SIE study

Securities and Exchange Commission (SEC)

Agency responsible for protecting investors, maintaining fair markets, and facilitating capital formation.

Securities Exchange Act of 1934

The act that created the SEC.

Full and fair disclosure

Core principle enforced by the SEC.

Securities markets

The markets that the SEC regulates, including broker-dealers and exchanges.

Department of Justice (DOJ)

The entity to which the SEC can refer cases to potentially bring criminal charges.

Maximum civil penalty

Up to three times the profits gained or losses avoided due to securities fraud as imposed by the SEC.

Federal Reserve Board

The entity that regulates monetary policy in the U.S.

Open market operations

The primary tool the Federal Reserve uses to influence markets.

Discount rate

The interest rate the Federal Reserve charges member banks for loans.

Federal funds rate

The interest rate at which banks lend to each other overnight.

Monetary policy

The type of policies implemented by the Federal Reserve.

Financial Industry Regulatory Authority (FINRA)

An organization that regulates broker-dealers and registered representatives.

SEC oversight

The authority from which FINRA derives its power.

FINRA Rule 2210

Regulates communications with the public.

FINRA Rule 4512

Requires the collection of customer account information.

Know Your Customer (KYC)

A requirement referred to by FINRA Rule 2090.

Municipal Securities Rulemaking Board (MSRB)

Writes rules governing municipal securities.

FINRA enforcement of MSRB rules

FINRA enforces MSRB rules for broker-dealers.

Federal banking regulators

Enforce MSRB rules for banks.

MSRB Rule G-37

Addresses political contributions.

MSRB Rule G-17

Mandates fair dealing.

Securities Investor Protection Corporation (SIPC)

Provides protection for customers' securities and cash if a broker-dealer fails.

SIPC coverage limit

Covers up to $500,000 in total, with a maximum of $250,000 in cash.

Market losses

SIPC does not protect against this.

Nonprofit organization

Type of organization SIPC is, not a government agency.

Federal Deposit Insurance Corporation (FDIC)

Insures bank deposits up to $250,000 per depositor per bank.

Securities coverage by FDIC

FDIC does not insure securities.

Internal Revenue Service (IRS)

Enforces the Internal Revenue Code.

Treasury auctions

Public sales of government securities like bills, notes, and bonds.

Broker-dealers

Entities that issue Treasury receipts (STRIPS) instead of the Treasury itself.

North American Securities Administrators Association (NASAA)

Coordinates state regulatory actions.

Blue Sky Laws

Enforced by state securities regulators.

Issuer

Entity that sells securities to raise capital.

Underwriter

Facilitates the issuance of securities to the public.

Market maker

A dealer obligated to quote bid and ask prices.

Prime broker

A financial institution that provides services to hedge funds.

Custodian

Holds assets for safekeeping.

Trustee

Protects the interests of bondholders in indentures.

Transfer agent

Maintains records of shareholder ownership.

Clearing corporation

Organization that facilitates the settlement of trades.

Accredited investor income threshold

$200,000 individually or $300,000 jointly for the last two years.

Accredited investor net worth requirement

$1 million excluding the primary residence.

Institutional investor

Entities with significant assets, including banks and insurance companies.

Retail investor

An individual who invests smaller amounts of money.

Primary market

Market for new issues of securities.

Secondary market

Market for trading existing securities.

Over-the-Counter (OTC) market

Market for securities that are not listed on exchanges.

Third market

Market for listed securities traded OTC.

Fourth market

Market for institution-to-institution direct trading.

Exchange

Central trading marketplace with established rules.

Level 3 NASDAQ access

Allows market makers to enter orders directly.

Bid

Price at which a dealer will buy a security.

Ask

Price at which a dealer will sell a security.

Spread

Difference between the bid and ask prices in a market.

Inside market

Combination of the highest bid and lowest ask.

Electronic Communication Network (ECN)

Facilitates automated order matching.

Dark pool

Private exchange for trading securities.

Monetary policy

Controls the money supply and interest rates.

Fiscal policy

Controls government spending and taxation.

Expansionary policy

Lowers the discount rate.

Interest rate in open market operations

Falls when the Fed buys securities.

Interest rate effect when Fed sells securities

Rises.

Leading economic indicator

Example includes building permits.

Lagging economic indicator

Example includes Consumer Price Index (CPI).

Coincident indicator

Example includes Gross Domestic Product (GDP).

Business cycle stages

Expansion, Peak, Contraction, Trough.

Cyclical industries

Include sectors like automotive and travel.

Defensive industries

Include sectors like pharmaceuticals and utilities.

Impact of inflation on securities

Most adversely affects fixed income securities.

Gross Domestic Product (GDP) reporting frequency

Reported quarterly.

Trade deficit variable

Increases when the dollar strengthens.

Strong dollar impact

Beneficial for importers.

Weak dollar impact

Beneficial for exporters.

Keynesian economic theory

Emphasizes the importance of fiscal policy.

Monetarist economic theory

Focuses on controlling the money supply.

Exchange rates influence

Affects the competitiveness of imports and exports.

Gross National Product (GNP)

Value of products produced by U.S. citizens worldwide.

Gross Domestic Product (GDP)

Measures the production of goods and services within the U.S.

Initial Public Offering (IPO)

First sale of securities to the public.

Securities Act of 1933

Governs IPO registration processes.

Registration statement

Filed document for new securities.

Signatories on registration statement

Typically include the CEO, CFO, and majority of the board.

Cooling-off period minimum duration

Lasts at least 20 days.

Activities allowed during cooling-off period

Include indications of interest and distribution of red herrings.

Sales activity during cooling-off period

Prohibited beyond tombstone advertisements.

Tombstone ad content

Can only contain basic information without sales language.

Prospectus delivery timing

Must be provided at or before a sale to a customer.

Final prospectus inclusion

Includes the public offering price.

Shelf registration duration

Lasts up to three years.

Firm commitment underwriting

Underwriter buys the entire issue of securities.

Best efforts underwriting

Underwriter sells as much as possible of the issue.

All-or-none offering

Requires the entire issue to be sold or canceled.

Mini-max offering stipulation

Requires a minimum amount to be sold before the offering is valid.

Rule 147

Covers intrastate offerings.

Regulation D (Reg D)

Covers private placements.

Rule 144

Governs sale of restricted and control stock.

Rule 144A sales

May be made to Qualified Institutional Buyers (QIBs).

Selling group definition

Dealers assisting in distribution without financial liability.

Common stock

Represents ownership in a corporation.

Voting rights of common shareholders

Include votes on the board of directors and major corporate actions.