SIE Exam Review: Equity Securities

Essential equity securities vocabulary terms and definitions for SIE exam preparation covering common stock, preferred stock, corporate actions, voting styles, Rule 144, and ADRs.

Corporate Charter

The legal founding document that governs the core governance of a corporation, establishes the requirement to issue common stock, and specifies the maximum number of shares the company can authorize.

Authorized Shares

The maximum number of shares of stock that a corporation is legally permitted to issue under the terms of its corporate charter.

Issued Shares

The portion of authorized shares that a corporation has actually distributed and placed with investors.

Treasury Stock

Stock that has been reacquired by the issuing corporation and retired into its treasury; it has no voting rights and does not receive dividend distributions.

Tender Offer

A formal proposal made by an issuer or an outside buyer to existing shareholders to tender or sell their shares; it must remain open for at least $20$ days.

Statutory Voting

A shareholder voting method where an investor receives one vote per share owned for each individual candidate or proposition on the ballot (e.g., $100$ shares voting on $3$ board seats equals $100$ votes per seat).

Cumulative Voting

A shareholder voting method designed to protect minority shareholders, calculated by multiplying the number of shares owned by the number of voting seats, allowing the total votes to be cast in any proportion among the candidates.

Super Voting Shares

A class of common stock granted to specific founders or insiders that carries more than one vote per share (such as $100$ or $1{,}000$ votes per share).

Preemptive Right

The right of existing common stockholders to maintain their proportionate ownership interest in the corporation by having the first right of refusal to buy newly issued shares.

Rights Offering

An issuance of short-term subscription rights to existing shareholders, allowing them to purchase new shares directly from the corporation at a subscription price set below the current market price.

Warrants

Long-term equity instruments exercisable at an exercise price above the current market price at issuance, typically attached as a "sweetener" to another security such as a bond.

Regular Way Settlement

The standardized trade settlement timeframe for corporate securities, which occurs on trade date plus 1 business days (T + 1).

Ex-Dividend Date

The first date on which a stock trades without the dividend attached, established by the Uniform Practice Code as one business day prior to the record date.

Current Yield

The return metric calculated by dividing what an investment pays annually by what it costs to acquire: $\frac{\text{Annual Dividend}}{\text{Current Market Price}}$.

Common Stock (Liquidation Priority)

The most junior security in corporate liquidation hierarchy, ranking behind secured bonds, unsecured bonds, and preferred stock.

Control Stock

Stock owned by corporate insiders, defined as officers, directors, and principal stockholders who own $10\%$ or more of the company's voting shares.

Rule 144 Volume Limit

The limit governing public market sales by control persons, which caps sales over any $90$-day window at the greater of $1\%$ of the total outstanding shares or the average weekly trading volume over the prior four weeks.

Restricted Stock

Unregistered stock acquired directly from the issuing corporation (also called red-letter or legend stock) that requires a mandatory six-month holding period before public resale.

Preferred Stock

An equity security that typically carries no voting rights and has a par value of $\$100$, possessing preferential claims over common stock with respect to dividend payments and assets in liquidation.

Straight Preferred Stock

Non-cumulative preferred stock that pays a stated dividend rate but does not accumulate unpaid dividends in arrears if the company misses a distribution.

Cumulative Preferred Stock

A type of preferred stock where any missed or omitted dividend distributions accumulate in arrears and must be paid in full to holders before any dividends can be distributed to common stockholders.

Conversion Ratio

The fixed number of common shares an investor receives when exchanging a convertible security, calculated as par value divided by the conversion price: $\frac{\text{Par Value}}{\text{Conversion Price}}$.

American Depository Receipts (ADRs)

US-traded depository receipts backed by foreign shares held in custody by a domestic bank abroad, designed to facilitate US investor trading of foreign securities in US markets and dollars.

Currency Risk (Exchange Risk)

The risk inherent in American Depository Receipts (ADRs) that fluctuations in the exchange rate between the foreign currency and the US dollar will reduce dividend distributions or share value upon conversion to dollars.