SIE prep

Securities Act of 1933

Requires issuers to to disclose all material company info to protect investors from fraud

SEC / Securities Exchange Commission

Charged with governing and enforcing Securities Act of 1933

Securities Exchange Act of 1934

Issuers must disclose info relevant to the to the sale of their securities. Those with greater than $10m in assets and has securities owned by 500+ owners must file periodic reports with the SEC

Investment Advisors Act of 1940

Prohibits deceptive advertising

Secondary Market

Investors trading securities with other Investors

SEC regulation 206(4)

implementation of Investment Advisors act of 1940

Accredited Investor

Individual/Couple with net worth greater than $1m or annual income in excess of $200k/$300k for two consecutive years

Investment advisors can only charge performance fees to

accredited investors or qualified clients

Investment Company Act of 1940

Requires investment companies to disclose their financial condition and investment policies to investors, fund info, investment objectives, and company structure and ops

Section 22 of ICA 1940

Redemption price must be calculated fund’s NAV and paid out within 7 days

85% liquidity rule

at least 85% of a fund’s assets must be held in liquid securities

Self Regulatory Organizations (SROs)

Establish industry procedures to protect investors. Works under the supervision of the SEC

Chicago Board Options Exchange

An SRO, largest options exchange in the world

FINRA

Oversees broker-dealers in the U.S

Municipal Securities Regulatory Board

Handles rules and procedures for firms/banks who sell municipal bonds and notes

US Treasury

oversees IRS, US Mint, Bureau of Printing and Engraving

Financial Crimes Enforcement Network (FinCEN)

Bureau of the Treasury, enforces Currency and Foreign Transactions Reporting Act of 1970

Currency and Foreign Transactions Reporting Act of 1970

Requires financial institutions to help government with detecting and preventing money laundering

Currency Transaction Report (CTR)

filed for any transaction involving 10k+ of currency

FinCEN works under

Bank Secrecy Act

Federal Reserve

maximize employement, stabilize prices, moderate long term interest rates, regulate banks, and provide financial services to depository institutions

North American Securities Administrators Association (NASAA)

Organization comprised of securities regulators from the U.S, Canada, and Mexico

Federal Deposit Insurance Corporation

Insures up to 250k per depositor at banks

1933 banking act

Created FDIC

Securities Investor Protection Corporation

Insures 250k cash in brokerage accounts for eligible investors

Institutional Investor

Investors that trade securities on behalf of their clients and shareholders. They buy and sell in large quantities

Only group that is unsophisticated

Retail Investors

Broker

Entity that trades securities on behalf of it’s clients

Dealer/Principal

Trades on behalf of itself

Broker-Dealer

trades on behalf for itself and also for it’s clients

Introducing brokers

do not hold client funds or execute transactions. Can recieve orders but must using clearing firms to process them

Clearing firms

Hold customer accounts and are responsible for clearing trades and ensuring those trades reach settlement. Guarantees the trade completes even if one side defaults by handling actual transfer of cash and securities between accounts

Prime brokers

Only service large institutions for outsourcing activities such as clear or performance analysis

Investment Advisors

Individual/Company paid by clients to provide portfolio advice, manage investment portfolios, or provide other financial planning/brokerage services. Are fiducaries

Investment Advisor Representatives

Individuals that work for Investment advisors

Fiduciary

must act in the best interest of their clients

Municipal Advisors

Entity that provides advice to or on behalf of a municipal entity or is involved with the issuance of municipal securities.

Solicitation

Any direct outreach to persuade someone to buy, sell, or invest in a security

Section 15B of the securities exchange act

defines a municipal advisor

Issuers

legal entities that fund operations via sale of securities. Must file with SEC if offering to the general public

Underwriter

price, purchase, and sell securities. Effectively handles sale + distribution for issuer

Market Maker

buys or sells securities of a defined set of securities to broker dealers who are part of the exchange

Trustee

manage investments for the beneficiary of the trust

Custodian

entity that holds assets of a trust for safekeeping

Transfer Agents

must maintain security holder records and distribute dividends on behalf of issuer. Effectively an intermediary between security issuers and holders. If a bank, must register with a bank registry agency

Depository and Trust Clearing Corporation (DTCC)

Manages daily clearing and settlement processes for a majority of security transactions

Options Clearing Corporation

largest options clearing corporation. governed by the SEC and CFTC

Primary Market

Place to purchase securities directly from issuers (IPO)

Secondary Market

Investor to investor security trading, typically via a broker

Third market

Institutional Investor to Broker-Dealer trades. Avoids broker fees and involvement of a formal exchange. Typically done in large blocks. Used to large blocks can be traded without impacting price

Fourth market

Institution to Institution trading, no broker dealer involvement. Processed via ECN. Occurs after hours aswell.

over-the-counter securities

trades happen via a dealer market. Not like exchange listed securities which meet stringent requirements

American Depository Reciepts

Certificates that represent shares of a foreign companies stock. OTC.

Regulation S Offerings

offering of securities outside the U.S. and only non-U.S. investors participate. SEC registration not required

Monetary Policy

actions taken by the Fed to maintain or improve U.S. economic health

Federal Open Marker Committee

Meets 8x a year to review economic conditions and evaluate necessary policy changes

Federal Funds rate

Changes to interest rate at which banks can lend reserves to each other overnight. Changes the cost of money not the quantity

Lendable money supply

Buying treasury bonds to increase money supply or selling treasury bonds to decrease money supply.

Fiscal Policy

actions taken by congress or the president in setting tax rates or policies

Pre-tax retirement contributions

Defer tax payments to when you withdraw

Roth Ira

Pay tax now but withdraw tax free in retirement. No required minimum distribution

Prime rate

Base interest rate offered by commercial banks on consumer loans

Discount rate

Rate offered to member banks who borrow money from the fed to keep their reserves up

Federal Funds rate

Rate set by the fed to control inflation

Expansion

GDP growth is 2-3%

Peak

Economy is overheated, prices hit their highest level

Contraction/Recession

Economic growth weakens and GDP growth falls below 2%. If two consecutive quarters have negative GDP growth, we have a recession

Trough

Lowest point before transitioning to recovery phase

Recovery

Low prices foster demand causing employment and production to rise

Leading

Indicate where economy headed in short term. Think stock market returns, consumer expectations, building permits

Lagging

Indicate trends after major event occurs. Think CPI, corporate profits, and unemployment rate

Coincident

Statistics that tell us how economy is currently. Retail sales, GDP, industrial production, personal income

Cyclical

Businesses that follow standard business cycle. Think cruises

Defensive

Business that make goods part of our daily lives and not impacted by economic condition. Think Soap, electricity

Growth

Industries expected to grow faster than the economy in general

Keynesian Economics

Idea that an increase in government spending and a decrease in taxes can prevent/repair economic recession. (Government role is significant/relevant)

Montarist Economics

Theory that controlling money supply and letting the market sort itself out can curb inflation and is important for a healthy economy. (Government role is minimal)

Balance of payments

net transactions completed between all entities of two countries. Deficit for the country that bought more/sold less and Surplus for the country that bought less/sold more

Gross National Product

total value of goods and services produced by citizens of a country no matter where they live

Public Offering

Issuer sells it’s securities to the general public

Follow on offering / Additional public offering

Subsequent offering of shares to investing public

Primary distribution

Shares issued by a corporation in exchange for direct proceeds

Regulation A

Exemption from SEC registration for public offerings up to $20m t1 or $50m t2 in any 12 month period. t1 still requires filing with every state regulator where it wants to sell

Rule 147 - Intrastate offerings

Single state offering. State registration is required but SEC is not since it’s only being sold to residents of one state

Private Offerings / Private placements

Sale of securities exclusively to group of investors who meet certain wealth and sophistication requirements

SEC regulation D

Rules for exemptions from SEC registrations. Provides market access for small companies that otherwise could not afford a standard SEC registration

Large secondary market offering

sale must be registered with SEC as this could impact security price

Restricted Securities

Securities acquired in private unregistered sales by an issuer or affiliate

Affiliate

issuer’s offivcers, directors, and investors owning 10%+ of the voting stock of the issuer

Rule 144 limitations

Strict rules for those who wish to sell restricted securities in public marketplace. Includes minimum holding period

Treasury Stock

Shares issued by a company and then repurchased by the same company

SEC rule 10b-18

Prohibits share repurchases during last 30 mins of trading day, 10 mins for companies with high avg daily trading volumes. Repurchase cannot exceed 25% of stocks average daily volume, and be done by a single broker. Price per share also cannot exceed highest independent bid price made during single day

Firm Commitment

IB buys all securities from issuer and resells them to public. Assumes responsibility for any unsold shares

Best efforts

Any unsold shares returned to issuer

All or None

if 100% of shares don’t sell, entire offering is null and shares returned to issuer

Mini-Max

As long as minimum percentage is sold, deal will go through

Underwriting Syndicate

More than one IB or broker-dealer working together to distribute shares

Lead underwriter

takes primary responsibility for IPO process

Municipal Bond Offering

offered under a negotiated or competitive sale

Competitive Sale

Underwriters bid and whoever offers lowest interest rate wins