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SIE LICENSE > Chapter 1 > Flashcards

Chapter 1 Flashcards

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1
Q

What is a bond?

A

A debt obligation in which the borrower promises to pay a set coupon rate until the issue matures, at which time the principal is repaid

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2
Q

What is a broker/dealer?

A

A firm that effects securities transactions for its own account or for the accounts of others

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3
Q

What is a futures contract?

A

A standardized commodities or securities contract to deliver a certain quantity at a predetermined future price and date.

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4
Q

What is a margin account?

A

A brokerage account that allows investors to purchase securities with borrowed funds using credit extended by the broker/dealer

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5
Q

What is a member firm?

A

Broker/dealer belonging to a self-regulatory organization (SRO) , such a FINRA or NYSE or both.

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6
Q

What is a mutual Fund?

A

A professionally managed open-end investment company issuing redeemable securities in a continuous offering of shares

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7
Q

What is an option?

A

A security giving the holder the choice to either purchase or sell a security at a set price for a specific period.

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8
Q

What is a prospectus?

A

A full and fair risk disclosure document required by the SEC for all new offerings of nonexempt securities.

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9
Q

What is a security?

A

A financial instrument that has monetary value and can be traded between parties.

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10
Q

What is a self-regulatory organization (SRO)?

A

An organization that is authorized to enforce standards and requirements related to securities trading and brokerage?

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11
Q

What is a stock?

A

A type of security that represents ownership in a corporation.

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12
Q

What is an underwriter?

A

A broker/dealer or an investment bank that helps a company in offering and distributing securities to the public.

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13
Q

The USA PATRIOT ACT stand for what?

Why was it enacted?

A

United and strengthening America by providing appropriate tools required to intercept and obstruct terrorism.

  • It was enacted to address homeland security and fight terrorist activities with a focus on anti-money laundering.
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14
Q

Who should register with the SEC?

A

broker/dealers and federally covered investment advisers that conduct securities business in the U.S.

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15
Q

What is the EDGAR database stand for and its purpose?

A

Electronic Data Gathering, Analysis, and Retrieval

  • SEC requires companies to file disclosure documents, which are available to the public on the EDGAR databse.
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16
Q

What does the North American Securities Administrators Association do (NASAA) ?

A

An organization of securities regulators with the goal of protecting customers from fraud.

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17
Q

Examples of SRO’s.

A

FINRA - Financial Industry Regulatory Authority
CBOE - Chicago Board Options Exchange
MSRB - Municipal Securities Rule Making Board

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18
Q

After how long, must the SRO conduct an inspection of a broker/dealer member once they have registered with the SEC?

A

within 6 months

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19
Q

How much protection does the Securities Investor Protection Corporation (SIPC) grant customers?
What does the SIPC do?

A

Grants up to $500,000 per customer, which includes a maximum of $250,000 in cash

  • It protects the funds of customers in a brokerage account.
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20
Q

How much protection does the Federal Deposit Insurance Corporation grant customers?

What does the FDIC do?

Study These Flashcards
A

Grants up to $250,000 per customer.

  • It protects the funds of customers in a bank (checking/savings)
21
Q

Who is known as a dealer?

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A

A firm that effects trades for its own account.
It is acting in a principal capacity.

  • A dealer must register under the Uniform Securities Act in any state operating unless an exemption applies
22
Q

Who is known as a broker?

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A

A firm that effects trades for the accounts of others. Also known as an Agency.

  • A broker must register under the Uniform Securities Act in any state operating unless an exemption applies
23
Q

What is a prime broker?

Study These Flashcards
A

They are a full service broker/dealer offering investment banking and security services to clients with more complex financial needs, such as hedge funds and other professional investors.

24
Q

What is a clearing broker?

Study These Flashcards
A

Handles buy/sell orders and maintains custody of securities.

25
What is an introducing broker?
Accepts, but does not execute, orders and does not maintain custody of securities.
26
What is an accredited investor?
an investor who can buy unregistered securities, by virtue of an exception in the rules.
27
What proof is needed for a natural person to be able to be an accredited investor?
A single person must have within the two previous years prove income of $200,000. A married or joint couple must prove $300,000 in the previous to years and show that they expect at least the same during the current year.
28
Who are some of the people/companies that are not considered investment advisors?
- Banks, savings institutions, or trust companies - Publishers of newspapers, magazines - Any person so designated by the state administrator or exempt by the SEC - L.A.T.E. (Lawyers, Accountants, Teachers, Engineers) *Must be incidental to the services that they are providing
29
What is an institutional investor?
Includes mutual funds, insurance companies, pension funds, and investment companies.
30
What is an investment advisor?
Firm that is paid a fee in its regular course of business to advise others on the merits of buying and selling securities.
31
What is a municipal advisor?
Person or firm that provides advice on behalf of a municipal entity or official with respect to municipal financial products or issuing municipal securities.
32
What is the spread in regards to over the counter markets?
It's the difference between the bid and ask price.
33
What is a market maker?
It's a member of a stock exchange that provides liquidity in a security by holding shares of the stock which enables it to buy and sell at will.
34
What is a custodian?
is a financial institution , such as a bank or trust company, that is responsible for safeguarding the securities of customers. - A mutual fund must have a custodian for safekeeping,, to maintain electronic records of financial assets or physical possession of securities, and to provide administrative or operational support.
35
What is a trustee?
Is a fiduciary in charge of overseeing the day-to-day management of assets. A trustee is often an institution such as an investment firm or other financial institution, with a board elected or appointed to direct the funds and policy of a institution. The trustee is responsible for the maintenance, performance and profitability of the trust.
36
What is a transfer agent?
Companies that have publicly traded securities typically use transfer agents to keep track of the entities and the individuals that own their stocks and bonds. Most transfer agents are banks or trust companies, but sometimes a company acts as its own transfer agent.
37
What are the 3 main functions of a transfer agent?
1. Issue and cancel certificates to reflect changes in ownership 2. Act as an intermediary for the company as the followin: - PAYING AGENT - pay out interest, cash, and stock dividends or other distributions - PROXY AGENT - send out proxy materials - EXCHANGE AGENT - exchange a companies stocks or bonds - TENDER AGENT - tender shares in tender offering 3. Handle lost, destroyed, or stolen certificates
38
What is an issuer?
Corporation, investment fund, or government entity that issues securities to investors
39
What are depositories?
Hold security certificates and maintains ownership records
40
What is a clearing corporation?
Handles confirmation, settlement, and delivery of transactions.
41
Under regulation T, if a customers account is frozen for 90 days, may do what with their accounts?
Purchases on a cash basis only.
42
Securities act of 1933
Governs the new issue market
43
Securities exchange act of 1934
Governs trading in the secondary market
44
Maloney act of 1938
Created self regulatory organizations (RSO's)
45
Investment company act of 1940
Oversees investment management companies
46
Investment advisors act of 1940
Requires investment adviser registration
47
Securities investment protection act of 1970
Protects customer brokerage accounts against broker insolvency
48
Employee retirement income security act of 1974 (ERISA)
Set standards for retirement and health benefit plans

SIE LICENSE (3 decks)

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