CHAPTER 1 Flashcards
(22 cards)
What are and what are NOT securities?
Securities are intangible financial assets that are bought or sold:
- Stocks
- Bonds
- Mutual funds
- Limited partnerships
- Options
- Munis
They are NOT:
- Commodities
- Metals
- Currency
- Futures
- Personal residences
How do companies raise money?
Issue stock or issue debt
Authorized stock
Corporation has written into its charter the amount of shares that it is authorized to sell to raise capital. Usually company does not raise all the authorized shares but just enough but it can issue all the authorized shares that it has. If it wants to sell more it needs to amend the charter.
Issued Stock
This is authorized stock that has been sold to investors. Those investors bought the stock and the company received the money. Authorized but unissued stock does not carry rights of issued shares and is not used in determining a company’s market cap or value.
Outstanding Stock
All shares that a company has issued and are in the hands of stockholders. Sometimes different if a corp buys back shares.
Treasury Stock
Stock a corp has issued then bought back later. They can hold this, reissue, or retire it. Does not have the same rights of outstanding common shares like voting or dividends. Not used for determining value.
Different Market Caps
Large: Over $10 billion
Mid: $2B-$10B
Small: $250M-$2B
Penny Stock
Unlisted security trading at less than $5
Highly speculative
SEC required customers by given copy of risk disclosures
Penny Stock selling rules
BD must receive signed acknowledgement and provide monthly account statement to customer
IF COLD CALLING:
- Need suitability and disclosure requirements of:
- name of stock, number of shares, current price, and commission received
Established Customer of Penny Stock
Either
- Held an account with BD for 1 year and have deposited securities or cash
OR
- Made 3 penny stock purchases of different issuers of different days
They do not need suitability BUT STILL NEED DISCLOSURE WHEN SOLICITED
Unsolicited Cold Calls for Penny
Exempt from suitability and disclosure
Types of dividends
Cash: Paid out to you
Stock: Paid in stock
Product: Paid as product
Dates of Dividend Payments
DERP
Declaration (set by BoD): company approves (can also change or cancel) and designate payable date
Ex-Div: Set by exchange (if no exchange then FINRA) usually the same as record. Need to buy stock day before (settle on Ex-Div) to actually get the dividend
Record (set by BoD): Stockholder who owns it on this date gets it
Payable: (set by BoD): When it get paid out
Voting rights
ONLY COMMON STOCK
Statutory: Your shares for each seat (200 shares for seat A and 200 for seat B)
Cumulative: Your total amount times seats available any way you want (200 shares x 2 seats = 400 votes any way you want it to go)
Statutory better for large and cumulative for small
Rights of shareholders
Right to info: have rights to the Corp’s books and financial statements
Preemptive rights: NOT FOR PREFERRED, Common have right to keep their percent of ownership in tact if more shares are being issued.
Are dividends guaranteed?
NO
Dissolution priority
Debt -> Preferred -> Common
Preferred Stock
Fixed rate with elements of stock and bonds
Dividend stated in the bond
NO VOTING RIGHTS AND NO PREEMPTIVE RIGHTS
Types of Preferred
Noncumulative: Get your dividend when it gets paid out, before common
Cumulative: Prior unpaid dividends get first priority when dividends eventually get paid, cumulative first, the noncumulative, then common
Callable: Company can buy the stock back usually at a premium
Convertible: Owner can exchange these for a fixed number of shares of common stock. Lower dividend usually with these for that reason because they are usually converted.
Adjustable Rate: Issued with adjustable dividend rates tied to T-bills. Issuer determines frequency of adjustments and price remains stable. BAD OPTION FOR FIXED INCOME
Participating: Offer owners an additional share of corporate profits after all other dividends are paid
Do common stockholders have a limited right to examine the minutes of meeting by BoD?
YES
Do penny stocks include listed and unlisted securities?
NO - ONLY unlisted
If listed then not a penny stock
What are straight preferred shares?
Non-cumulative
