SIE CH 1-10

Issuer

A legal entity that sells securities in order to finance its operatione

bond

a security that represents the amount of indebtedness (principal) that the issuer owes to the investor

creditors

investors who purchase bonds. Lend their funds to the issuer for a specified period (until maturity)

Debt securties

corporations or government orgs. raise funds through the issuance of publicly traded loans

equity securties

corporations raise capital through the issuance of stock (equity)

Broker

any person that engages in the business of effecting agency transactions in securities for the account of others

dealer

any person that engages in the business of buying or selling securties for its own account

Broker dealer departments

Investment banking

Research

Sales

Trading

Operations

Market maker

when a broker-dealer chooses to display quotes into a trading system to indicate its readiness to buy and/or sell securities at specific prices

traders

other firms and individuals that trade securities for the firm's benefit (proprietary trading) or for the benefit of the firm's clients (without the interest in making markets)

Municipal advisors

an advisor that provides advice either to or on behalf of a municipal entity, such as a state, county or city. MA client is typically the issuer not an investor

retail investors

investors who directly buy stocks or bonds from broker dealers

Accredited investors

more sophisticated and/or able to assume greater risk

-net worth of 1M (not including house) or gross annual income or 200k (or 300k if married)

institutional investors

large entities that pool their money to purchase securities

Qualified intuitional buyers (QIB)

-own at least 100m of securities of issuers that are not affiliated with the buyer

-ins. co., investment co., investment advisors, etc.

primary market

the market in which new securities are originally sold to investors

secondary market

the market in which previously issued securities are traded among investors

exchange market

-composed of the NYSE and other exchanges on which listed securities are traded.

Pink market

a part of the O.T.C market where thinly traded, volatile stocks change hands. A.K.A non-NASDAQ O.T.C

OTC market

when stocks don't qualify for listing on either physical or electronic exchange, and are referred to as OTC or unlisted securties

third market

exchange listed securities being traded over the counter or away from traditional exchanges. brings together investors and also accommodates after hour trading

fourth market

direct institution-to-institution trading and does not involve the public markets or exchanges.

ECNs

electronic communication networks

-market centers that allow for both the quoting and trading of exchange-listed securities

dark pool

a system that provides liquidity for large institutional investors and high-frequency traders, but it doesnt disseminate quotes

settlement

the simultaneous payment and delivery process between the two parties

DTCC

Depository Trust Clearing Corporation

-a securities depository and a national clearinghouse for the settlement of transactions in equities, corporate, municipal, and U.S. government bonds, mortgage backed securities, money-market instruments and over-the-counter derivatives

clearing firms

preform order execution, clearing, and settlement functions

introducing firms

neither process customer transactions nor do they operate their own clearing operations. they contract with clearing firms to preform those services

fully disclosed basis

information about each of the individual customers of the introducing firm will be transmitted to the clearing firm and the clients assets are held at the clearing firm

omnibus account

the clearing firm does not have information on each individual customer and the recordkeeping responsibilities belong primarily to the introducing firm

hedge fund

A private investment fund that uses sophisticated strategies in an attempt to generate returns that are higher than traditional stock or bond instruments

options

derivative trading products that track the value of an individual stock, an index, or foreign currency

OCC

options clearing corporation

-listed option's are guaranteed by the OCC

-acts as 3rd party in all options transactions

custodians

assets held in physical form

registrar

maintains the ownership register of the issuer for each issue of securities. records the name, address, and tax identification of SSN of each individual owner

transfer agent

Responsible for issuing and cancelling certificates and processing investor mailings.

-acts as proxy agent

-handles lost, destroyed, or stolen certificated

trustee

assigned to hold security interests that are created on trust for the benefit of various creditors

SEC

Securities and Exchange Commission, an independent federal agency that's responsible for protecting investors, maintaining fair and orderly securities trading markets and facilitating capital formation in the primary market

FRB

federal reserve board

-independent agency of the fed. govt that functions as the US central bank

FDIC

Federal Deposit Insurance Corporation

-maintain stability and public confidence in the nations financial system. insures bank deposits and examines financial institution in the nations financial system

SRO

self regulatory organization

-promote fair and equitable trading practices

state (blue-sky) regultions

each sate has the authority to impose additional requirements for issuers, broker-dealers and their agents (RRs), and investment advisors and their representatives

-uniform securities act

NASAA

North American Securities Administrators Association
-the provisions of the USA (uniform securities act)

-protects investors from fraud

WSP

Written Supervisory Procedures

-a manual that details the rules and identifies the person(s) responsible for their enforcement

Securities act of 1933

first federal legislation to cover the securities industry and its main focus is the primary market

securities act of 1934

establishes rules for activities which are conducted in the secondary market

investment advisors act of 1940

regulates firms that are established as investment advisors

wrap accounts

collect a single fee to cover the costs related to investment advice along with the costs of transactions

investment company act of 1940

regulates pooled investment funds that are managed by IA

Securities Investor Protection Act of 1970

enabled the creation of the Securities investor protection corporation (SIPC)

SIPC

provides insurance coverage for the customers of brokerage firms in the event that the firms become insolvent (bankrupt)

-max of $500,000 of which no more than $250,000 may be for cash holdings

insider trading act 1988

established criminal penalties for insider trading

penny stock reform 1990

regulates the solicited sales of certain low priced securities to potential new customers

federal telephone consumer protection act 1991

established can only call 8am-9pm and established a do not call list

USA patriot act of 2001

anti money laundering regulations

FINRA

Financial Industry Regulatory Authority

-primary SRO for the securities industry and is responsible for the content of SIE exam

MRSB

municipal securities rulemaking board

-established to function as an independent, self-regulatory org. and charged with primary rulemaking authority for the municipal securities industry

CBOE

Chicago Board of Exchange

-functions as a trading venue for options contracts in individual stocks, stock indexes, interest rates as well as exchange- traded funds (ETFs) and is also the SRO for the options market

bonds

borrowing money from the investors who buy the bonds

common stock

the traditional form of equity and common stockholders are the last to be paid if the corporation declares bankruptcy

preferred stock

a senior security above the common stockholders, but it still ranks below the bondholders

common stock

the basic unit of corporate ownership, the most widely issued type of stock and the first type of stock that a corporation issues

issued shares

the number of shares that have been sold by the corporation

unissued shares

any shares that haven't been sold or distributed

treasury stock

when stock is issued and then repurchased by the company

outstanding stock

the number of shares that have been issued to the public, minus any stock that has been repurchased by the company (treasury stock)

sotckholders rights

-right to inspection

-right to vote

-right to receive dividends

-right to evidence of ownership

-right to transfer

statutory voting

a shareholder is given one vote, per share owned, per voting issued

cumulative voting

shareholders are able to multiply the number of shares that they own by the number of voting issues

lock up agreements

the amount of the time that pre-IPO investors must wait before selling their shares after the company has gone public

rule 144

regulates the sale of restricted securities and control securities

restricted securities

the unregistered securities that are typically acquired by investors through private placements

control securities

may include officers, directors, or other insiders and their respective family members

holding period

for the restricted securities of a reporting company, the purchaser must generally hold the securities for the 6 months before he can dispose of them

notice of sale

under rule 144, a person that intends to sell either restricted or control securities must notify the SEC by filing form 144 at the time the sell order is placed with the broker dealer

volume limitation

rule 144 sets a limitation on the amount of stock that an affiliate may sell over any 90-day filing period.

-max that may be sold is the greater of 1% of the total shares outstanding or the stock's average weekly trading volume in the past 4 weeks

blue chip stocks

high-grade issues of major companies tha

growth stocks

an issue of the company whose sales, earnings, and share of the market are expanding faster than the general economy and the industry average

defensive stocks

Associated with companies that are resistant to a recession, including sectors of necessary services (utilities), production of consumer staples (tobacco, pharmaceuticals, soft drinks, and candy), and essentials (food).

income stocks

issued by companies that pay higher-than-average dividends in relation to their market price

cynical stocks

associated with companies whose earnings fluctuate with the business cycle

ADRs

American Depositary Receipts, which are a way for U.S. investors to buy shares in foreign companies.

Cumulative Preferred Stock

preferred stock whose owners must receive all dividends in arrears plus the current year dividend before the corporation pays dividends to the common stockholders

non-cumulative preferred stock

any missed dividend payments don't accumulate. Instead, only the current year's dividend must be paid before common stock dividends are paid.

participating preferred stock

may receive a greater dividend if the company is doing well and its common dividends exceed a specified amount

callable preferred stock

has the right to repurchase the stock at specified price at some time in the future

convertible preferred stock

Preferred stock with an option to exchange it for common stock at a specified rate.

rights offering

Existing shareholders are given the right to buy new shares at a discount to the current market price; Dilutes ownership unless option is exercised ;Sometimes the option can be sold

warrants

gives the holders the ability to buy issuer's common stock at a specified price in the future.

intrinsic value

if the stocks market price rises above the warrant's subscriptions price

Rule 10b-18

controls how an issuer or any affiliates may purchase its own stock in the secondary market

leverage financing

raising capital through debt

par value

the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity

coupon rate

fixed rate of interest

yeild

may refer to the return of an investment; however, in the case of a debt instrument that's purchased at par-value, it refers to the interest payments

accrued intrest

the amount of interest that the sellers entitled to received (from the buyer) and the amount that the buyer is required to pay for a bond being sold in the secondary market

zero-coupon bonds

purchases at a deep discount from its par value, but reedems the bond for its full face value at maturity

maturity date

the due date on which the bondholder will receive the $1,000 return of principal from the issuer

term bond issue

all of the bonds in an offering are due to mature the same date

serial bond issue

if parts of an offering will mature sequentially over several years