letters of Credit
VI-D-6. Unsecured Loans

VI-E. Custodial Services
VI-E-1. Safekeeping
VI-E-2. Customer Seg
VI-E-3. Exemptions

VI-F. Settlements of Mortgage-Backed Securities
VI-F-1. GNMA Passthrough Securities
VI-F-2. Electronic Pool Notification (EPN)

VI-G. Settlement with GSCC and The FED

VI-H. Option Settlement

VI-H-1. Daily Activity Settlement
VI-H-2. OCC Margin
VI-H-3. Expiration

VI-I. Institutional Settlement
VI-I-1. Trade Suite, OASYS, Omgeo
VI-I-2. Alert and SID

VI-J. Mutual Fund Settlement
VI-J-1. Clearance
VI-J-1-a. Closed-End Fund Transacton Clearance
VI-J-1-b. Open-End Fund Transaction Clearance

VI-J-2. Acquiring Fund Shares
VI-J-2-a. FundServ
VI-J-2-b. Mutual Fund Profile Service (MFPS)
VI-J-2-c. ACATS/FundServ

VI-J-3. Defined Contribution

Chapter VII. Custodial Services

VII-A . Automated Customer Account Transfer Systems (ACATS)

VII-B. Transfers

VII-C. Standing Instructions

VII-D. Dividends and Bond Interest

VII-E. Corporate Actions (AKA Reorganizations)

VII-E-1. Mergers
VII-E-2. Acquisitions
VII-E-3. Tender Offers
VII-E-4. Stock Splits
VII-E-5. Reverse Stock Splits
VII-E-6. Spinoffs
VII-E-7. Processing Corporate Actions

Chapter VII. Role of the Banks

VIII-A. Custodian

VIII-B. Financing

VIII-B-1. Collateralized Loans and Hypothecation
VIII-B-2. Letters of Credit
VIII-B-3. Lines of Credit

VIII-C. Transfer Agent

VIII-D. Registrar

VIII-E. Paying Agent

VIII-F. Product Issuer

VIII-F-1. Commercial Paper
VIII-F-2. Certificates of Deposit
VIII-F-3. Bankers’ Acceptances
VIII-F-4. Asset-Backed and Mortgage-Backed Securities and Whole Loans

VIII-G. Foreign Exchange

VIII-H. Client

Chapter IX. Cash Accounting

IX-A. The Accounting Process

IX-B. Account Categories

IX-C. Debits and Credits

IX-D. Journal and Ledger

IX-D-1. Journal Entries
IX-D-2. Ledger Account
IX-D-3. Trial Balance
IX-D-4. Profit and Loss Statement and Balance Sheet

Chapter X. Brokerage Accounting

X-A. Cash Moves The Security

X-B. Location Accounts

X-C. Offset To Short Sales

X-D. Chart of Brokerage Accounts

Chapter XI. Stock Record

XI-A. Types of Stock Records

XI-A-1. Activity Stock Record
XI-A-2. Summary Stock Record
XI-A-3. Trade Date Stock Record

XI-B. Breaks and Illogical Positions

XI-C. Account Nomenclature

Chapter XII. General Ledger

XII-A. Daily Cash Report

XII-B. General Business

XII-C. Trial Balance

XII-D. Profit and Loss Statement

XII-E. Balance Sheet

XII-F. Statement of Cash Flow

Chapter XIII. Regulatory Reporting

XIII-A. Net Capital and Aggregate Indebtedness (Rule 15c3-1 of The 1934 Securities and Exchange Act)

XIII-A-1. The Broker/Dealer’s Capital
XIII-A-2. Computation of Net Capital

XIII-B. Customers Protection—Reserves and Custody of Securities (Rule 15c-3-3 of The 1934 Securities and Exchange Act)

XIII-C. Focus

Chapter XIV. Conclusion


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