SIE Exam Definitions

Bid

an offer to buy a security at a specific price and time.

Federal Funds

excess reserves (money) that commercial banks deposit at regional Federal Reserve Banks.

Look-back Provision

an MSRB provision that bans municipal finance professionals from soliciting business with entities to which they have made political contributions within a specified period, even previous to their current employment.

Non-qualified Retirement Plan

a retirement plan that does not meet ERISA standards of eligibility, participation, documentation, and vesting, funded with after-tax dollars and used to provide special benefits to highly paid employees.

Simple Trust

a trust that distributes all of its income to its beneficiaries in the year it is earned but cannot distribute its principal or give to charitable organizations.

12b-1 fee

an annual fee charged by a mutual fund for its marketing and distribution costs. Also called a maintenance fee or distribution fee.

529 College Savings Plan

A tax-free savings plan that offers families professionally managed portfolios to help meet specified college expenses.

A shares

a class of mutual fund shares that have a front-end sales charge, expressed as a percentage of its net asset value.

ABLE account

a tax-advantaged savings account for disabled people and their families, allowing them to save up to $15,000 per year without losing eligibility for such public benefits as SNAP and Medicaid.

Accredited Investor

an investor that may participate in private placement offerings without restrictions, usually a large institutional investor, wealthy individual, or an officer of the issuing firm.

Accredited Investor Questionnaire

a form confirming to a private placement issuer that the investor is accredited, to be maintained in the issuer's customer file.

Accumulation Phase

the period when an annuitant invests money in an annuity account.

Adjustable-rate Preferred Stock

preferred stock that ties returns and dividends to an outside interest rate, most often a Treasury bill rate. Also known as floating-rate preferred stock.

Advance Refunding

a refunding bond in which the old issue remains outstanding for a period longer than 90 days after the refunding bond has been issued.

Advisor-sold Plan

a 529 college savings plan offered through an authorized investment firm that provides investment advice and more investment options, and comes with higher fees than a direct-sold plan offered by the state.

Affiliate

a person that directly or indirectly controls, is controlled by, or is under common control with another person.

Agency Securities

securities issued by government-sponsored agencies, such as Fannie Mae and Freddie Mac, but not backed by the full faith and credit of the U.S. government.

Agency Transaction

a transaction where a firm acts as broker, serving as an agent or go-between for the buyer and the seller.

All-or-none (AON) Commitment

a form of underwriting where the underwriter must sell all the shares in the offering within a specified time or the offering is voided.

Alternative Minimum Tax (AMT) bond

a private activity bond that qualifies for tax-exempt status but is subject to paying the alternative minimum tax. Also known as a qualified private activity bond. Compare with public purpose bond and private activity bond (PAB).

An interest

a descriptor used to indicate that a bond's purchase price will include its quoted (clean) price plus any accrued interest since the last payment date.

Arbitrage

a riskless transaction in which an investor profits from buying and selling the same product for different prices at the same time in different locations.

Assignment

a transfer of ownership in a security or other property that gives a recipient the rights held by the previous owner.

Best Execution

a legal requirement that brokers provide the most favorable terms of execution for their customers given the existing market.

Best-efforts Commitment

an agreement by which an underwriter agrees to make its best efforts to sell as much of an issuer's securities offering as it can.

C Shares

a class of mutual fund shares that have a 1% back-end sales charge if sold within the first year and a higher annual expense than either A shares or B shares.

Callable Bond

a bond that can be paid off or redeemed prior to its maturity date.

Control Securities

securities held by an affiliate of the issuer.

Creation Unit

a large block of exchange-traded fund shares (ex. 50,000 shares) that an institutional investor or market maker receives in exchange for providing the securities to fill the ETF fund.

Exchange Rate

the rate at which two national currencies trade for each other.

Face-amount Certificate Company

an investment company that issues debt securities called face-amount certificates backed by assets such as real property or other securities.

Foreign Exchange

any currency other than the local currency that is used to settle international transactions.

Interpositioning

the illegal practice of adding a second broker to a transaction solely to generate an additional commission.

Joint Tenants with Rights of Survivorship (JTWROS) Account

a joint account where all surviving owners receive a pro rata share of the assets of an account holder who has died.

Market Capitalization

the market value of a company's outstanding stock market shares.

Market Risk

an investor's risk of loss due to fluctuations in the overall market, a risk that cannot be diversified away.

Mortgage Bond

a secured bond where the collateral is real estate.

Options Account

a type of account that allows the customer to purchase options to buy or sell a specific security at a set price by a certain date.

Options Clearing Corporation (OCC)

an organization that is the sole issuer of option contracts in the U.S. and that clears and settles options contracts executed on the Chicago Board Options Exchange.

Post-Effective Period

the period after a registration statement for a new securities offering has become effective.

Preemptive Right

the stockholders' right to maintain her current share of ownership in a company by purchasing a proportionate amount of securities in a rights offering.

Preferred Stock

a stock that has a higher claim on a corporation's assets and earnings than common stock but pays a fixed dividend and has no voting rights.

Purchasing Power Risk

the risk that investments will fail to outperform inflation, resulting in a loss of an investor's purchasing power over time.

Red Herring

the first draft of an offer to sell securities that describes its characteristics, except for price, delivered as part of the registration statement to the SEC and used to attract potential investors.

Repurchase Agreement (repo)

a short-term contract tot sell a security and buy it back later a a set price and time, usually the next day.

Restricted Person

a person to whom shares of an IPO cannot be sold, including any broker-dealer and its personnel, owner of a broker-dealer, finder, or portfolio manager that has a beneficial interest i the new issue.

Revocable Living Trust

a trust that can be revoked (eliminated) at any time prior to death by the person who owns the assets (the trustor).

Securities Act of 1933

a law that was enacted to regulate how securities are registered, issued, and distributed to the public for the first time.

Seurities and Exchange Commission (SEC)

a federal government agency created under the Securities Exchange Act tasked with regulating the securities industry and protecting investors.

Sell Stop-Limit Order

a price order to sell a security at a specified price or higher once the specified (stop) price has been reached.

Settlement

the process where securities that have been sold are delivered to the buyer and paid for the seller.

Shares Outstanding

the number of issued shares currently held by a company's shareholders.

Short Selling

the practice of selling securities one has borrowed but does not own.

Short-term Gain/Loss

a capital gain or loss from a security held for one year or less.

Stabilizing Bid

a bid made for shares of an IPO by the underwriters in an effort to prevent the price of a new issue from falling during the offering.

Stock Split

a process in which an issuing company divides its existing shares into multiple shares, increasing the total number of shares outstanding, while reducing per-share value.

Trade Deficit

the dollar amount that a country's imports exceed its exports.

Wilshire 5000

a comprehensive index that measures the performance of all U.S. headquartered companies whose stock is traded on an American stock exchange.

American Depository Receipt (ADR)

a certificate issued by the U.S. bank for the purpose of trading a specified number of shares of a foreign corporation in the U.S. stock market.

American-style Option

an option that can be exercised at any time prior to and including the exercise date. Also called an American option.

Annuitant

an individual entitled to receive benefits or payments from an annuity contract.

Annuities

contracts sold by an insurance company used to provide steady income to individuals after retirement, often until death.

Annuitization Phase

the period when an annuitant starts to receive payments from an annuity.

Anticipation Notes

municipal notes that are issued in advance of, or in anticipation of, an expected source of income.

Ask Price

also known as just the "ask," the price at which a market maker is willing to sell a security.

Asset-backed Security

a debt security backed by a pool of financial assets, such as automobile loans, credit card debt, or home equity loans.

Associated Person

an individual engaged in the investment banking or securities business who is registered with FINRA.

At The Money

a phrase indicating an options position whose exercise today would result in neither a gain nor a loss.

Auction Market

a securities exchange for trading securities at a physical location where buyers make bids and sellers make offers facilitated by a single market maker.

Auction Rate Securities (ARS)

long-term investments whose interest rates or dividend payments reset at frequent intervals by auctions, typically every 7, 14, 28, or 35 years.

Authorized Shares

the shares that a corporation is authorized to issue.

Automatic Stabilizers

government programs whose expenditures automatically fluctuate counter to the economic cycle.

B Shares

a class of mutual fund shares that have a deferred or back-end sales charge that declines over time and a higher annual expense than A shares.

Back-end Load

a sales charge that customers are charged after they redeem the shares. Also called back-end sales charges.

Backing Away

the failure of a broker-dealer to honor a firm quote.

Balance of Payments

an accounting of a country's international transactions, such as exports and imports and capital inflows and outflows.

Balloon Maturity

a serial bond in which one maturity, usually the last one, contains a disproportionately large amount of the principal.

Bank Secrecy Act of 1970 (BSA)

an act of congress that requires financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering.

Bankers' Acceptance (BA)

a short-term credit instrument issued by a business for the purchase or sale of goods, drawn on and guaranteed by a bank.

Basis Point

one hundredth of a percentage point, the smallest increment of change in a bond's yield.

Bearer Bond

a bond certificate with attached coupons that is owned by whoever holds it, rather than by a registered owner.

Bearish

a belief that the value of a particular security or the market in general will decline.

Bearish Strategy

a trading strategy that is employed when an investor believes the price of a security will decline.

Beneficial Interest

the contractual right to receive an interest in the benefits of an asset that is owned by another party.

Beneficial Owner

one who has the benefits of owning a stock but whose title is held for reasons of safety or convenience "in street name" by that person's broker.

Beneficiary

a person designated to receive the assets of a life insurance policy or trust upon the account owner's death or the maturity of the contract.

Bid Price

the price at which a market maker or other investor is willing to buy a security.

Bid-ask Spread

the difference between the price at which investors are willing to buy an asset and the price at which investors are willing to sell it.

Blend Funds

mutual funds of equity securities that are a blend of growth stocks and value stocks.

Bond

a debt instrument created to raise capital by which the issuer promises to repay by a specified future date and also to pay periodic interest along the way.

Bond Funds

mutual funds composed of bonds and other debt instruments. Also known as fixed-income funds.

Bond Indenture

a legal document filed with the SEC that specifies the terms and conditions of a corporate bond issue.

Bond Mutual Fund Volatility Rating

a description of the sensitivity of a bond fund to changes in market conditions or the economy.

Bond Point

One percent of a bond's par value.

Book Manager

the managing underwriter for a securities issue.

Book Runner

the managing underwriter for a securities issue.

Book-entry Bonds

a bond whose ownership is recorded by computer at a central depository but for which no certificate is issued.

Breakeven Point

the price point where the buyer of an option will not experience a gain or a loss.

Breaking the Buck

a decline in the share price of a money market fund below $1.

Breakpoint

the amount of a mutual fund's purchase beyond which an investor will receive a discount on the front-end sales charge.