part 1

Comprehensive vocabulary flashcards covering securities market participants, regulatory agencies, acts, equity classifications, rights, and debt instruments based on lecture notes.

Issuer

A company or entity that sells shares or securities to the public to raise capital, such as common stock or long-term bonds.

Securities

Financial investment instruments consisting primarily of stocks and bonds.

Broker/Dealer

A person or member firm that executes investment trades for others as a broker and for their own account as a dealer.

Brokerage

A firm that effects securities transactions for investors to buy and sell securities like stocks and bonds, distinct from a bank.

Market Maker

A specialized unit of a broker-dealer that quotes bid and ask prices, using its own capital to buy and sell shares as a business to provide liquidity to the market.

Investment Advisor

A firm compensated solely for providing financial advice, rather than executing trades or selling securities.

Retail Investor

An individual, everyday investor who is not an institutional firm, representing the primary class of investors FINRA seeks to protect.

Accredited Investor

A high-net-worth individual who has a net worth of at least $\$1\text{ million}$, an annual individual income of at least $\$200{,}000$, or an annual joint spousal income of at least $\$300{,}000$, receiving less FINRA regulatory protection in exchange for access to restricted opportunities.

Institution

An organization that manages money professionally, such as a commercial bank, broker-dealer, or institutional investment provider.

Primary Market

The market where an issuer sells newly created securities to investors to raise capital, governed under the Securities Act of 1933.

Secondary Market

The trading market where previously issued securities are bought and sold among investors, governed under the Securities Exchange Act of 1934.

Clear a Trade

The post-trade settlement process where an investor purchases a security, the broker-dealer collects payment, transmits the funds to the seller, and delivers the security to the buyer.

DTCC (Depository Trust & Clearing Corporation)

A nonprofit clearing entity owned by broker-dealers and banks that oversees trade settlement, ensuring securities transactions are completed safely and efficiently across a two-day settlement window.

Clearing / Full-Service Broker-Dealer

A general broker-dealer equipped with an internal back office to process trade clearing, custody, and margin accounts directly.

Introducing Broker-Dealer

A broker-dealer firm that lacks back-office infrastructure for clearing and margin operations, contracting those functions out to a designated clearing broker-dealer.

Hedge Funds

Private pooled investment vehicles designed for accredited and institutional investors that utilize aggressive strategies such as short selling, leverage, derivatives, and concentrated positions, often utilizing prime brokers with restricted liquidity.

OCC (Options Clearing Corp)

The clearing organization used instead of the DTCC to trade, sell, and clear options contracts, completing trade clearance in one day.

Custodians

Banks and financial entities that safeguard investor securities and execute transfers when trades occur.

Registers and Transfer Agents

Entities responsible for tracking shareholder lists, recording outstanding share counts, and maintaining orderly share ownership transfers.

SEC (Securities and Exchange Commission)

The primary federal government regulatory agency responsible for investor protection, with comprehensive oversight over all securities operations in the United States.

Federal Reserve Board (The Fed)

The government entity responsible for controlling the national money supply, maintaining banking system stability, and supervising interbank and broker-dealer monetary movements.

FDIC

Bank insurance that protects depositor funds up to $\$250{,}000$ per depositor if a bank fails.

SRO (Self-Regulatory Organization)

A non-governmental body operating under SEC oversight, also known as a Designated Examining Authority (DEA), that establishes and enforces compliance rules for member firms.

FINRA

A self-regulatory organization that oversees broker-dealers, registered representatives, and securities exchanges.

MSRB (Municipal Rule Making Board)

A self-regulatory organization that regulates broker-dealers and banks that underwrite and trade municipal securities, rather than the municipal issuers themselves.

Cargo Board Option Exchange

An exchange self-regulatory entity funded by fines and member dues that governs exchange-listed options trading to protect investors.

NASAA (Blue Sky)

The organization that drafted template model regulations for state securities legislation, allowing individual states to pick and choose applicable rules.

Act of 1933

A federal law regulating primary market issuances by requiring non-exempt issuers to file registration statements and prospectuses with the SEC to prevent fraud.

Act of 1934

Federal legislation governing secondary market transactions, broker-dealer practices, reporting requirements, and over-the-counter (OTC) trading.

Investment Company Act of 1940

Federal legislation regulating pooled investment vehicles, including mutual funds, face-amount certificates, and open- and closed-end funds.

Investment Advisor Act of 1940

Federal statute governing individuals and firms that provide investment advice for compensation.

SIPC (Securities Investor Protection Corporation)

Non-profit insurance covering brokerage accounts against firm failure up to $\$500{,}000$ per customer, with cash coverage capped at $\$250{,}000$.

ERISA (Employee Retirement Income Security Act)

Federal legislation establishing standards to ensure employer-sponsored qualified retirement plans are managed responsibly for employees.

Insider Trading and Securities Fraud Enforcement Act of 1988

Federal legislation establishing stricter liabilities and penalties for all individuals involved in illegal insider trading.

Penny Stocks Reform of 1990

Regulations governing unlisted, over-the-counter stocks that trade at less than $\$5$ per share.

Federal Telephone Consumer Protection Act of 1991

Legislation establishing company-specific and national Do-Not-Call lists, restricting telemarketing solicitations to between $8\text{ AM}$ and $9\text{ PM}$ in the recipient's time zone.

Patriot Act

Federal statute enacted to prevent financial crimes, anti-money laundering schemes, and terrorist financing.

Conduct Rules

FINRA rules governing ethical business relationships and professional practices between broker-dealers and customers.

UPC (Uniform Practice Code)

FINRA rules establishing technical standards for uniform trading, clearance, and trade settlement between different broker-dealers.

COP (Code of Procedures)

The formal disciplinary process and procedures used by FINRA to adjudicate rule violations and assess sanctions.

Arbitration

A non-court dispute resolution proceeding for settling conflicts between firms, customers, and representatives; it offers a faster and less expensive resolution whose outcome is binding and non-appealable.

Written Supervisory Procedures (WSP)

A member firm's formal internal documentation outlining supervisory systems and employee responsibilities to ensure compliance with securities laws and FINRA rules.

Equity

Partial corporate ownership obtained through shares of stock that grants limited liability to the investor while providing financing to the corporation.

Common Stock

Junior equity ownership providing voting rights and dividend potential that fluctuates in value based on company profitability and investor sentiment.

Preferred Stocks

Equity shares providing prioritized dividend distribution ahead of common stockholders, purchased primarily for regular quarterly income but lacking voting rights.

Cumulative Preferred Stock

A class of preferred stock requiring that any dividends omitted in previous years must be paid in full before dividends can be distributed to common shareholders.

Participating Preferred Stock

Preferred shares entitled to a stated quarterly dividend plus additional surplus dividend distributions if company earnings are exceptionally strong after paying other classes.

Callable Stock

Stock that the issuing corporation retains the right to repurchase from the shareholder at a pre-set price, commonly used with preferred stock.

Non Callable Stock

Stock that an issuer cannot forcibly repurchase from the investor prior to liquidation.

Convertible Stock

Preferred stock that grants the shareholder the option to convert their shares into common stock, causing its market value to track common share movements closely.

Authorized Stock

The total volume of shares that a corporation's corporate charter legally permits it to create, regardless of whether they are issued.

Issuing Stock

The specific volume of authorized corporate shares that a company has offered and sold to the public.

Treasury Stocks

Issued shares that have been repurchased by the issuing corporation and kept in its treasury, carrying no voting rights or dividends.

Outstanding Stock

The total volume of issued shares currently held by the investing public, calculated as issued shares minus treasury shares.

Market Cap

The aggregate valuation of a public company, calculated as: $\text{Market Cap} = \text{Outstanding Shares} \times \text{Price}$.

Right to Inspection

The stockholder's right to inspect company books and financial reports, including the quarterly $10\text{-Q}$ and annual $10\text{-K}$ filings.

Right to Transfers

The right of common shareholders to buy, sell, or transfer shares freely without complex paperwork.

Statutory Voting

A corporate voting structure granting one vote per share owned toward each separate board candidate opening.

Cumulative Voting

A corporate voting structure allowing shareholders to concentrate their total share votes across one or more candidates.

Coon Day

The cum-dividend date, representing the day before dividends are given out.

X Day

The ex-dividend date, representing the day after dividends are taken out.

Restricted Shares

Unregistered securities obtained through private placements, employee compensation plans, or insider transactions that cannot be sold without regulatory compliance.

Rule 144

An SEC rule establishing trading volume limitations and holding periods for the resale of restricted and control securities.

Controlled Securities

Securities held by corporate insiders subject to sale restrictions, such as selling up to $5{,}000$ shares valued under $\$50{,}000$.

Blue Chips Stock

Established, top-tier market stocks with a history of sound financial performance, low volatility, and regular dividend distributions.

Growth Stocks

Equities of companies projected to increase revenue and earnings at a rate above the market average, characterized by higher volatility and risk.

Defensive Stocks

Shares of companies providing basic consumer staples (such as utilities, pharmaceuticals, tobacco, food, and alcohol) that remain stable or improve during market downturns.

Income Stock

Stocks that distribute high dividend yields designed for passive income rather than capital appreciation.

Cyclical Stocks

Equities whose performance moves directly with macroeconomic cycles, rising during expansions and declining in downturns (e.g., housing, autos, steel, and construction).

Counter Cyclical Stocks

Stocks that perform well during economic contractions and decline during economic expansions.

ADRs (American Depositary Receipts)

Receipts representing shares of foreign companies traded on United States securities exchanges.

Warrants

Long-term derivative instruments granting the owner the right to purchase underlying shares at a fixed exercise price.

Rights

Short-term privileges issued at a discount granting existing shareholders the ability to acquire additional shares before a public offering.

Buyback Stocks (10B18)

Transactions conducted under SEC Rule 10b-18 where a corporation repurchases its own shares in the open market, creating treasury stock.

Bond

A debt instrument in which an investor lends capital to a company or government entity in exchange for regular interest payments and principal return at maturity.

Debt Service

The total annual amount of interest and principal payments a borrower is obligated to pay back to bondholders.

Creditor

An investor who lends money to an institution through debt securities, holding priority repayment claims without corporate voting power.

Par Value

The stated face value of a bond, standardly set at $\$1{,}000$, which the issuer repays to the bondholder at maturity.

Bond Premium

The dollar amount by which a bond's purchase price exceeds its $\$1{,}000$ par value.

Coupon Rate

The fixed annual interest percentage set at bond issuance (e.g., $5\%$) that remains unchanged throughout the life of the bond.

Variable Rate

A floating bond interest rate that adjusts upward or downward in response to shifting economic interest rate benchmarks.

Credit Rating

An assessment measuring the likelihood that an issuer will repay borrowed principal and interest on schedule, ranging from high grades (AA, A) and adequate grades (BBB/Baa) to high-risk default tiers (BB, B, CCC).