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SIE > Chapter 1 Exam > Flashcards

Chapter 1 Exam Flashcards

1
Q

How does a corporation increase its capitalization over time?

A

Through retained earnings

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2
Q

A firm that handles and is held responsible for all paperwork associated with the execution of the transaction and maintains custody of clients assets and securities is a ?

A

Clearing Broker

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3
Q

What is Rule 147?

A

-80% of the issuer’s assets must be within the state
-80% of the net proceeds from the offering must be used within the state
-80% of the issuer’s gross revenues must come from business activities within the state

They cannot be sold outside the states for 6 months

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4
Q

What does a dealer do with the bid and ask price?

A

-Dealer buys at bid
-Dealer sells at ask

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5
Q

What is a security?

A

It is an investment contract offered through a legal entity managing the efforts for an expected profit.
Ex: Bond, Stock, Mutual Fund

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6
Q

What does the SEC require when reviewing prospectuses and registration statements?

A

-“No Approval Clause”
-They require prospectuses to be in bold and states the SEC does not approve or disapprove them.
- They do not guarantee adequacy or accuracy of information contained

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7
Q

Who requires registration and oversees the activities of BDs and RRs?

A

FINRA

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8
Q

What is CBOE?

A

They examine authority for broker-dealers engaging in the OPTIONS MARKET

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9
Q

What does the MSRB do?

A

They are the SRO that governs the broker-dealers and banks that engage in the municipal securities business.

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10
Q

What type of contracts do CBOE offer?

A

Trades are exchanged in Standardized options contracts.

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11
Q

What is Rule 144?

A

-This is how certain restricted stock can be sold to the public
-The rule states the stock must be from an issuer that has current public information available.

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12
Q

In a broker-dealer who negotiates with issuers when selling securities to the public?

A

Investment Banking

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13
Q

Who is paid from the underwriting spread?

A

-Selling Group
-Syndicate
-Managing Underwriter

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14
Q

What are the several subdivisions of the secondary market?

A

-Auction market is the trading of exchange-listed securities on stock exchanges.
-OTC Market trading of unlisted securities.
-Fourth Market is for direct trading between institutions.
-The Primary Market is where new issues are sold.

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15
Q

When do cash settlements be paid for?

A

Cash Settlement=”Same Day” (T=S)

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16
Q

When do corporate and municipal securities be settled?

A

This is done through regular way settlement (T+2)

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17
Q

What is a QIB?

A

They are an institution with a minimum of $100 million in securities on a discretionary basis.

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18
Q

What federal agency oversees the U.S securities market?

A

The Securities and Exchange Commision (SEC)

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19
Q

Who acts as the central bank of the United States?

A

The Federal Reserve

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20
Q

What does the Treasury Department do?

A

They are an executive agency responsible for promoting economic prosperity and ensuring the financial security of the U.S.

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21
Q

What does the FDIC do?

A

They protect bank account deposits in U.S. banks from bankruptcy.

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22
Q

What are Book Entry Settlements?

A

These are securities held in book-entry on the issuer’s books or in the brokerage accounts.
- The securities must be settled through a registered security depository (DTCC)
- A clearing agency will transfer ownership through bookkeeping entries.
- It applies to securities held in book-entry on the issuer’s books or in brokerage accounts.

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23
Q

What type of broker-dealer is typically used by hedge funds to settle trades that were executed through several different firms?

A

Prime Broker

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24
Q

What’s the Howey Test?

A

Investment of money
Common enterprise
Expectation of profit

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25
Q

What is the FDIC?

A

They protect bank account deposits

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26
Q

What does the Federal Reserve do?

A

Central bank of the U.S.
Maintains stability of the financial system
Responsible for monetary policy

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27
Q

What does the Department of Treasury do?

A

Executive agency
Economic prosperity

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28
Q

What does the IRS do?

A

Enforce the tax law

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29
Q

What is the North American Securities Administrators Association (NASAA)?

A

Uniform Securities Act
Blue sky law (state laws)

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30
Q

What is Equity?

A

Equity is stocks (Ownership), which is used for growth

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31
Q

What is Debt?

A

Debit is bonds, which are loans used for income.

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32
Q

What is Over the counter market for?

A

Its is a negotiated market and for unlisted securities.

33
Q

What is an Institutional Investor?

A

Entity making large scale security transaction

34
Q

What is a qualified institutional buyer?

A

Institution with more than a $100 million

35
Q

What does a Trustee do?

A

Protects bondholders interest.

36
Q

What does a Transfer Agent do?

A
  • Recordkeeping
  • Paper people
37
Q

What does a Broker do?

A

They act as an agency capacity and makes commission

38
Q

What does the Introducing Broker Dealer do?

A

Introduces the customer accounts to clearing Broker Dealer.
No custody

39
Q

What is Prime Broker?

A

Used for hedge funds and institutions

40
Q

What does a Clearning Broker Do?

A

Maintains the custody of the assets
Behind the scene

41
Q

What is Market Maker?

A

Stand ready to buy and sell security
Create efficiencies in the market
Helps to stable the market

42
Q

What does an Investment Advisor do?

A

Gives advice for compensation

43
Q

What does a Municipal Advisor do?

A

Provides advice for a municipal entity
- Advice for municipal securities

44
Q

What is the Depository Trst & Clearing Corp?

A

Provides:
- Institutional Trading Process
- Clearing
- Settlement Services

45
Q

What is the Initial Public Offering?

A

First time a corporations security is offered to the public

46
Q

What is a Follow on Offering?

A

New sale of additional securities (APO)
- Primary offering

47
Q

What are the main objectives of the Securities Act of 1933?

A
  • Provide investors with sufficient Information
  • Establish laws to prevent misrepresentation and fraudulent activities in the sales of
    securities
48
Q

What is a Syndicate?

A

A group of Broker dealers formed for large offerings and share the risk.

49
Q

What is the Selling Group?

A

Selling group has no risk and is paid for concession based on sales

50
Q

What is Firm Commitment Underwriting?

A
  • Commits to issuing all the offering
  • They purchase entire offering acting as a principal
51
Q

What is a Standby Underwriting?

A
  • The underwriter stands by to buy additional shares
  • Firm commitment
52
Q

What is Best Efforts underwriting?

A
  • They agree to do their best and will sell any unsold shares to the issuers
  • Agency Capacity
53
Q

What is “All or None” underwriting?

A
  • All MUST be sold or else it is CANCELLED
  • Need Escrow account
54
Q

What is “Mini-Maxi” underwriting?

A
  • If minimum is not met it can be cancelled
  • Need Escrow account
55
Q

What is the Registration Process?

A
  • Registration Statement is filed with the SEC
  • Registration statement = 20 day cooling off period
  • Preliminary Prospectus
56
Q

What is the Indication of Interest?

A
  • Provides information on the offering
  • Cannot accept money
57
Q

What is Due Diligence Meeting?

A

Review all information
Meetings are held at the end of cooling off period

58
Q

What is the Effective Date?

A
  • This is the date offering can be sold
  • SEC disclaimer is in front of the prospectus
59
Q

What is Preliminary Prospectus?

A
  • Also called Red Herring
  • During the cooling off period
  • Cannot accept cash (not an offer of sale)
60
Q

What is regulation D Private Placement?

A
  • Its a private offering
  • No more than 35 accredited investors
  • There’s a resale restriction of 6 months
  • For Restricted stock
  • No Prospectus required
61
Q

What is Rule 147 Intrastate Offering?

A
  • For instate offerings only
  • 80 % revenues, assets, proceeds are within the state
  • Under blue sky laws
62
Q

What is Restricted stock?

A

Restricted Stock - Unregistered stock)
- Rule 144 (6 month holding period, File Form 144 with the SEC)

63
Q

What is Rule 144A?

A

Allows trades of unregistered securities of unregistered stock

64
Q

What is the Regulation of exchanges and broker dealers?

A

Creation of the SEC

65
Q

What are the Secondary Market Subdivision?

A
  • Auction Market
  • OTC Market
  • Third Market
  • Fourth Market
66
Q

What is the Auction Market?

A

Its a listed market

67
Q

What is OTC Market?

A

For unlisted Securities

68
Q

What is the Third Market?

A

For sale by owner
- They are listed securities but can exchange OTC

69
Q

What is the Fourth Market?

A
  • For institutions
  • Dark Pools - So large trades dont affect the market
70
Q

What is Bid?

A

Market maker buys at bid
Investor sells at the bid

71
Q

What is ask?

A
  • Market maker sells at the ask
  • Investor buys at the ask
72
Q

What is Interposition?

A
  • Introduces a third party between them and the customer
  • Only allowed if better price for customers
73
Q

What is a trade Date?

A

Date order is executed

74
Q

What is a regular way settlement?

A

for Corporate and municipal security
T + 2

75
Q

When is Cash Settlement?

A

Same day settlement

76
Q

When is government Securities and options settlement?

A

T + 1
Next business day

77
Q

What is good Delivery?

A

Endorsement
Denomination
Physical Condition
CUSIP or ID Number
Customer’s obligation to deliver in a timely manner

78
Q

What is cost basis?

A

Original cost associated with purchase of a security

79
Q

What is the Liquidation Priority?

A

1st - Secured Creditors
- Taxes, Unpaid Wages, trade creditors
- Debenture holders
- Subordinated Debenture
- Preferred Shareholders
6th - Common Shareholders

SIE (12 decks)

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