Key Concepts for Series 79 Exam Preparation

Rule 144A

A regulation that allows qualified institutional buyers to purchase unregistered securities without the need for registration.

Qualified Institutional Buyer (QIB)

An entity that manages at least $100 million in securities and is eligible to purchase unregistered securities under Rule 144A.

Unregistered Securities

Securities that have not been registered with the SEC and therefore cannot be sold to the general public.

Regulatory Updates

Changes or clarifications in laws and regulations that impact financial practices and compliance.

Preliminary Proxy (PRE14A)

A document that must be filed with the SEC at least 10 calendar days before a definitive proxy is filed.

Definitive Proxy (DEF14A)

The final version of a proxy statement that must be filed with the SEC and sent to shareholders at least 20 calendar days before a shareholder meeting.

Tender Offer

An offer made to shareholders to purchase their shares, which must be available for at least 20 business days.

14D-9 Target Board Response

A response from the target company's board regarding a tender offer, due within 10 business days of the Schedule TO filing.

Syndicate Settlement Date

The date when the issuer delivers securities to syndicate members, with final settlement required within 90 days.

Research Analyst Regulations

Rules governing the conduct and reporting of research analysts, ensuring transparency and fairness.

Exemptions from Registration

Conditions under which certain securities may be offered without being registered with the SEC.

Fairness Opinions

Assessments provided by financial advisors regarding the fairness of a transaction's financial terms.

Bond Interest Rates

Rates determined by the yields of US Treasury securities, serving as benchmarks for corporate bond pricing.

Bond Pricing (Near Maturity)

The tendency of a bond's price to approach its par value as it nears its maturity date.

Holding Bonds Until Maturity

The strategy of retaining a bond until it matures, focusing more on credit risk than interest rate risk.

Bond Investments in a Rising-Interest-Rate Environment

The strategy of shifting investments towards cash and investment-grade debt during anticipated economic downturns.

Rising Interest Rates

A market condition where interest rates increase, prompting investors to prefer short-term debt securities or equities.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Interest Rates

The amount charged by lenders to borrowers for the use of money, typically expressed as a percentage of the principal.

Bond Price

The amount of money an investor pays to purchase a bond, which can fluctuate based on interest rates and market demand.

Long Duration Bonds

Bonds with a longer maturity period that are more sensitive to interest rate changes, often including zero coupon and long-term bonds.

Price Talk

The preliminary discussion among underwriters about the expected yield of a bond offering, which can influence investor demand.

Bond Spreads

The difference in yield between two bonds, often used to assess the risk premium of high-yield bonds compared to investment-grade bonds.

Yield-to-Worst

The lowest yield an investor can receive if a bond is called before maturity, important for assessing potential returns.

Internal Rate of Return (IRR)

A metric used to evaluate the profitability of an investment, considering the timing of cash flows.

Repricing Risk

The risk that interest rates will change, affecting the cash flows of bonds, particularly those with fixed rates.

Yield Curve

A graphical representation showing the relationship between bond yields and their maturities, indicating market expectations.

Book-Entry Bonds

Bonds that are not issued in physical form but are recorded electronically, simplifying ownership transfer.

Treasury Bills (T-bills)

Short-term government securities with maturities of one year or less, known for their liquidity and safety.

Bond Equivalent Yield

A calculation used to compare the yield of a T-bill to that of a coupon bond, reflecting the annualized return.

Money Market Fund

A type of mutual fund that invests in short-term debt securities, providing liquidity and safety for investors.

Agency Bonds

Debt securities issued or guaranteed by U.S. federal government agencies or government-sponsored enterprises, with varying credit risk.

Credit Quality

A measure of the likelihood that a bond issuer will default on its debt obligations, with agency bonds generally having lower quality than U.S. Treasury securities.

Liquidity

The ease with which a security can be bought or sold in the market without affecting its price, which varies for different agency securities.

Fixed Interest Rate

A constant rate of interest paid to bondholders, typically on a semi-annual basis for agency bonds.

Asset-Backed Securities (ABS)

Securities backed by a pool of financial assets, such as loans, rather than physical assets.

Convertible Bonds

Debt securities that can be converted into a predetermined number of the issuer's equity shares.

Trust Indenture Act

A law requiring corporate bonds to be issued with a trust indenture, ensuring the rights of bondholders are protected.

Carry Trade

An investment strategy where an investor borrows in a low-interest-rate currency to invest in a high-interest-rate currency.

Credit Arbitrage

A strategy where an investor borrows at a low interest rate and invests in higher-yielding securities.

Quant Trader

An investor who uses quantitative analysis and trading data to make investment decisions.

Aggressive Growth Strategy

An investment approach focused entirely on equities, with all dividends reinvested for maximum growth.

Growth at a Reasonable Price (GARP)

An investment strategy that seeks to find stocks with strong growth potential that are undervalued compared to the market.

Price Momentum Investing

An investment strategy that involves buying securities that have demonstrated significant price increases over a certain period.

Distressed and Special Situation Funds

Investment vehicles that focus on companies facing operational or financial difficulties, such as those with recent losses or lowered earnings expectations.

Systematic Risk

The risk inherent to the entire market or market segment, affecting all securities and influenced by factors like economic changes or legislative actions.

Dividends

Payments made by a corporation to its shareholders, usually derived from profits; a pause in these payments can lead to a sell-off by income-focused investors.

Mezzanine Debt

A hybrid form of financing that sits between senior debt and equity, often carrying higher interest rates and providing less risk than equity.

Credit Ratings

Evaluations of the creditworthiness of an issuer, reflecting the likelihood of default; not typically affected by announcements of lawsuits.

Credit Risk

The possibility of loss due to a borrower's failure to repay a loan or meet contractual obligations, often mitigated by diversifying investments.

Bank Leverage

The use of borrowed funds by banks to increase potential returns; excessive leverage can lead to regulatory concerns and potential bank failures.

Forward Contract

An agreement to buy or sell an asset at a predetermined price at a specified future date.

Weighted Average Maturity (WAM)

A measure of the average time until the securities in a portfolio mature, indicating sensitivity to interest rate fluctuations.

Short-Duration High-Yield Bonds

Bonds that offer high returns but come with significant investment risk; they are less sensitive to interest rate changes due to their shorter maturity.

Fixed Rate Bonds

Debt securities that pay a fixed interest rate over their life, generally facing higher interest rate risk compared to floating rate bonds.

Underwriter Due Diligence

The process by which underwriters investigate and assess the financial health and risks associated with a company before new security offerings.

Misleading Statements

False or deceptive claims made in a registration statement that can lead to legal action by harmed investors.

Registration Statement Review

The SEC's examination of a registration statement to ensure its adequacy and completeness, not necessarily its quality or integrity.

Registration Statement

A document filed with the SEC that provides details about an investment offering, including financial statements and information about the issuer.

Gun-jumping

The act of an issuer engaging in promotional activities that could be seen as soliciting interest in a security before the registration statement is effective.

Use of Proceeds

A section in the registration statement that outlines how the funds raised from the offering will be utilized by the issuer.

Preliminary Prospectus

An initial version of the prospectus that must be filed with the SEC and provided to potential investors prior to the sale of securities.

Free Writing Prospectus (FWP)

A written communication that offers information about a security that is not contained in the registration statement or prospectus.

Effectiveness

The status of a registration statement once the SEC has approved it, allowing the issuer to sell securities.

Delayed Filing

The ability of an issuer to submit the final prospectus to the SEC up to 15 business days after the registration statement becomes effective.

Delayed Final Settlement

A situation in which the closing of an underwriting is postponed, requiring notification to FINRA.

Prospectus Data

Financial information included in a prospectus that must be current and not older than specified timeframes.

Prospectus Supplement

An additional document that provides updated information to a previously filed prospectus without replacing it.

Prospectus Recordkeeping

The responsibility of maintaining records related to the distribution of the prospectus, which is not required of broker-dealers.

Included in a Prospectus

Any hyperlinks and their content are considered part of the prospectus, along with details about proceeds and offering types.

Common Stock

A type of security that represents ownership in a corporation and entitles the holder to vote on corporate matters and receive dividends.

ADRs (American Depositary Receipts)

Negotiable certificates issued by a U.S. bank representing shares in a foreign company's stock, allowing U.S. investors to trade foreign stocks.

Material Event

An occurrence that could influence an investor's decision regarding a security, which must be disclosed in the registration statement and prospectus.

Underwriting Agreement

A contract between an issuer and an underwriter detailing the terms of the issuance of securities, including the responsibilities of each party.

Quiet Period

A designated timeframe during which a company and its affiliates are restricted from making public statements about a security offering to avoid influencing the market.

PIPE Transactions

Private Investment in Public Equity, where private investors buy shares of publicly traded stock at a discount, which must be disclosed by research analysts.

Research Analyst

A professional who evaluates and analyzes securities and provides investment recommendations based on their findings.

Compliance

The process of ensuring that a firm adheres to regulatory requirements and internal policies, particularly regarding disclosures and communications.

Information Barrier

A separation between different departments within a firm, such as research and investment banking, to prevent conflicts of interest.

Public Appearance Disclosures

Requirements for analysts to disclose certain information when making public statements, although not all investment banking intentions need to be revealed.

Industry Research Report

A report that analyzes trends and performance within a specific sector, which must treat all companies fairly without giving undue prominence to any one client.

Debt Research Analyst

A professional who specializes in analyzing debt securities and providing insights on creditworthiness and market conditions.

Comparable Debt Issuances

Debt securities that are similar in terms of risk and structure, used as benchmarks for evaluating new debt offerings.

Research Summary

A concise overview of a research report that includes key findings and recommendations, which cannot be shared with the subject company for verification.

Final Coverage Decisions

The independent choices made by a research department regarding which companies to cover and how to report on them.

Promissory note

A financial instrument that represents a written promise to pay a specified amount of money at a designated time.

C corporation

A legal entity that is separate from its owners, allowing for multiple classes of stock and limited liability for shareholders.

S corporation

A type of corporation that meets specific Internal Revenue Code requirements, allowing income to be passed through to shareholders to avoid double taxation.

Pass-through taxation

A tax structure where the income of an entity is passed directly to its owners or investors, avoiding corporate income tax.

Limited Liability Company (LLC)

A flexible business structure that combines elements of both corporations and partnerships, providing limited liability to its owners.

Real Estate Investment Trust (REIT)

A company that owns, operates, or finances income-producing real estate and must distribute at least 90% of its taxable income to shareholders.

Bond shelf registration

A process that allows a company to register a new bond issue and sell it over a period of time without needing to re-register each time.

Well-Known Seasoned Issuer (WKSI)

A company that meets specific criteria set by the SEC, allowing it to take advantage of streamlined registration and reporting processes.

Ineligible issuers

Entities that cannot register securities due to past violations of federal securities laws, affecting their ability to access public markets.

Forward-looking statements

Statements that project future financial performance, management plans, and expectations regarding a company's future operations.

SPAC

A type of investment vehicle that raises capital through an IPO to acquire an existing company, typically within a specified timeframe.

10-K

An annual report mandated by the SEC that provides a detailed overview of a company's financial performance and operations.

EDGAR

The Electronic Data Gathering, Analysis, and Retrieval system used by the SEC to facilitate the filing and retrieval of public company documents.

Reg FD

A regulation that aims to prevent selective disclosure by requiring public companies to disclose material information to all investors simultaneously.

Proxy statement

A document sent to shareholders that provides information on matters to be voted on at a shareholder meeting, including executive compensation and large shareholders.