SIE Key Concepts Vocabulary

Vocabulary flashcards for SIE exam review

Rule 144A

Allows QIBS (>$100 AUM) to freely purchase unregistered securities.

Authorized Stock

The approved number of shares a corporation can sell when it decides to offer stock to the public.

Issued Stock

The shares of authorized stock that have been sold to the public.

Treasury Stock

Authorized stock that was previously sold to the public but was repurchased by the issuer.

Statutory voting

Allows a shareholder to vote once per share for each seat on the board of directors.

Cumulative voting

Allows the shareholder to pool their votes together and allocate them as desired.

Warrants As Equity Securities

Considered equity securities (not debt securities) because if the warrant is exercised, the investor will receive shares in the underlying company. Importantly, warrants do not make interest payments to investors.

Blue Chip

Stocks of well-established, stable companies with a long history of steady earnings and dividends.

Wilshire 5000

An index which measures the value of U.S. companies with actively traded stock.

Russell Top 50

An index that tracks the 50 largest stocks in the Russell 3000 Universe of U.S.-based equities.

Beta

A common measure of a stock's volatility relative to the broader market.

Cumulative Preferred Stock

Allows investors to receive dividends in arrears. This means that if a dividend is skipped for cumulative preferred shareholders, they must receive both current and skipped dividend payments before any dividend payment can be made to common shareholders.

Transfer Agent

Responsible for issuing and cancelling certificates and processing investor mailings (e.g., proxies).

Custodian

Responsible for holding investor assets or securities for protection. A custodian may also maintain certain investor records.

Cash Dividend Taxation

Taxable as ordinary income and do not increase the investor's cost basis.

Stock Dividend Taxation

Not taxed when received by a shareholder. However, the basis of the investor's position is adjusted downward to reflect the new number of shares.

Basis Points

A unit of measurement used to discuss changes in interest rates. Each basis point equals one-hundredth of a percentage point and therefore 100 bps is the equivalent of 1%.

Serial Bonds

The outstanding bonds mature at different intervals with a portion of the issue maturing each year.

Credit Ratings

Publish credit ratings to inform investors of a bond's credit quality. A bond's credit rating may change periodically while it is outstanding.

Adjusting Premium Bonds by Amortization

Bonds purchased at a premium (> $1,000 par) must be amortized over the life of the bond. Amortization means that the cost basis will be adjusted downwards each year so that at maturity an investor's cost basis is $1,000 par.

Dated Date

The date when interest begins to accrue on fixed income securities. The dated date is only relevant for new issuances and once regular semi-annual coupon payments begin, it is no longer relevant.

Refunding

The process of calling a bond when interest rates have fallen and issuing a new bond with a lower coupon rate.

EMMA Website

Provides updated information about the issuer, the municipal bond, and its credit rating.

Bond quotations

Bonds are quoted as a percentage of par.

Unsecured Corporate Debt

Not backed by collateral or a specific asset of the corporation. Instead, it is backed by the good faith and credit quality of the company. It is also referred to as a debenture bond.

Convertible Bond Pricing

Based on the value of the underlying common stock since the investor can exchange the bond for the shares. The parity price is the value at which the investor is mathematically indifferent between owning the bond or converting into the underlying shares.

Non-Marketable US Government Securities

Cannot be resold by investors and therefore have no secondary market.

Series I Bond

Pays a combination of fixed and variable interest (linked to the rate of inflation).

New Treasury Securities

Will ensure an individual's order is filled.

Industrial Development Revenue Bonds

Issued by a municipality on behalf of a corporation.

Official Statement

The primary disclosure document used in a municipal security offering. It includes all relevant information for investors, such as the risks of the bonds

Securitization

The process of pooling individual mortgages together to create mortgage-backed securities.

Commercial Paper

An unsecured promissory note, issued by corporations at a discount. It typically has a maximum maturity of 270 days.

Banker's Acceptances

A short-term, negotiable money market instrument that is used to finance and facilitate international trade. It has a maturity of 180 days or less and is issued by a borrower and guaranteed by a commercial bank.

Eurodollar Deposit

U.S. Dollars held in a depository (bank) abroad.

Eurodollar Bonds

Bonds issued outside the United States (e.g., Argentina) but denominated in U.S. dollars.

Certificates of Deposit (CD)

Cannot be traded in the secondary market, but instead only redeemed with the issuing bank.

Collateralized Mortgage Obligation

Mortgage-backed securities that have been structured by broker-dealers and divided into distinct pieces called tranches.

Calculating POP

When provided a mutual fund's NAV and sales charge percentage, the POP can be calculated as the NAV/ (100% - Sales Charge %).

Mutual Fund Suitability

The investor's investment objectives are the primary consideration. Fees are of secondary importance.

Breakpoint Sale

A violation where a registered rep suggests that an investor purchases a mutual fund just below the point at which they would receive a discounted sales charge.

Money Market Fund

Mutual funds consisting of money market securities, which are debt securities with maturities of one year or less.

Average cost basis

A method used to determine the cost of shares redeemed from a mutual fund or sold from another investment. It is calculated by dividing the total cost of all shares purchased by the total number of shares owned.

Mutual Fund Dividends

Taxable for investors regardless of whether they are taken in cash or reinvested back into the fund.

Mutual Fund Board of Directors

At least 40% of a mutual fund's board of directors must be independent, meaning they do not have significant business relationships with the fund.

Impact of Dividends on NAV

The NAV of a mutual fund share will decrease by the amount of the dividend on the ex-date.

ETF Versus Mutual Fund Expenses

Because mutual funds are actively managed, they typically have higher fees for investors than ETFs.

Depletion

A tax deduction that compensates a limited partnership as they use up a natural resource such as oil or gas.

Passive Gains and Losses

Pass through gains and losses to investors, which means there is no corporate taxation, instead only the investors in the program pay tax.

Partnership Agreement

Established by an agreement between two or more individuals or entities. The partnership agreement binds the parties and details which partners can transact for the account.

Interest in a Limited Partnership

Indicates the partner owns a piece of the partnership.

S-Corp Versus C-Corp

A type of DPP. Shareholders receive a pass-through of income and losses, and the S-Corp entity is not taxed.

Hedge Fund Managers

Receive management and performance fees.

Fund of Hedge Funds

Offers the liquidity of a mutual fund, but with risk more associated with a hedge fund.

Prime Brokerage Accounts

A suite of bundled services offered to hedge funds and other large institutional investors by banks and wealth management firms.

Spot Price

Another term that can be used to describe the current market price of a stock.

Risk of Uncovered Call

Writing a call option without owning the underlying stock. This position has unlimited risk because no matter how high the price of the stock increases, the writer is obligated to purchase the shares in the market and then sell the stock at the strike price.

Protecting a Short Put

Selling (shorts) a put option, they have an obligation to purchase the stock at the strike price regardless of how far the price has fallen if the option is exercised against them.

Foreign Currency Options

Allow investors to speculate on how foreign currencies will perform compared to the US dollar.

Option Contract Adjustment

Adjusted for stock dividends as well as for stock splits.

Option Series

All call or put contracts in the same class (call or put) with identical strike prices and expiration dates.

Time Value

The portion of an option's premium that reflects the time remaining until expiration.

Institutional Threshold

An individual with assets of at least $50 million.

Fund Investing

Could keep excess cash in cash and cash equivalents and then buy the dip.

Dividends and Current Yield

If a company's dividend is reduced, but the stock price stays the same, the current yield will fall.

Offering Memorandum

Provided to investors for disclosure like a prospectus, except it is used for offerings that are exempt from SEC registration like private placements. Audited financial statements are not required in an offering memorandum.

Form 144

Required to file Form 144 with the SEC prior to selling control stock into the open market.

Regulation S

Allows an issuer to raise money outside the U.S. and avoid SEC registration.

Regulation A

Allows an issuer to raise a maximum of $75 million publicly in a 12-month period without having to go through the full SEC registration process.

Oversubscribed Tender Offers

The shares are accepted proportionally from those shareholders who tendered.

Shelf Registration

Allows an issuer to preregister securities today and sell them later when market conditions are favorable.

Best Efforts

A type of underwriting where the underwriters act as agents and have no financial responsibility for any unsold securities.

Regulation M

An SEC rule that aims to prevent market manipulation of IPOS and follow-on offerings by broker-dealers.

Stabilization

Allows an underwriter to bid on securities in the open market to prevent the price from declining following an IPO.

Offering Circular

A shorter disclosure document that is distributed to potential investors in certain types of offerings.

FINRA's Corporate Financing Rules

Generally compel firms that participate in public offerings of securities to fulfil three requirements.

Marking the Open or Close

When a trader attempts to manipulate the opening or closing price of a security by entering a number of buy or sell orders just prior to the open or close of trading.

Third Market

Over-the-counter trading of exchange traded securities.

Fourth Market

A market where securities trade directly between institutions on a private, OTC computer network rather than large exchanges such as the NYSE or NASDAQ.

Real-Time Transaction Reporting System (RTRS)

Requires trades in municipal securities to be reported within 15 minutes of execution to the MSRB's Real-Time Transaction Reporting System (RTRS).

Elasticity

Refers to the sensitivity of supply and demand of a commodity to a change of price.

Recession

Defined as a decline in gross domestic product (GDP) for two or more consecutive quarters.

Depression

Defined by at least six consecutive quarters of negative GDP growth or a decline of at least 10% in GDP.

Stagflation

A period of slow economic growth accompanied by rising prices, or put differently, increased inflation combined with relatively high unemployment.

Velocity of Money

The rate of turnover of money, or how fast it is being spent.

Impact of Inflation

Describes rising prices for goods and services over time.

Deflationary Environment

Interest rates are falling, and bonds will increase in value.

Earnings Per Share (EPS)

Calculated as a company's net income divided by shares outstanding.

P/E Ratio

Calculated as a company's stock price divided by earnings per share.

PEG Ratio

Methods to evaluate and compare stocks.

Fundamental Analysis

Predicts future value based on a company's business fundamentals which include financial statements and company management.

Moving Average

Used to help track a stock's price over a period of time by updating the average price continually.

Federal Reserve Stimulus

When the economy is slowing, the Fed cuts interest rates to stimulate financial activity.

Curb Inflation

The Fed will tighten the money supply by increasing interest rates.

Trade Surplus Versus Trade Deficit

Exports are greater than imports will cause a country's currency to appreciate. A trade deficit will cause the currency to depreciate.

Producer Price Index

Measures inflation for producers of products, such as manufacturers.

Cost-Push Inflation

The result of higher production costs and rising prices of raw materials (when the supply of goods and services decreases because of an increase in production costs).

Interest Rate Increases

Financial services companies (like banks) will benefit.

Oligopoly

A type of market that contains few sellers. Each seller supplies a large portion of all the products sold in the marketplace.

Do-Not-Call List

Once an individual is added to the firm's internal do-not-call list, they remain there indefinitely.