SAC General Business Evaluation cheat sheet

Securities Act of 1933 governs primary offerings: registration with the SEC, prospectus delivery, and Section 4(a)(2)/Regulation D private placement exemptions.

Securities Exchange Act of 1934 created the SEC, governs secondary trading, requires broker-dealer registration under Section 15, and mandates periodic reporting (10-K, 10-Q, 8-K).

FINRA is a self-regulatory organization overseen by the SEC; its rules (e.g., 2111 suitability, 2210 communications, 3110 supervision, 2010 conduct) bind member firms and associated persons.

Investment Company Act of 1940 regulates mutual funds and ETFs (diversification, 75% test, board independence); Investment Advisers Act of 1940 governs advisers and the fiduciary standard.

Market structure: exchanges (listed auctions), ATS/dark pools (off-exchange, Form ATS), and OTC dealer markets; Regulation NMS rules include Order Protection, Access, Sub-Penny, and Market Data rules.

Regulation SHO governs short sales: locate requirement before execution and the alternative uptick rule (Rule 201) triggering a 10% decline circuit breaker.

SIPC protects customers of failed broker-dealers up to $500,000 total, including a $250,000 sublimit for cash claims; SIPC does not cover market losses or fraudulent advice.

Regulatory notices: Reg BI (best interest for retail recommendations), Form CRS (relationship summary), and Reg S-P (privacy) apply to broker-dealers serving retail clients.

Suitability (FINRA Rule 2111) requires reasonable basis, customer-specific, and quantitative suitability; Reg BI adds care, disclosure, conflict of interest, and compliance obligations for retail recommendations.

Know Your Customer (FINRA Rule 2090) requires reasonable diligence to know and retain essential facts about each customer and the authority of persons acting on the account.

Account ownership forms: individual, joint tenants with right of survivorship (JTWROS), tenancy in common (no survivorship), tenants by the entirety (spouses), UGMA/UTMA custodial, and trust accounts.

Cash vs. margin: cash accounts settle on T+1 with no extension beyond Reg T; margin accounts permit borrowing subject to initial margin (Reg T 50%) and maintenance margin (FINRA 25% minimum).

Reg T settlement: payment for purchases due within one business day of trade (T+1); free-riding and cash account liquidation rules apply when payment is not made.

Corporate account documentation: board resolution, corporate charter/bylaws, certificate of incumbency, and authorized signer list; entity accounts require beneficial ownership certification under the CDD Rule.

Discretion: written authorization and acceptance by the firm are required for discretionary authority; time-and-price discretion does not require written authorization.

Senior and vulnerable clients: FINRA Rule 2165 permits temporary holds on suspicious disbursements, and Rule 4512 requires trusted contact person designation.

Common stock: residual ownership claim, voting rights, variable dividend; preferred stock has priority dividend and liquidation claims, often callable and convertible.

Bond price-yield relationship is inverse; price change approximates -duration × yield change, with convexity adjusting for larger moves.

Bond pricing: price equals present value of coupons plus par, discounted at yield; premium when coupon > yield, discount when coupon < yield, par when equal.

Duration measures price sensitivity in years; modified duration = Macaulay duration / (1 + y/n); higher coupon, shorter maturity, and higher yield reduce duration.

Credit ratings (investment grade BBB-/Baa3 and above) reflect default risk; yield spread compensates for credit, liquidity, and call risk.

Municipal bonds: interest generally exempt from federal tax; in-state issues may be triple-exempt; AMT bonds and taxable munis are exceptions.

Equity valuation metrics: P/E, P/B, dividend payout and yield; stock splits and dividends adjust share counts and cost basis but do not create taxable gain.

Types of fixed income risk: interest rate, reinvestment, credit, call/prepayment, inflation, liquidity, and currency risk; TIPS principal adjusts with CPI.

Mutual fund share classes: A shares front-end load with breakpoint discounts, B shares contingent deferred sales charge (CDSC) with higher 12b-1, C shares level load with CDSC, I shares institutional no-load.

Mutual fund pricing: forward pricing at next computed NAV after order receipt; NAV = (assets − liabilities) / shares outstanding, computed at least once daily.

12b-1 fees pay distribution and marketing; FINRA caps 12b-1 at 0.75% for A/B shares (0.25% service fee plus 0.75% distribution maximum) and treats excess as a load.

ETFs trade intraday at market prices that may deviate from NAV (premium/discount); creation/redemption by authorized participants supports arbitrage and tax efficiency.

Annuities: fixed, variable, and indexed; accumulation vs. payout phase; surrender charges, mortality and expense fees, and 10% IRS penalty on pre-59½ withdrawals from gains.

Variable annuities and variable life are securities requiring both a securities license and state insurance license; suitability requires prospectus delivery.

Life insurance basics: term (pure protection), whole life (cash value, level premium), universal life (flexible premium, adjustable death benefit), and variable life (separate account).

529 plans: tax-deferred growth, qualified withdrawals tax-free; contributions are gifts for gift-tax purposes with 5-year election; non-qualified withdrawals taxed plus 10% penalty on earnings.

Options: buyer pays premium for right, writer receives premium and bears obligation; American exercise anytime, European at expiration; equity options are 100-share multipliers.

Long call profits when underlying rises above strike + premium; long put profits when underlying falls below strike − premium; maximum loss for buyers is premium paid.

Covered call: long stock plus short call; income strategy capped upside. Protective put: long stock plus long put; downside hedge with premium cost.

Put-call parity: C + PV(strike) = P + S for European options; deviations create arbitrage opportunities.

Greeks: delta (price sensitivity), gamma (delta change), theta (time decay), vega (volatility sensitivity), rho (interest rate sensitivity).

Futures: standardized, exchange-traded, marked to market daily with margin; forwards are customized OTC contracts with counterparty risk.

Alternative investments: hedge funds (limited partnership, accredited/qualified purchasers), private equity, real estate, commodities; typically illiquid with lock-up periods and higher fees (2 and 20).

Accredited investor thresholds: net worth over $1 million excluding primary residence, or income over $200,000 individual / $300,000 joint in each of the prior two years.

Order types: market (immediate execution at best available price), limit (price constraint), stop (becomes market order at trigger), stop-limit (becomes limit order at trigger).

Time-in-force: day, GTC, IOC (immediate or cancel), FOK (fill or kill), and market-on-open/close orders.

Best execution (FINRA Rule 5310) requires reasonable diligence to obtain the most favorable terms for customer orders considering price, speed, certainty, and size.

Order marking: long, short, and short exempt; Regulation SHO locate and close-out requirements apply to fails-to-deliver.

Settlement cycle is T+1 for most equities, corporate bonds, and municipal bonds; options settle T+1; U.S. Treasury securities settle T+1.

Trade reporting: FINRA requires reporting of OTC equity trades to the Trade Reporting Facility within specified time frames; TRACE covers corporate and agency debt.

Confirmations must be delivered at or before settlement and disclose capacity (agent/principal), remuneration, and material terms; Rule 10b-10 governs.

Errors and cancellations: clearly erroneous executions may be broken by FINRA under Rule 11890; firm error accounts and Rule 15c3-3 customer protection apply.

AML program (Bank Secrecy Act / USA PATRIOT Act) requires a designated compliance officer, written policies, training, and independent testing.

Customer Due Diligence Rule requires identification and verification of beneficial owners (25% or more ownership) and a control person for legal entity accounts.

Suspicious Activity Reports (SARs) must be filed within 30 calendar days of detection (60 days if no subject identified); SAR confidentiality prohibits tipping off the customer.

Currency Transaction Reports (CTRs) are required for cash transactions exceeding $10,000 in a single business day; structured transactions to evade reporting are illegal.

Red flags: unusual cash activity, reluctance to provide information, third-party funding, rapid movement of funds, and activity inconsistent with the customer profile.

Insider trading: material nonpublic information (MNPI) may not be traded or tipped; firms maintain information barriers and restricted lists.

Fraud schemes: Ponzi (pays returns from new investor funds), pyramid, pump-and-dump, and affinity fraud; red flags include guaranteed returns and unregistered products.

Ethics: fiduciary duty for advisers, best interest for broker-dealers under Reg BI, and FINRA Rule 2010 requires observance of high standards of commercial honor.

Traditional IRA: contributions may be deductible, tax-deferred growth, ordinary income tax on withdrawals; required minimum distributions begin at age 73 (SECURE 2.0).

Roth IRA: after-tax contributions, tax-free qualified withdrawals after 5-year holding period and age 59½; no RMDs during owner's lifetime.

Contribution limits: IRA limits are indexed annually; 401(k) elective deferrals have separate limits with catch-up contributions at age 50 and super catch-up at 60-63.

Early withdrawal: 10% additional tax on pre-59½ distributions with exceptions including disability, first-time home purchase ($10,000), and qualified education.

Rollovers: direct (trustee-to-trustee) rollovers avoid withholding; indirect rollovers must be completed within 60 days and are subject to 20% withholding from plan distributions.

ERISA governs employer plans: fiduciary duties, vesting schedules, and prohibited transactions; 401(k) plans require a summary plan description and annual disclosures.

Estate basics: will (probate), trust (avoids probate), intestacy (state default rules); gross estate includes all assets owned at death plus certain gifts and life insurance.

Estate tax: federal exemption indexed annually with unlimited marital deduction; step-up in basis for assets included in the decedent's estate; annual gift exclusion applies per donee.