SIE - All Definitions

Accredited Investor

In order to be defined as an accredited investor, a person must have a net worth of at least $1 million (excluding his primary residence) or (not and) gross annual income of at least $200,000 in each of the last two years

Ask or Offer Price

The price at which dealer will sell security

Bid Price

The price a dealer is willing to pay for a security

Broker

A person that executes agency transactions in securitis for the account of OTHERS

Dark Pool

A place for large institutional investors and high-frequency traders to trade directly with one another

Dealer

A person engaged in the business of buying securities for, and selling securities from, their own account

Designated Market Maker (DMM)

On an exchange, the entity that controls the trading in a given stock is referred to as a designated market maker (DMM)

Fully Disclosed Account

Many introducing firms operate through a clearing firm on a fully disclosed basis. This means that information about each of the individual customers of the introducing firm will be transmitted to the clearing firm and the clients’ assets will be held at the clearing firm. With an omnibus account, the introducing broker-dealer still sets up an account with the clearing broker-dealer, but maintains the information on each individual customer

Institutional Investor

Institutional investors are typically large entities that pool their money to purchase securities. Institutional investors include banks, insurance companies, pension plans, endowments, and hedge funds. FINRA’s “institutional account” definition also includes an account of an individual or other entity with total assets of at least $50 million

Introducing Broker Dealer

A BD using another BD to handle cash and securities, trade executions, reporting, clearing, and confirmation

Market Maker

A person who enters quotes and stands ready to buy and sell securities for his own account on a regular basis

Omnibus Agreement

A clearing firm does not have information on each individual customer of an introducing firm

Operations Department (of BDs)

Processes paperwork, handle fund and securities transfers, and settles and confirms transactions

Over-the-Counter (OTC) Market

The decentralized, negotiated market

Pink Market

A real-time electronic quotation system for OTC equities

Prime Broker

A BD that clears and settles trades effected by one or more executing brokers at the direction of the customer

Prime Brokerage Account

The client trades through multiple BDs, but has its trades cleared and settled with one prime BD (example clients: Hedge Funds)

Prime Brokerage Arrangement

A situation in which multiple BDs execute a client's trades and report them to one independent BD for settlement

Principals of BDs

Responsible for supervising registered employees

Qualified Institutional Buyer (QIB)

An entity that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers

Registered Representative

Someone who is authorized to buy and sell securities for clients; Employed by a BD

Research Department (of BDs)

The department of BDs that writes reports about markets and securitiesfor investors

Self-Regulatory Organization (SRO)

SROs enforce the conduct, and trading practices of the securities industry. The SROs include all the national SECURITIES EXCHANGES as well as the NASD, which represents all the firms operating in the over-the-counter market, and the Municipal Securities Rulemaking Board. Rules made by the MSRB are enforced by the NASD and bank regulatory agencies.

The Forth Market

Market for institutional investors in which large blocks of stock, listed and unlisted, trade in transactions UNASSISTED BY BD's. Open 24 hours a day through ECN (electronic communications network).

The New Issue Market

The market on which new securities are offered. Also known as the "Primary Market"

The Primary Market

The market on which new securities are offered. Also known as the "New Issue Market"

The Secondary Market

The market in which previously issued securities are traded amongst investors

The Third Market

Refers to OTC trading of exchange-traded securities

Trading Department (of BDs)

BD Department that executes securities transactions

Securities Act of 1933

The first major federal law regulating the securities industry. It requires firms issuing new stock in a public offering to file a registration statement with the SEC.

Securities Investor Protection Corporation (SIPC)

Protects separate customers in the event of BD bankruptcy; NOT part of the US Government; Does NOT insure client assets, only protects against firm bankruptcy

The Investment Advisors Act of 1940

US federal law that governs Investment Advisors

Wrap Account

When an investment adviser charges one fee to cover the costs related to investment advisory services plus transaction costs, it's referred to as a wrap account (and the fee is referred to as a wrap fee)

Authorized Shares / Authorized Stock

The number of shares that a company is permitted to issue

Growth Stock

A growth stock is associated with a company whose sales, earnings, and share of the market are expanding faster than the general economy. Since this type of company retains most of its earnings to finance expansion it pays little or no cash dividends.

Rights Offerings

In a rights offering, all existing common stockholders automatically receive one right for every one share they own. However, since the investor in this question owns preferred stock, she will not receive any rights

Warrants

Warrants are long-term and some may be perpetual. Warrants give the holder the ability to convert the warrant into the common stock of the same corporation at a subscription price that's initially set higher than the current market value.

Balloon Maturity

A bond offering that's issued on the same date, but with small amounts maturing in the early years and a large amount maturing at the end

Serial Maturity

A bond offering that's issued on the same date, but that matures at different times

Alternative Investment

An investment that does not fit into one of the three traditional asset types (stocks, bonds, and cash)

Call Protection

The number of years after issuance during which bonds may not be called by the issuer

Chicago Board Options Exchange (CBOE)

The SRO for exchange-traded options

Clear(ing) a Trade

The end-of-day process of matching trades executed by a BD to detirmine what is owed

Clearing Firm

A firm responsible for processing and settling customer transactions, as well as maintaining custody of customer cash and securities.

Control Security

A security received or purchased by an affiliate of the issuer, such as a director, officer, or major shareholder

CUSIP Numbers

Seriel Numbers that identify securities (e.g. each maturity of a bond offering)

Deflation

The general decline in price levels

Depository Trust & Clearing Corporation (DTCC)

A clearing corporation with the primary role of facilitating the exchange, payment, and settlement processes for security transactions

Electronic Communication Network (ECN)

Any one of several systems which permit the entry and dissemination of quotes

Exempt Security

A security that is not subject to the registration provisions of the Securities Act of 1933

Federal Deposit Insurance Corporation (FDIC)

To insure bank deposits and also to examine and supervise financial institutions for safety and soundness

Form U6

Reports disciplinary actions against registered representatives and firms, as well as final arbitration awards

Front-Running

The prohibited practice of a BD trading for its own account ahead of a customer's block order

Investment Banking Department (of BDs)

Handles the underwriting and issuance of securities for clients

Local Government Investment Pools (LGIPs)

Created by state and local governments for municipal entities to invest their excess cash

Margin Account

Type of account where uncovered positions are created

Mortgage Bond

The type of bond where bondholders have a lien on real property

Municipal Advisors

A type of advisor that provides advice either to states, counties, or cities

Narrow Spread

Small difference(s) between bid and ask price

Net Asset Value (NAV)

The value of the fund's assets per share

Non-Carrying Firm

A BD that does not hold a customer's cash or securities

Options Clearing Corporation (OCC)

Guarantees and issues all exchange-listed option contracts

Private Investment in Public Equity (PIPE)

A private sale (i.e. exempt) by an issuer that has previously sold registered (i.e. publicly traded) securities

Public Offering Price (POP)

The price investors pay to buy shares

Reverse Stock Split

A corporate action through which a corporation DECREASES its number of outstanding shares

Risk-Adjusted Returns

Measures how much an investment returns in relation to the risk that was assumed to attain it

Selling Away

The execution of transactions by an associated person outside his employment with a member firm

The Declaration Date

The date on which a dividend is authorized by the company

The Underwriting Spread

The difference between what the syndicate pays the issuer for the new issue and the public offering price

Total Takedown

The underwriter's fee plus the seller's concession

Trading Ahead

Buying or selling securities just before the release of a research report by the firm's research department

Wide Spread

Large difference(s) between bid and ask price