Series 7 key terms

Telephone solicitation of prospective customers by a registered representative. Such calls are regulated: firms must maintain do-not-call lists, honor customer requests to stop calling, and follow disclosure and time-of-day rules.

A national list of telephone numbers whose owners have asked not to receive telemarketing calls. Firms must scrub their prospect lists against it, although an existing business relationship can create a limited exception.

A minimal announcement, usually placed in a financial publication, stating that securities were or are being offered. It lists basic deal details and the underwriters and is not itself an offer to sell.

A pre-effective registration document given to prospective investors during a new issue's cooling-off period. It describes the offering but omits the final price and effective date, and carries a red warning legend.

A sale of unregistered securities to a limited group of investors under a Regulation D safe harbor. Resale is restricted, and the issuer typically files a Form D notice with the SEC.

An investor meeting SEC wealth or sophistication standards, such as net worth above $1 million excluding the primary residence, or income over $200,000 ($300,000 jointly) in each of the prior two years.

The obligation to learn each customer's identity, financial situation, investment experience, and objectives before opening an account or recommending investments, so that any recommendation can be judged suitable.

A written program required under the USA PATRIOT Act that verifies each customer's identity using name, address, date of birth, and an identification number, and screens the customer against government watch lists.

An anti-money-laundering rule requiring broker-dealers to identify and verify the natural persons who own at least 25% of a legal entity customer, plus one individual with significant managerial control, at account opening.

A confidential report a firm files with FinCEN when it detects transactions that appear to involve money laundering, fraud, or other illegal activity. The firm is prohibited from telling the customer.

The goal a customer is pursuing with a portfolio, such as capital preservation, current income, growth, or speculation. It drives which securities and strategies a representative may recommend.

The amount of price fluctuation and possible loss an investor can accept, reflecting both financial capacity and emotional comfort. It helps determine the mix of conservative and aggressive investments that suits the customer.

A joint account form in which each owner holds an undivided interest in the whole account, and on one owner's death the property passes automatically to the survivor outside probate.

A registration that keeps an account in the owner's name during life but names beneficiaries who receive the assets at death, avoiding probate while the owner keeps full control.

The contract a customer signs to open a margin account, allowing the firm to lend money against the securities purchased and to pledge those securities as collateral for the loan.

An account for which the customer has given the representative written authority to choose the security, the amount, and the timing of trades without obtaining approval for each individual order.

A signed agreement required before a customer may trade options, delivered together with the options disclosure document. The firm must approve the account based on the customer's experience and financial resources.

The SEC standard requiring broker-dealers to act in the best interest of a retail customer when recommending a securities transaction or strategy, with duties of disclosure, care, conflict-of-interest management, and compliance.

The formal offering document for a registered security, describing the issuer, the security's terms, risks, and financial statements, and required to be delivered to purchasers as the Securities Act specifies.

The disclosure document prepared for a municipal bond issue, serving a role similar to a prospectus. It describes the issuer, the revenue or taxing source backing the bonds, financial data, and offering risks.

Annual coupon income divided by a bond's current market price, showing the income return available at today's price. It ignores any capital gain or loss realized if the bond is held to maturity.

A measure of a bond's price sensitivity to changes in interest rates, expressed in years. A duration of 5 suggests roughly a 5% price change for each 1% move in yields.

A measure of how much a stock or portfolio tends to move relative to the overall market. A beta of 1.2 suggests it moves about 20% more than the market in either direction.

A dollar investment level at which the front-end sales charge on a fund purchase drops to a lower schedule. An investor buying just below a breakpoint may increase the purchase to obtain the discount.

A signed statement that an investor intends to purchase enough fund shares within 13 months to reach a breakpoint, allowing the reduced sales charge now while a portion of shares is held as collateral.

Excessive trading directed by a representative in a customer's account in order to generate commissions. It is judged by turnover and cost-to-equity measures rather than by whether the customer lost money.

A rule governing written and electronic communications distributed to the public, requiring content that is fair and balanced, principal approval of certain materials, and filing of specified communications with FINRA.

SEC rules prescribing the records a broker-dealer must create and preserve, such as order tickets and confirmations, along with required retention periods and permitted storage formats including electronic media.

The record documenting a customer's order: account, security, buy or sell, quantity, price instructions, time received, and the representative who took it, later marked with the time of execution.

A written notice delivered at or before settlement stating the security, quantity, price, commission or markup, the firm's capacity, and the trade and settlement dates for a completed transaction.

The standard settlement cycle for most securities, now one business day after the trade date, by which the buyer must pay for the purchase and the seller must deliver the security.

An order to buy at or below a specified price, or to sell at or above it. Execution is not guaranteed, and the order may remain open until filled, canceled, or expired.

An order that becomes a market order only after the security trades at or through a specified trigger price. It is often used to limit a loss on a long position or protect an unrealized gain.

An instruction requiring the entire quantity to be executed or none of it. Unlike a fill-or-kill order, which must execute immediately and completely or be canceled, an AON order may remain open.

Before executing a short sale, a firm must have reasonable grounds to believe the security can be borrowed and delivered, documented by a locate, in order to reduce failures to deliver.

The duty to seek the most favorable terms reasonably available for a customer's order, weighing price, speed, likelihood of execution, and order size rather than looking only at the quoted price.

Trading a security for the firm's or a representative's own account ahead of a large pending customer order in order to profit from the price impact that order is expected to cause.

Purchasing securities in a cash account and selling them before paying for them, using the sale proceeds to cover the purchase. The practice is prohibited and can result in a 90-day account freeze.