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SIE

Securities Industry Essentials Exam

What is the purpose of the SIE Exam?

To test foundational knowledge of the securities industry, products, markets, regulations, and prohibited practices.

Common Stock

Represents ownership in a corporation and usually grants voting rights.

Preferred Stock

Equity security that typically pays fixed dividends and has priority over common stock in liquidation.

Par Value

Nominal value assigned to stock in a corporate charter.

Market Capitalization

Stock price multiplied by total shares outstanding.

Dividend

Distribution of corporate earnings to shareholders.

Blue-Chip Stock

Stock of a large, established company with a strong reputation.

Growth Stock

Stock of a company expected to grow earnings faster than average.

Value Stock

Stock believed to be trading below its intrinsic value.

Income Stock

Stock purchased primarily for dividend income.

Treasury Stock

Shares repurchased by the issuing corporation.

What is a bond?

A debt security representing money loaned to an issuer.

Bondholder

A creditor of the issuer.

Coupon Rate

Annual interest rate paid by a bond.

Yield to Maturity (YTM)

Total expected return if a bond is held until maturity.

Current Yield

Annual interest payment divided by current market price.

Par Value of a Bond

Amount paid at maturity, typically $1,000.

Treasury Bills (T-Bills)

U.S. government securities maturing in 1 year or less.

Treasury Notes

U.S. government securities maturing in 2-10 years.

Treasury Bonds

U.S. government securities maturing in more than 10 years.

Municipal Bond

Debt issued by a state or local government.

General Obligation Bond

Municipal bond backed by taxing power.

Revenue Bond

Municipal bond backed by project revenues.

Corporate Bond

Debt issued by a corporation.

Convertible Bond

Bond that may be converted into common stock.

Debenture

Unsecured corporate bond backed by issuer reputation.

What happens to bond prices when interest rates rise?

Bond prices generally fall.

What happens to bond prices when interest rates fall?

Bond prices generally rise.

Investment Risk

Risk of losing principal or earning less than expected.

Market Risk

Risk affecting the overall market.

Credit Risk

Risk that an issuer may default.

Inflation Risk

Risk that purchasing power will decline.

Liquidity Risk

Risk of not being able to sell quickly at a fair price.

Reinvestment Risk

Risk that future proceeds will earn lower returns.

Systematic Risk

Market-wide risk that cannot be diversified away.

Unsystematic Risk

Company-specific risk that can be reduced through diversification.

Diversification

Spreading investments among assets to reduce risk.

Asset Allocation

Distribution of investments among asset classes.

Mutual Fund

Open-end investment company issuing redeemable shares.

Closed-End Fund

Investment company with a fixed number of shares traded on exchanges.

ETF

Exchange-Traded Fund that trades intraday like a stock.

NAV

Net Asset Value of a mutual fund.

What is NAV?

Assets minus liabilities divided by shares outstanding.

Money Market Fund

Mutual fund investing in short-term debt securities.

Index Fund

Fund designed to track a market index.

Hedge Fund

Private pooled investment vehicle with fewer regulations.

UIT

Unit Investment Trust with a fixed portfolio.

Prospectus

Document describing an investment offering and associated risks.

What does SEC stand for?

Securities and Exchange Commission.

Primary Market

Market where new securities are issued.

Secondary Market

Market where existing securities trade.

IPO

Initial Public Offering.

Follow-On Offering

Additional issuance of securities by a public company.

Broker-Dealer

Firm engaged in securities transactions.

Agent

Individual representing a broker-dealer.

Market Maker

Firm that stands ready to buy and sell securities.

Bid Price

Highest price a buyer is willing to pay.

Ask Price

Lowest price a seller is willing to accept.

Spread

Difference between bid and ask.

NASDAQ

Electronic dealer market.

NYSE

National securities exchange with auction market features.

FINRA

Financial Industry Regulatory Authority.

MSRB

Municipal Securities Rulemaking Board.

SRO

Self-Regulatory Organization.

What is insider trading?

Trading based on material nonpublic information.

Material Information

Information likely to affect an investment decision.

Nonpublic Information

Information not available to the investing public.

Front Running

Trading ahead of a customer order for personal benefit.

Churning

Excessive trading to generate commissions.

Suitability

Recommendation must fit a customer's profile.

Know Your Customer (KYC)

Requirement to understand customer circumstances and objectives.

AML

Anti-Money Laundering regulations.

Currency Transaction Report (CTR)

Report for certain large cash transactions.

SAR

Suspicious Activity Report.

What is money laundering?

Process of disguising illegally obtained funds.

Customer Identification Program (CIP)

Program used to verify customer identity.

Accredited Investor

Investor meeting SEC income or net worth requirements.

Custodial Account

Account managed by an adult for a minor.

UGMA

Uniform Gifts to Minors Act account.

UTMA

Uniform Transfers to Minors Act account.

Joint Tenants with Rights of Survivorship

Ownership passes automatically to surviving owner(s).

Tenants in Common

Ownership passes according to owner's estate.

Margin Account

Account allowing investors to borrow funds to buy securities.

Cash Account

Account requiring full payment for securities purchases.

Long Position

Ownership of a security expecting appreciation.

Short Sale

Selling borrowed securities expecting price decline.

What is a short sale?

Sale of borrowed securities with intent to repurchase later at a lower price.

Call Option

Gives buyer the right to buy stock at a strike price.

Put Option

Gives buyer the right to sell stock at a strike price.

Strike Price

Preset exercise price of an option.

Premium

Price paid for an option contract.

Exercise

Using the rights granted by an option contract.

Covered Call

Call option written against stock already owned.

What is the maximum loss for a call buyer?

The premium paid.

Bull Market

Market characterized by rising prices.

Bear Market

Market characterized by falling prices.

GDP

Gross Domestic Product; value of goods and services produced.

Federal Reserve

Central bank of the United States.

Monetary Policy

Actions by the Federal Reserve to influence the economy.