Comprehensive Bullet-Point Notes for SIE/Series 7 Exam

EQUITY SECURITIES

  • Common Stock (C/S)
    • Raises equity capital; shareholders (SH) are part-owners with limited liability (max loss = ext{investment}; no responsibility for issuer’s debts).
    • Profit sources: cash/stock dividends, capital gains; theoretically unlimited upside.
    • Inflation hedge; performance tied directly to macro-economy ( + : ↓taxes/↓rates/↑GDP/↓unemp ; – : ↑taxes/↑rates/↓GDP/↑unemp).
    • 100-share round lot; never callable.
  • SH Rights
    • Receive certificates (registered or street name), inspect certain books, vote (BOD & major actions), receive declared dividends, residual claim on assets (liquidation priority: taxes → secured debt → unsecured → preferred → C/S).
    • Voting methods: statutory (1 vote/share/seat – benefits large SH), cumulative (total votes = shares × directors – helps small SH).
    • Super-voting shares keep control in few hands.
    • No right to demand dividends, dissolve company, or elect officers.
  • Share Class Status
    • Authorized ≤ Issued; Outstanding = Issued – Treasury; Treasury shares = no vote/dividend, reduce EPS, often repurchased to ↑EPS, acquisitions, ESOPs, anti-takeover.
  • Stock Positions
    • Long = bullish; Short = borrow, sell high, buy low, bearish (Reg T locate rule).
  • Key “Points” & Dates
    • 1 point = 1\$; regular-way settlement T+1 (equity); Reg T payment T+3; trade date vs settlement clarified.
  • Stock Classifications
    • Blue-Chip (≈ 50 % DPR), Growth (high P/E, reinvest earnings), Defensive, Cyclical/Counter-cyclical, Utilities (high DPR > 75 %, rate-sensitive, leveraged), Special-Situation.

Stock Splits

  • Forward split ↑shares ↓price; Reverse split ↓shares ↑price (often distress signal).
    \text{New Shares}=\text{Old Shares}×\text{Split Ratio}
    \text{New Price}=\dfrac{\text{Old Price}}{\text{Split Ratio}}
  • SH approval required; transfer agent adjusts records.

Equity Derivatives

  • Warrants: LT, exercise price > MV at issue; add “sweetener”, voluntary; transferable; no dilution protection.
  • Rights (RTS): ST (≤ 90 days), issued pro-rata to protect from dilution, subscription price < MV; 1 right/share.
    \text{Rights per New Share}=\dfrac{\text{Outstanding}}{\text{New Shares}}
    Choices: exercise, sell, gift, let expire (cannot redeem for cash with issuer).
  • Equity Options covered separately (see Options section).

Preferred Stock Fundamentals

  • Fixed-income equity; priority over C/S in dividends & liquidation.
  • Features: cumulative, callable (issuer-friendly), convertible (parity w/ C/S), participating, variable-rate.
  • Sensitive to rates (inverse); no vote, no pre-emptive right.

Dividends (Cash & Stock)

  • BOD declares; key dates: declaration, ex-div (one business day before record for regular-way), record, payable.
  • Cash dividends fully taxable (qualified rate ≈ 15 % federal).
    \text{Dividend per Share}=\text{Par}×\text{DPR}
    \text{Current Yield}=\dfrac{\text{Annual Dividend}}{\text{Market Price}}
  • Due-bill used for wrong-way transfers.

Real Estate Investment Trusts (REITs)

  • Portfolios of real estate or mortgages; must: distribute ≥ 90 % NI, ≥ 75 % assets in RE.
  • Types: Equity, Mortgage, Hybrid.
  • Trade like stock; dividends taxed as ordinary income (no pass-through of losses).
  • DPP-like benefits: diversification, inflation hedge, liquidity (listed issues).
  • Risks: rate sensitivity, over-building, economic downturn.

Direct Participation Programs (DPP)

  • Limited Partnerships (LP): conduit (K-1), no double tax; GP = unlimited liability/manager, LP = passive/limited to \text{at-risk}.
    \text{Adj Basis}=\text{At-Risk Inv}−\text{Deductions}+\text{Contrib.}
  • Pros: tax advantages, diversification; Cons: illiquidity, complex, potential assessments.

DEBT SECURITIES

Bond Basics

  • Par =1000\$; quoted in points (1\text{ pt}=10\$).
  • Coupon = nominal rate % of par, semi-annual.
  • Pricing: Discount (YTM > coupon), Par, Premium (YTM < coupon).
  • Structures: Term, Serial, Balloon, Series; Sinking funds add safety ↓yield.
  • Forms: Registered, Book-Entry (modern); bearer no longer issued.
  • Ratings: S&P (AAA→D), Moody’s (Aaa→C); investment-grade ≥ BBB/Baa.
  • Maturities: ST 1-3 yr, MT 4-10 yr, LT > 10 yr.
  • Yields:
    \text{Current Yield}=\dfrac{\text{Annual Interest}}{\text{Market Price}}
    YTM (basis) includes time-value & discount/premium; 1 % = 100 bp.
  • Duration = price sensitivity to rate changes; LT & low-coupon = ↑duration.

Corporate Bonds

  • Secured: Mortgage (open-end vs closed-end), Equipment Trust, Collateral Trust, Guaranteed.
  • Unsecured: Debenture, Subordinated, Income/Adjustment, Junk (≤ BB), “Fallen Angel”.
  • Zero-Coupon: deep discount, no periodic interest, annual accretion (phantom income), most volatile.
  • Callable (issuer option) – call protection important; refunding to lower rates.
  • Convertible: parity with C/S, lower coupon, formula \text{C/S Shares}=\dfrac{\text{Par}}{\text{Conversion Price}}.

Structured Products

  • CMOs: pools of mortgages; pay monthly; tranches (PAC, Companion, Z-bond); risks = prepayment (implied call) & extension; taxed federal/state/local.
  • CDOs: asset-backed pools (loans, bonds), tranche by risk.
  • SOFR = reference for floating tranches.

Government & Agency Debt

  • Treasury Bills: <1 yr, sold at discount, taxed federal only, quoted yield basis.
  • Treasury Notes (2-10 yr) & Bonds (10-30 yr): semi-annual coupon, quoted 32nds, T+1 settlement secondary.
  • TIPS: principal indexed to CPI, inflation hedge; interest = fixed × inflated principal.
  • STRIPS/Receipts: zero-coupon from stripped T-securities.
  • Savings Bonds (EE): non-marketable, interest at redemption.
  • Agencies: FNMA, FHLMC, GNMA (GNMA backed by US Govt).

Municipal Securities

  • GO (tax-backed, voter approval) vs Revenue (project backed, no debt limit).
  • Industrial Development Bonds = private-activity; interest may be AMT preference.
  • Tax-Equivalent Yield: \text{Corp Yield}=\dfrac{\text{Muni Yield}}{1−\text{Tax Rate}}.
  • Short-term notes: TAN, RAN, TRAN, BAN, GAN, CLN.
  • Variable-rate muni: VRDO, FRN, ARS.
  • BABs: taxable muni w/ 35 % fed subsidy or credit.

Money-Market Instruments

  • T-Bills (most liquid), Commercial Paper (≤ 270 d), Negotiable CDs (≥100 k), Banker’s Acceptances (finance imports, least liquid), Fed Funds, Repos.

OPTIONS

Basics & Definitions

  • Contract = 100 shares (adjusted for splits/dividends).
  • Positions:
    • Long Call = bullish, right to buy, \text{BE}=E+P.
    • Short Call = bearish/neutral, obligation to sell, unlimited loss.
    • Long Put = bearish, right to sell, \text{BE}=E−P.
    • Short Put = bullish/neutral, obligation to buy, max loss = E−P (if uncovered).
  • Intrinsic value never < 0; time value decays to expiration.
  • Premium moves $1-for-$1 once in-the-money.

OCC & Trading Rules

  • OCC = issuer/guarantor; style: American (any time) vs European (expiration).
  • Expiration: 3rd Friday, trading halt 4 pm ET; exercise deadline 5:30 pm; auto‐exercise ≥0.01 ITM.
  • Assignment: OCC → B-D (random) → customer (random/FIFO).
  • Opening rotation = earliest expirations lowest strikes first; only public & limit orders.
  • Position & exercise limits aggregated by “side of market”.

Hedging Applications

  • Protective Put (long stock + long put) = downside hedge.
  • Covered Call (long stock short call) = income, conservative.
  • Married Put (buy stock & put same day) – establishes new basis.

LEAPS & Alternative Options

  • LEAPS: up to 3 yrs; equity contract = 100 shares, index = 100×\text{index}; marginable (75 % premium) if > 9 mo to exp.
  • Index Options: cash-settled (OEX, SPX, etc).
  • VIX: volatility hedge (buy calls when expect ↑volatility/↓market).
  • FX Options: hedge currency exposure (calls = stronger foreign currency vs USD).

Option Account Procedures

  1. Deliver ODD at/before approval.
  2. Principal/ROP approval prior to first trade.
  3. Option Agreement signed/returned within 15 days (else liquidate only).
  4. Background info verified within 15 days; updates for material changes.

INVESTMENT COMPANIES

Structure & Types

  • Act of 1940 classifies: Face-Amount Certificate, UIT (fixed trust → redeemable), Management Companies (Open-End = mutual fund; Closed-End = listed PTC).
  • Diversified test: ≥ 75 % assets → ≤ 5 % per issuer & ≤ 10 % voting stock.
  • Open-End: continuous primary offering, redeemable at NAV (forward pricing), max sales load 8.5 % (FINRA).
    \text{NAV}=\dfrac{\text{Assets}−\text{Liab}}{\text{Shares}}.
  • Closed-End: one-time IPO, trade secondary @ discount/premium, commissions not sales load.
  • BDC = closed-end that lends to small cos; 90 % income distribution.

Mutual Fund Share Classes

  • Class A (front-load, breakpoints, lowest 12b-1).
  • Class B (CDSC, convert to A).
  • Class C (level load, ST investors).
  • Breakpoints, Letters of Intent (13 mo, back-date 90 d), Rights of Accumulation, Reinstatement, NAV-transfer rules.

Specialty Funds & ETFs/ETNs

  • Money-Market funds (≤90-day WAM, maintain 1\$ NAV, no load, daily div).
  • Index funds (passive, low expense).
  • Sector/Specialty, Balanced, Growth, Income, International, Gold, Target-Date, Interval funds.
  • ETF: trades intra-day, marginable/shortable, low expense; settlement T+1.
  • ETN: unsecured bank debt linked to index, credit risk, no tracking error.

Prospectus & Reporting

  • Summary Prospectus (key facts); Statutory (full); must be updated annually (no > 16 mo data).
  • Statement of Additional Information on request (3 bd delivery).
  • Reports: semi-annual to SH; funds file annuals with SEC.

VARIABLE INSURANCE & ANNUITIES

  • Variable Life: separate account, death benefit min + variable excess, loans vs CSV; prospectus required; AIR concept.
  • Variable Annuity: accumulation units (NAV daily) → annuity units (monthly) using AIR; payout options life, J&S, unit refund, etc.
    \text{Annuity Units}=\text{Accum Units}×\dfrac{\text{NAV}}{\text{AIR PV}} (conceptual).
  • Taxation: earnings tax-deferred; qualified (pre-tax) fully taxable; non-qualified LIFO earnings taxable only.
  • Surrender charges (7-10 yr), bonus credits, 1035 exchanges, premature withdrawal 10 % penalty < 59½.
  • Suitability & training rules; not suitable inside IRA unless additional features desired.

RETIREMENT & EDUCATION PLANS

  • Traditional IRA: contribute ≤ 7 000 (add 1 000 catch-up ≥ 50); deductible if within AGI limits & not active in plan; RMD at 73; 10 % penalty early (exceptions).
  • Roth IRA: after-tax, tax-free qualified withdrawals, no RMD; income limits.
  • SIMPLE (≤100 employees): salary deferral + employer match.
  • Qualified Plans (ERISA): Defined-Benefit (actuarial), Defined-Contribution (401(k), Profit-Sharing).
  • 401(k) elective deferral 23 000 (+7 500 catch-up). Roth 401(k) combines after-tax w/ plan rules.
  • Keogh (SEP) for self-employed.
  • 403(b)/TSA for schools & 501(c)(3) – invests in annuities/mutual funds.
  • Rollovers within 60 days to avoid tax; once/yr IRA-to-IRA.
  • 529 Plans: state-sponsored; after-tax, tax-free qualified; ≤10 k permitted for student loans; owner controls, change beneficiary; muni fund security (disclosure via MSRB EMMA).
  • Coverdell ESA: 2 000/yr/child, income phases out, use by age 30.
  • ABLE: tax-advantaged accounts for disabilities (onset < 26).

INVESTMENT BANKING & NEW ISSUES

  • IB functions: underwrite, advise M&A, syndicate.
  • Agreements: Firm Commitment, Best Efforts, All-or-None, Stand-By.
  • Spread = manager fee + underwriting concession + selling concession.
  • Registration (Act ’33): file S-1; cooling-off ≥ 20 days; red-herring used for indications (non-binding).
  • Final Prospectus delivered by confirmation; stabilization bids ≤ POP.
  • FINRA 5130 restricts IPO sales to restricted persons (B-Ds, insiders, family > 10 % interest).

MARKET STRUCTURE & TRADING

  • Exchanges (DMM) vs OTC (Market Makers).
  • Order types: Market, Limit, Stop (SL/BS above, BL/SS below), GTC, Day.
  • Ex-date adjustments: BL/SS reduced by dividend unless DNR; reverse split cancels open orders.
  • Short selling in margin only; locate rule (Reg SHO).
  • Settlement: Equities T+1; Govies T+1; Options T+1; Cash same-day; Reg‐T payment T+3.
  • Clearing: DTCC/NSCC CNS; CAT records orders; TRF (equity), RTRS (muni).
  • 5 % Policy on mark-ups (guideline).

MARGIN RULES

  • Reg T: initial 50 % (long) or \max(\$2 000,50\%); short minimum \$2 000; maintenance NYSE 25 % long / 30 % short.
    \text{Equity}=\text{MV}−\text{Debit}.
  • SMA = excess equity; buying power = 2× SMA.
  • Hypothecation & rehypothecation up to 140 % debit.

CUSTOMER ACCOUNTS & REGULATIONS

  • KYC: name, address, DOB, SSN, occupation, objectives; verify within 30 d, update 36 mo; CIP within 5 d (PATRIOT Act).
  • Trusted Contact optional for seniors; FINRA temp hold on disbursements (15 +30 d).
  • Account types: Individual, JTWROS, TIC, TOD, Corporate (resolution), Partnership, Trust, UGMA/UTMA, Prime Brokerage, Day-Trader (25 k).
  • Discretionary requires POA; time/price discretion good for day.
  • Privacy (Reg S-P), AML (FinCEN, CTR >10 k, SAR ≥5 k within 30 d), OFAC checks.

ASSOCIATED PERSONS & SRO RULES

  • Registration exams: SIE + Series 7/6/22/57/79/24/27/99 etc.; U4 filing; U5 within 30 d of termination; CE (annual firm, annual regulatory).
  • Statutory disqualifiers: felony/financial misdemeanor ≤ 10 yr, SEC bar, etc.
  • Gifts ≤ 100/yr; entertainment reasonable; no sharing commissions w/ unregistered.
  • Private securities transactions (“selling away”) require written notice & approval.
  • Borrowing/lending with customers only under permitted relationships (family, same firm, personal pre-existing, financial institutions).
  • Complaints retained 4 yr; OSJ review; FINRA BrokerCheck public info.

COMMUNICATION WITH PUBLIC (FINRA 2210)

  • Categories: Institutional (no pre-approval), Retail (≥25 retail/30 d, principal pre-approval), Correspondence (<25).
  • Content: fair, balanced, no promissory language; identify member name; legends/footnotes okay if clarity kept.
  • Filing: 3 yr retention; certain new ads filed with FINRA 10 bd prior/after first use.

ECONOMICS & THE FED

  • Monetary Policy (Fed):
    • Open-Market Ops (buy = inject reserves, ↓rates; sell = drain).
    • Discount Rate (primary credit).
    • Reserve Requirement (rarely changed).
    • Margin (Reg T) & Moral Suasion.
  • Fiscal Policy (Congress/Treasury): taxation & spending.
  • Key Rates: Prime > Broker Call > Discount > Fed Funds (most volatile).
  • Money Supply: M1 (cash/DD), M2 (+savings, MMFs), M_3 (+large CDs).
  • Indicators: Leading (building permits, orders, stock prices, M_2), Coincident (income, production, payroll), Lagging (inventory, prime rate).
  • Yield Curves: normal (upward), inverted (tight money), flat (uncertainty).
  • Exchange rates: strong ↓ exports; balance-of-payments flows; IMF & World Bank roles.

INSOLVENCY & SIPC

  • SIPC covers customer cash/securities up to \$500 000 (cash ≤ \$250 000) per separate capacity; claims above → general creditor.
  • Trustee liquidates, not commodities or futures.

LIFE CYCLE OF CORPORATE FINANCE

  • Bankruptcy: Ch 7 liquidation; Ch 11 reorganization; Ch 13 wage-earner plan.
  • Liquidation priority matches earlier list; common last.

FINANCIAL STATEMENTS & RATIOS

  • Balance Sheet: \text{Assets}=\text{Liab}+\text{Equity}; liquidity analysis (current, quick).
  • Income Statement pathway: Sales → EBIT → EAT → EPS.
  • Cash-Flow Statement tracks operating/investing/financing flows.