Capital Markets
16%of exam
Products + Risks
44%of exam
Trading + Accounts
31%of exam
Regulatory Framework
9%of exam
Quick Facts
- Questions
- 75 MCQ
- Scored
- 70 scored
- Time
- 105 min
- Pass
- 70%
- Sponsor
- Not required
- Validity
- 4 years
- Skill
- Match product risk
Domain Weights
Markets 16 | Products 44 | Trading 31
Regulation 9Products largestTrading secondMarkets third
Broker vs Dealer
Broker
- Agent
- Matches trades
- Charges commission
Dealer
- Principal
- Own inventory
- Earns spread
Agent vs principal
Regulators
- SEC
- Federal securities
- FINRA
- Broker-dealer SRO
- MSRB
- Muni rules
- FRB
- Monetary policy
- SIPC
- Broker failure
- State
- Blue sky laws
Primary vs Secondary
Primary
- Issuer receives
- New securities
- Underwriting
Secondary
- Investor trades
- Existing securities
- Markets
Issuer vs investors
Markets
- Primary
- Issuer sells
- Secondary
- Investor trades
- Exchange
- Auction market
- OTC
- Dealer market
- Bid
- Dealer buys
- Ask
- Dealer sells
Economics
- Inflation
- Prices rise
- Deflation
- Prices fall
- GDP
- Economic output
- Fiscal
- Tax/spend policy
- Monetary
- Fed policy
- Recession
- Economic contraction
Rates + Bonds
Rates up -> bond prices down
Inverse relationshipCoupon fixedMarket price movesYields adjust
Common vs Preferred
Common
- Voting
- Residual claim
- Variable dividend
Preferred
- Fixed dividend
- Priority claim
- Usually no vote
Vote vs income
Product Picker
- Voting ownership→Common stock
- Fixed dividend→Preferred
- Issuer loan→Bond
- Diversified NAV→Mutual fund
- Intraday fund→ETF
- Right to buy→Call
Equity
- Common
- Voting ownership
- Preferred
- Fixed dividend
- ADR
- Foreign shares
- Dividend
- Company payout
- Rights
- Buy new shares
- Warrants
- Long-term option
Options Rights
Call buys | Put sells
Buyer has rightSeller has obligationPremium paidStrike price
Debt
- Bond
- Issuer loan
- Coupon
- Interest rate
- Par
- Face value
- Maturity
- Principal due
- Callable
- Issuer redeems
- Convertible
- Equity exchange
- Treasury
- Federal debt
- Municipal
- Local debt
Funds
- Mutual fund
- NAV priced
- ETF
- Exchange traded
- UIT
- Fixed portfolio
- REIT
- Real estate
- Closed-end
- Market priced
- 12b-1
- Distribution fee
Options
- Call
- Right to buy
- Put
- Right to sell
- Strike
- Exercise price
- Premium
- Option cost
- Exercise
- Use contract
- Expiration
- Option deadline
Risks
- Market
- Overall movement
- Credit
- Issuer default
- Interest
- Rate changes
- Liquidity
- Cannot sell
- Inflation
- Purchasing loss
- Reinvestment
- Lower new rate
Market vs Limit
Market
- Execution likely
- Price uncertain
- Immediate
Limit
- Price controlled
- Execution uncertain
- Or better
Speed vs price
Order Picker
- Need execution→Market
- Need price→Limit
- Trigger sale→Stop
- Trigger price cap→Stop limit
- Today only→Day
- Keep open→GTC
Orders
- Market
- Immediate execution
- Limit
- Price or better
- Stop
- Trigger market
- Stop limit
- Trigger limit
- Day
- Expires today
- GTC
- Stays open
Accounts
- Cash
- Paid in full
- Margin
- Borrowed funds
- Joint
- Multiple owners
- TOD
- Beneficiary transfer
- Custodial
- Minor account
- Discretionary
- Firm decides
Suitability vs KYC
KYC
- Know customer
- Collect facts
- Profile
Suitability
- Match recommendation
- Use facts
- Reasonable basis
Facts vs recommendation
Account Picker
- Pay full→Cash
- Borrow funds→Margin
- Minor owner→Custodial
- Multiple owners→Joint
- Firm authority→Discretionary
- Death transfer→TOD
Prohibited Conduct
- Insider trading
- MNPI misuse
- Churning
- Excessive trading
- Front running
- Trade ahead
- Marking close
- Price manipulation
- Guarantees
- False promise
- Commingling
- Mixing assets
Common Traps
Broker/dealer
Broker is agent ≠ Dealer is principal
Bond prices
Rates rise ≠ Bond prices fall
Order trap
Market ensures execution ≠ Limit controls price
Fund pricing
Mutual fund NAV ≠ ETF trades intraday
Regulation trap
KYC collects facts ≠ Suitability uses facts
Last Minute
- 1.Weights: 16 / 44 / 31 / 9
- 2.Broker = agent
- 3.Dealer = principal
- 4.Primary = issuer sale
- 5.Secondary = investor trade
- 6.Rates up; bonds down
- 7.Call = right to buy
- 8.Put = right to sell
- 9.Market order = execution
- 10.Limit order = price control
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