SIE Exam Securities and Regulations Vocabulary

Comprehensive vocabulary flashcards covering securities, regulatory frameworks, debt/equity instruments, options, and market operations based on SIE lecture notes.

Issuer

An individual or company that offers and sells securities (such as common stock or bonds) to the public to raise money.

Securities

Financial instruments representing ownership or indebtedness, such as stocks and bonds.

Broker/Dealer

A person or member firm that trades investment securities for customers as a broker and for its own account as a dealer.

Market Maker

A broker-dealer firm that quotes bid and ask prices and buys and sells shares using its own capital to provide liquidity in the market.

Investment Advisor

A firm that gives financial advice for a fee rather than earning commissions on trades.

Retail Investor

Individual investors who are not institutional entities and receive regulatory protection from organizations like FINRA.

Accredited Investor

An investor who meets specific wealth criteria: a net worth of \text{\\n}\text{\\n}\\\$\\\1\,000\,000 (excluding primary residence), an individual annual income of \\$200\,000, or a joint marital income of \\$300\,000.

Primary Market

The market where corporations or governments issue new securities to raise capital, governed by the Securities Act of 1933.

Secondary Market

The market where previously issued securities are traded among investors, governed by the Securities Exchange Act of 1934.

DTCC (Depository Trust & Clearing Corporation)

A non-profit clearing corporation owned by broker-dealers and banks that ensures trades clear safely and efficiently, typically requiring $2\text{ days}$ to clear a trade.

Introducing Broker-Dealer

A smaller broker-dealer that contracts with a clearing broker-dealer to handle back-office clearing, trade settlement, and margin accounts.

Hedge Fund

A pooled investment vehicle for accredited and institutional investors that utilizes advanced strategies like short selling, leverage, derivatives, and concentrated positions.

OCC (Options Clearing Corp)

The clearing agency responsible for clearing, settling, and issuing option contracts, which takes $1\text{ day}$ to clear a trade.

SEC (Securities and Exchange Commission)

The top federal government regulator responsible for protecting investors and overseeing all U.S. securities transactions and entities.

Federal Reserve Board (The Fed)

The central banking system governing U.S. monetary policy, regulating money supply, bank stability, and money movement between banks and broker-dealers.

FDIC

An independent federal agency that insures bank deposits up to \\$250\,000 per depositor if a member bank fails.

Self-Regulatory Organization (SRO)

A non-governmental organization under SEC oversight that establishes and enforces rules for member firms, acting as a Designated Examining Authority (DEA).

FINRA

A self-regulatory organization that regulates broker-dealers, registered representatives, and member exchanges.

MSRB (Municipal Securities Rulemaking Board)

An SRO that regulates broker-dealers, traders, and banks that sell municipal bonds.

Securities Act of 1933

Federal law regulating the issuance of new non-exempt securities in the primary market, requiring registration statements and prospectuses to prevent fraud.

Securities Exchange Act of 1934

Federal law governing the secondary trading market, over-the-counter (OTC) trading, broker-dealers, and public reporting requirements.

Investment Company Act of 1940

Federal law regulating investment companies, including mutual funds, face-amount certificates, and unit investment trusts.

Investment Advisers Act of 1940

Federal legislation regulating investment advisory firms that provide financial advice for a fee.

SIPC (Securities Investor Protection Corporation)

Non-profit corporation providing insurance for customer brokerage accounts up to \\$500\,000 per customer, including up to \\$250\,000 for cash claims.

ERISA

Federal law regulating employee benefit plans to ensure employers properly manage qualified retirement plans.

Telephone Consumer Protection Act of 1991

Federal law restricting telemarketing calls to between $8\text{:00 AM}$ and $9\text{:00 PM}$ in the called party's time zone and requiring company-specific and national do-not-call lists.

Code of Arbitration

An out-of-court dispute resolution process for industry and customer disputes that provides quicker, binding, and non-appealable decisions.

WSP (Written Supervisory Procedures)

A firm's formal written rules explaining how it supervises its employees and business activities to comply with FINRA rules and securities laws.

Common Stock

Standard equity ownership security providing voting rights and dividend potential, whose market value fluctuates with company performance.

Preferred Stock

Equity security paying fixed quarterly dividends with priority over common stock for dividend payments, but lacking voting rights.

Cumulative Preferred Stock

Preferred stock requiring the issuer to pay any omitted or skipped past dividends (dividends in arrears) before paying common stockholders.

Participating Preferred Stock

Preferred stock that provides guaranteed base dividends and allows holders to receive additional dividend distributions if company earnings surpass targets.

Convertible Stock

Preferred equity that allows the owner to convert shares into common stock, causing its price to move closely with the common stock.

Rule 144

SEC rule regulating the public resale of restricted and control securities acquired through non-registered private transactions.

Defensive Stock

Stocks of companies in resilient industries (utilities, tobacco, pharmaceuticals, food) that remain stable or perform well during economic downturns.

Cyclical Stock

Stocks whose business and share prices follow general economic expansions and contractions, such as housing, automotive, steel, and construction.

Warrants

Long-term derivative instruments granting the holder the right to purchase underlying shares of stock at a specified exercise price.

Rights

Short-term equity privileges issued to existing shareholders at a discount, allowing them to purchase new stock prior to a public offering.

Par Value

The stated face value of a bond, standard at \\$1\,000, which is repaid to the bondholder at maturity.

Percentage of Par

The measurement of a bond's or preferred stock's market price relative to its par value, calculated as: $\text{Percentage of Par} = \left(\frac{\text{Market Price}}{\text{Par Value}}\right) \times 100$.

Zero-Coupon Bond

A bond sold at a discount that pays no periodic interest payments but pays full par value at maturity.

Treasury Bills (T-Bills)

Short-term debt obligations issued by the U.S. government maturing in $1\text{ year}$ or less, issued at a discount without regular interest payments.

TIPS (Treasury Inflation-Protected Securities)

U.S. Treasury bonds whose principal value automatically adjusts upward or downward with inflation rates.

General Obligation (GO) Bonds

Municipal bonds backed by the full faith, credit, and taxing authority of the issuing government entity.

Revenue Bonds

Municipal bonds backed solely by revenue generated from a specific public project (such as toll roads or water utilities) rather than general taxes.

Feasibility Study

An independent financial study conducted prior to issuing municipal revenue bonds to assess if a project can generate enough revenue to cover debt service.

Firm Commitment Underwriting

An underwriting structure where the underwriter buys the entire security issue from the issuer, assuming all financial risk for unsold shares.

Best Effort Underwriting

An underwriting arrangement where the underwriter acts as an agent to sell as many securities as possible without purchasing the issue outright.

Commercial Paper

Short-term, unsecured debt issued by financially strong corporations to meet immediate operational cash needs, with maximum maturity of $270\text{ days}$.

Banker's Acceptance (BA)

A short-term money market instrument used to facilitate international trade transactions.

Current Yield

An investment yield metric calculated by dividing annual interest income by current market price: $\text{Current Yield} = \frac{\text{Annual Interest}}{\text{Current Market Price}}$.

Stock Dividend

A dividend paid in additional shares of stock instead of cash, which increases share count while maintaining overall portfolio value (e.g., $100\text{ shares}$ at \\$50 becomes $110\text{ shares}$ at \\$45.45 after a $10\%$ stock dividend).

Cost Basis

The total original price paid for an investment including fees and commissions, used for calculating taxable gains or losses: $\text{Cost Basis} = \text{Purchase Price} + \text{Commissions/Fees}$.

REIT (Real Estate Investment Trust)

A company that owns, operates, or finances income-producing real estate, allowing investors to trade real estate assets publicly like stock.

Discretionary Account

A brokerage account where a client grants written permission to a broker to execute investment decisions without client approval for each trade.

Call Option

A derivative contract granting the buyer the right, but not the obligation, to buy an underlying security at a specified strike price within a given timeframe.

Put Option

A derivative contract granting the buyer the right, but not the obligation, to sell an underlying security at a specified strike price within a given timeframe.

American-Style Option

An option contract that can be exercised at any point up to and including its expiration date.

European-Style Option

An option contract that can be exercised only on its exact expiration date.

5% Markup/Markdown Rule

A FINRA guideline stating that broker-dealers acting in a principal capacity should generally not charge markups or markdowns exceeding $5\%$ above or below current market price.

Market Order

An order to buy or sell a security immediately at the best available current market price.

Limit Order

An order to buy or sell a security at a specified price or better, where execution is not guaranteed.