SIE Exam prep definitions and notes

Common stock

ownership in a company

cyclical stock

stock that move with business cycle, usually discretionary g/s

defensive stock

hold value, essential g/s, less volatile, underperform in expansion

statutory voting

spread votes evenly across board positions

cumulative voting

voting where you can put all your votes for one person

dilutive actions

issueance of new shares or convertible securities

treasury stock

stock repurchased from the market

authorized stock

stock permitted to sell to investors

issued stock

stock sold to investors

pre-emptive right

right to current shareholders to buy stock before it’s sold to the market

rights

intrinsic value, short term

warrants

dilutive action, sweetner, time value, no intrinsic value, longer term

lien

right to property if loan cannot be repaid

redeemable security

bought/sold directly with issuer

primary market

issuers offer securities to investors for capital

private placement

selling securities to private institutional wealthy clients

first market

listed securities, exchange

second market

unlisted securities, OTC

third market

listed securities, OTC

fourth market

institutions trading directly with each other through ECN

clearing broker

maintains custody, processes orders, provides clearing service

Tender offer

investor buying a significant portion of an issuers stock

market risk

risk that an investment declines in value because of economic conditions

inflation risk

risk that rising prices hurt investment

financial risk

companies that are over leveraged, hard to stay afloat

business risk

risk that company struggles with core business, due to management or competition

regulatory risk

risk that current or potential government regulations hurt

legislative risk

risk when law or regulation hurts investment

political risk

political instability hurts investment

liquidity risk

struggle turning investments into cash

coupon

fixed dividend rate based on par

participating stock

may receive more then stated dividends in a year

zero coupon bond

bonds with no semi annual interest payment, payed out at maturity

money market bonds

debt securities with one or less year until maturity

serial issuance

all bonds are issued on same day and mature on different

series issuance

bonds are issued on different days, mature on same day

price quote

refers to bond price, dollar quote, term quote

yield quote

refers to yield of bond, serial quote, basis quote

callable bond

issuer can repay the par and redeem early, commonly used to refinance and is called during low interest rates

put feature

bondholder can sell back to issuer for par + accrued interest, happens during period of high IR

commercial paper

common security when corporations need to borrow short term money, issued at discount and matures at par, max 270 days

debenture

long term, unsecured corporate bond

guaranteed bond

unsecured bond with a subsidiary and 3rd party backing

mortgage bond

secured, real estate pledged as collateral

mezzanine debt

liquidation priorty between senior level and equity, hybrid security

CDs

issued by banks, pay fixed rate of return based on principal basis

eurobond

debt security that pays interest and principal in a currency other then what it’s issued

eurodollar bond

type of eurobond that pays in USD

Municipal bonds

issued by state city county logal gov, tax free interest to purchasing residents

general obligation bond

issued finance public non self supporting projects

revenue bond

self supporting project bonds

defeasance

treasury securities replace the municipality pledge as security for the bonds

treasury bills

short term, zero coupon debt, interest is difference between payment and par, under a year

Treasury notes

interest paying, intermediate term, issued at par semi annual 2-10 years

STRIPS

long term, zero coupon, issued at deep discounts and mature at par, up to 30 years

treasury reciepts

created by financial institutions, long term zero coupon bond, no default risk-free status

TIPS

inflation hedged, semi annual interest, long term, par changes every 6 months based on CPI

unit investment trusts

pool investor money, invest in basket of securities selected by financial advisor, liquidated at maturity date

Class A share

front end, low 12b-1 fees, better for long term large investors

Class B share

back end, CDSC, lower sales charge

Class C shares

level load, high 12b-1 fees, ongoing marketing fees

ETF

open end management company, trade on exchanges in secondary market, aim to capture market performance

alpha

actual return - expected return

beta

market volatility

REIT

real estate investment trust

equity REIT

commercial real estate focused

mortgage REIT

buy and offer mortgages on commercial properties

hybrid REIT

invest in real estate properties and mortgages

income wells

stripper wells, low risk low return, well is already producing, low IDC

developmental wells

step out wells, near proven wells, intermediate risk, some IDC

exploratory wells

wildcat wells, high IDC, high return and risk

options

contract between 2 parties where buyer receives right to transactions at fixed price

LEAPS

long term equity anticipation securities up to 39 months

long options

buy contract that gives them a specific right, holders, cost of option is premium

short options

sell, take on risk, receive premium when go short

opening purchase

establish long position

opening sale

establish short position

closing sale

closing long option position

closing purchase

short option positions closing

call

right to buy asset

put

right to sell asset

long call

bullish, unlimited maximum gain, premium maximum loss

short call

bearish, unlimited maximum loss, premium maximum gain

long put

bearish, maximum gain if stock price falls to 0, maximum loss premium

short put

bullish, maximum loss is strike price - premium, maximum gain is premium

long stock with long put hedge

hedges against price drop

short stock with long call hedge

profit if market price falls, unlimited risk

Form 1099-DIV

reports dividends annually

1099-B

reports capital gains

PIPE

private investment in public equity, private transaction where publicly traded company sells securities to discount at current market

FINRA rule 5130

underwriters cannot sell common stock IPOs to industry insiders

Regulation A

small dollar, less than $75 million of securities in 12 months, tier 1 which is up to 20, tier 2 which is up to 75

Regulation D

private placements, allows non-exempt registered securities to be sold to an unlimited number of accredited investors

Rule 147

exempt for securities offered intrastate, 80% rule where business revenue spent in state, resident investors

Rule 144

restricted and controlled stock

Form 4

must be filed when affiliates actually trade controlled stock, within 2 days

Rule 144a

if restricted or control stock is sold to qualified institutional buyer, requirements do not apply

agency capacity

firm matches customer order with another market participant, brokers earn comission

principal capacity

firm sells/buys with their own inventory, use mark up and mark down, dealers

bid

the price firm is willing to pay to buy security