SIE Flashcards
(167 cards)
1
Q
legislation targeted at the securities regulation industry, particularly the issuers of securities, such as companies seeking capital to fund their growth. This law requires issuers to comply with a series of rules, including disclosing all material company information, in order to protect investors from fraud.
A
The Securities Act of 1933
2
Q
Regulates securities trading that takes place over the secondary market. Issuers are required by Congress to disclose information pertinent to the sale of their securities, and certain Issuers are required to file periodic reports with the SEC such as an annual report. These Issuers have over $10 million in assets and their securities are held by more than 500 owners
A
The Securities Exchange Act of 1934
3
Q
Limits the advertising investment advisers may engage in.
A
The Investment Advisers Act of 1940
4
Q
What defines an accredited investor
A
individual/couple with net worth exceeding $1 million, or which earned in excess of $200K / $300 K for three successive years.
5
Q
Regulates the organization of companies, including mutual funds and unit investment trusts, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public.
A
The Investment Company Act of 1940
6
Q
the SEC requires what percentage of investment company assets to be in liquid securities, for which there are readily available market prices.
A
85%
7
Q
largest options exchange in the world
A
Chicago Board Options Exchange
8
Q
Tasked with writing and enforcing rules and procedures for investment firms and banks who sell municipal bonds, notes, and other municipal securities.
A
Municipal Securities Regulatory Board (MSRB)
9
Q
Under the Bank Secrecy Act, what dollar amount must be summited as a currency transition report (CTR)
A
FinCEN’s primary role is to detect and prevent national and international money laundering attempts. Working under the Bank Secrecy Act (BSA), they require banks and other financial institutions to abide by reporting and recordkeeping rules as well as to submit a currency transaction report (CTR) for any transaction involving $10,000 or more of currency.
10
Q
Federal Deposit Insurance Corporation (FDIC): provides deposit insurance to U.S bank depositors of up to what amount?
A
It provides deposit insurance of up to $250,000 per depositor.
11
Q
Securities Investor Protection Corporation (SIPC) insures up to what amount in cash in their brokerage accounts.
A
$250,000
12
Q
Also known as individual investors, X are individuals who buy and sell public debt and equity securities through their retirement or brokerage accounts.
A
Retail Investors
13
Q
Can be an individual or an entity. X must meet certain requirements related to their net worth, income, qualifications, experience, or certifications. Once they reach this status, they are permitted to trade in private securities not registered with the SEC, including private placements and venture capital.
A
An accredited investor
14
Q
Individuals are considered to be accredited if they meet the following criteria
A
Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
Any natural person whose individual net worth, or joint net worth with that person’s spouse or spousal equivalent, exceeds $1,000,000.
15
Q
These investors can only be legal entities, such as real estate investment trusts, venture capital funds, insurance companies, credit unions, banks, pension funds, hedge funds, and mutual funds. These investors trade in securities on behalf of their clients or shareholders and they buy and sell in large quantities.
A
Institutional
16
Q
an entity that trades in securities on behalf of its clients
A
Broker
17
Q
Trades on behalf of itself.
A
dealer or principal
18
Q
only service large financial institutions as a way for those institutions to outsource certain activities, such as trade clearing and settlement or risk and performance analysis.
A
Prime Broker
19
Q
Have a legal obligation to act in the best interests of their clients.
A
fiduciaries
20
Q
Firms that provide municipal advisory services are required to register with which agencies
A
SEC and the MSRB
21
Q
legal entities that fund their operations by selling securities (such as common stock) to investors
A
Issuers
22
Q
Facilitate the sale and distribution of an issuer’s securities by pricing the securities, purchasing the securities directly from the issuer, and then finally selling the securities to investors. takes on financial risk in order to earn a fee
A
Underwriter
23
Q
entity (typically a bank or brokerage firm) that actually holds the assets for safekeeping.
A
Custodian
24
Q
buy or sell securities of a defined set of companies to broker dealers who are members of the exchange.
A
market makers
25
Act as intermediaries between securities issuers and securities holders. They are primarily responsible for maintaining security holder records and distributing dividends on behalf of the issuing company.
Transfer agent
26
manages the daily clearing and settlement processes for most securities transactions in the United States.
Depository Trust & Clearing Corporation (DTCC)
27
When a corporation offers shares of ownership (stock) to public investors for the first time.
IPO
28
When a corporation offers additional shares to the public following their initial public offering.
Follow-On/Additional Public Offering (APO)
29
When a corporation is raising capital to a limited group of investors rather than the investing public
Private Placement
30
Companies issue new securities directly to individual and institutional investors through the primary market as a way to raise capital.
Primary Market
31
Facilitates transactions in securities that are not sold directly by the issuer.
Secondary Market
32
NYSE Trading Hours
9:30 am ET and closes at 4:00 pm ET.
33
Insiders
officers, directors, investors owning 10% or more of the stock of the issuer, and the immediate family members of those individuals
34
When an issuing company decides to buy back some of its own stock
Treasury Stock
35
Allows for over-the-counter (OTC) trading of exchange-listed securities between institutional investors and broker-dealers.
Third Market
36
Allows for institutional investors to trade large blocks of securities directly between each other.
Fourth Market
37
Certificates that represent shares of a foreign company’s stock
American Depositary Receipts (ADRs)
38
An offering of securities by U.S. or foreign corporations wherein the offering takes place outside of the United States and only non-U.S. investors participate. These offerings are exempt from SEC registration.
Regulation S Offerings
39
meets eight times a year to review economic conditions and evaluate any necessary policy changes.
Federal Open Market Committee (FOMC)
40
refers to actions taken by the Fed to maintain or promote the health of the U.S. economy, separate from Congress and the President.
Monetary Policy
41
Refers to actions taken by Congress and the President in setting tax rates and policies
Fiscal Policy
42
Pre-Tax accounts (taxation occurring after withdrawal)
401(k) and IRA accounts
43
Post-tax accounts
Roth IRA
44
Base interest rate offered by commercial banks for consumer loans, including credit cards. It has a direct relationship with the discount rate
Prime Rate
45
Rate offered to member banks who borrow money from the Fed in order to keep their reserves up.
Discount Rate
46
Three categories of the Cash Flow Statement
cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities
47
stages of the business cycle
Expansion: The economy is growing. Gross Domestic Product (GDP) shows healthy growth in the 2% to 3% range; Peak: The economy can be said to be “overheated.” Prices hit their highest level and economic indicators stop growing; Contraction (Recession): Economic growth weakens and GDP growth falls below 2 percent. When GDP declines for two or more consecutive quarters, then the economy has entered a recession; Trough: The economy reaches its lowest point before transitioning from the contraction phase to the recovery phase; Recovery: Low prices help foster demand. Employment and production begin to rise, and lenders are more willing to lend.
48
Indicate where the economy is headed in the short term.
Leading
49
Reveals trends in the economy after major economic, financial, or business events have occurred. The unemployment rate is the most prominent lagging indicator
Lagging
50
Statistics that tell analysts how the economy is currently. Examples include gross domestic product, industrial production, personal income, and retail sales.
Coincident
51
Follow the standard business cycle, i.e. leisure, luxury, and cruises/travel industries, which do well in a good economy but poor in a down economy.
Cyclical Businesses
52
Businesses that make goods we use as a part of our daily lives and are not impacted in a material way by how the economy is doing. I.e. public utilities, basic food and clothing, consumer goods such as soap, shampoo, cosmetics, etc
Defensive industries
53
Industries expected to grow faster than the economy in general. Examples include technology, health care, and biomedical.
Growth industries
54
Theorizes that an increase in government expenditures and a decrease in taxes can prevent or repair an economic recession. The government’s role is significant.
Keynesian
55
Theorizes that controlling the money supply and letting the market work itself out can curb inflation and is essential for a healthy economy.
The government’s role is minimal.
Monetarist
56
Small public offering
Less than 50m
57
Two most well-known ‘exempt securities’ in the Securities Act of 1933.
Municipal and US Government
58
The investment banker buys the securities from the issuer with a view to re-selling them to the public at a public offering price which includes a retail commission.
Firm Commitment
59
The investment banker agrees only to use its best professional efforts to market and sell the issuer’s securities offering, and if all the shares don’t sell, the unsold shares are returned to the Issuer.
Best Efforts
60
This is a variation on best efforts. In this instance, if 100% of the shares don’t sell, the entire offering is nullified, and the shares are returned to the issuer.
All or None (All or Nothing
61
This is a variation on the all or none arrangement. In this case, instead of having to sell 100% of the shares, a lesser minimum percentage is set, such as 50%. As long as that percentage is sold to the public, the deal goes through.
Minimum-Maximum (Mini-Max):
62
This term is used exclusively when an issuer is engaging in a pre-emptive rights offering.
Stand by
63
An investment banker taking on a firm commitment normally will spread the risk of the deal and will invite several other brokerage firms to participate in the distribution. Also referred to as an underwriting syndicate.
Distribution network --The broker-dealer who lined up the deal with the issuer is considered the Managing Underwriting, or Syndicate Manager.
64
when an Issuer registers a substantial number of shares with SEC, but does not sell all the shares at once, rather it sells them in stages over a period of months or a few years
Shelf Offering
65
Refers to an ownership position in a company
Equity
66
The holders of X are responsible for voting on corporate policies and electing the board of directors
Common Stock
67
In the event of liquidation, what is the order of company assets distribution
common shareholders are entitled to company assets (such as cash) only after creditors, bondholders, and preferred shareholders have received theirs. However, they do have limited liability which means they cannot lose more than what they paid for the stock.
68
Common Stock Equivalents
Types of common stock equivalents include convertible bonds, convertible preferred stock, options, warrants, and some bonds.
69
Stock that has fixed cumulative dividends and priority repayment in the event of corporation liquidation
Preferred
70
Certificate that gives the holder the right to buy common shares directly from a corporation at a fixed exercise price
Warrants. Unlike call options, when a stock warrant is exercised, the shares are issued directly by the corporation and the proceeds become a source of capital for the corporation.
71
Give the holder the right to buy common shares at a set price until expiration
Stock Options -timeframe is typically shorter than that of a warrant and the set price is often lower. Additionally, unlike warrants, stock options tend to take the form of employee compensation. Like many other forms of deferred compensation, stock options typically follow a vesting schedule.
72
An agreement between two parties where securities are purchased from a seller for a certain amount of time, sometimes overnight, and the seller agrees to repurchase the securities at a slightly higher price than the purchase price.
Repurchase Agreement . Normally, the instrument traded is of very high quality, like a U.S. Treasury Bond, which enables it to serve as collateral. The Fed may sometimes enter into Repurchase Agreements as part of regulating the money supply.
73
These votes apply to every open board position
statutory system of voting - if there were six open board positions, a statutory system would give someone with 50 shares 50 votes for each of the six positions
74
the stockholder could allocate his/her votes disproportionately among the positions.
cumulative system of voting -would give a total of 300 votes (50 shares times the six open positions),
75
Unregistered securities acquired through a private sale
restricted securities
76
held by an affiliate of the issuer and, because of resale limitations, are also considered restricted securities.
Control securities
77
The risk that in a declining stock market, or a crash, even stocks of profitable and solid corporations may or will drop in market value.
Market Risk
78
If a particular business is suffering poor results due to a declining public demand for their products or bad management, or the overall sector they are in (airlines, energy, etc.) is suffering, then the market value of their stock will suffer.
Business Risk/Sector Risk
79
Order of Payment in Liquidation
Domestic Support Obligations -> debt -> equity -> preferred shareholders -> common shareholders
80
Short-term borrowings (1 year or less). Interest is paid at maturity and it is determined as the excess of the face amount over the discounted-by-interest purchase price;
Treasury Bills (T-Bills)
81
Intermediate-term borrowings (2 to 10 years). Interest is paid semi-annually and is exempt from state tax; and
Treasury Notes
82
Long-term borrowings (up to 30 years). Interest is paid semi-annually and is exempt from state tax.
Treasury Bonds
83
The traditional financing method for capital asset projects related to infrastructure, buildings, utility lines, and others. These bonds are not backet by collateral; rather, they are backed by the municipality’s total tax and operating revenue.
General Obligation Bonds
84
Issued to fund public projects. However, purchasers of these bonds are repaid from the income generated by the specific project the bond was funding rather than by the issuer’s total revenue
Revenue Bonds
85
Combination of general obligation bonds and revenue bonds. Municipalities issue these in order to fund public projects and will increase a specific tax, either an excise or a special assessment tax, to repay the bondholders.
Special Tax Bonds
86
These bonds are issued to enable the construction of an income-producing facility, such as a toll bridge or an airport, where the revenue from business operations pays the interest and repays the principal at maturity.
Authority Bonds
87
Fixed-income municipal securities issued to fund projects not subsidized by the federal government because they do not provide a meaningful benefit to the general public
Taxable Bonds
88
Short-term debt securities that typically mature in one year or less. Interest and principal are paid in one payment at the time of maturity and are exempt from federal income tax.
Municipal Notes
89
Fixed-income debt instruments that mature in up to 270 days.
Money Market Instruments
90
Current Yield: The expected annual rate of return of the bond calculation
Annual interest dividend by the current market price
91
Callable Bond
Gives the issuer to right to pay off the bonds at a date earlier than the maturity date. Higher Interest Rate
92
Puttable Bond
Allows a bondholder to redeem the principal amount of their bond on or after a specific date(s), well before the maturity date. Puttable bonds tend to offer lower interest rates due to lower risk.
93
Interest Rate Risk
Risk that the value of the bond will decrease due to unexpected fluctuations in interest rates.
94
Inflation Risk
Risk that inflation will decrease the purchasing power of money which will lead to a decline in the expected return of a bond
95
Credit Risk
Risk that the issuer will default on loan payments
96
Liquidity Risk
Risk that few buyers are available when the security needs to be sold quickly
97
An investor wishes to purchase, or sell, a specific security and is willing to pay or sell for whatever its current market price is, with no negotiation or haggling.
Market Order
98
When an investor has a specific maximum price they’re willing to pay to buy a specific security, or the investor has a specific minimum price at which they wish to sell.
Limit Order
99
An investor who already owns a stock may wish to put in an order to sell the stock if it declines below a specific level
Stop Order
100
Settlement time for Government Bonds and Government Agencies
T+1
101
maximum amount of time allowed to pay for stock after it has been purchased.
T+2
102
Cash Accounts
brokerage account in which all purchases must be paid in full, no credit is permitted
103
Margin Accounts
A brokerage account in which purchases can be financed by the brokerage firm, lending the client up to 50% of the purchase value.
104
When a gift of cash or securities is being given by a ‘donor’ to a minor child,
Uniform Gifts (or Uniform Transfers) to Minors Act account (UGMA or UTMA) In those instances where UTMA income exceeds $2,000, some or all of the income may need to be reported on the parent’s tax return.
105
Anti-money laundering (AML) rules
1. Be In Writing 2. Have policies in place 3. Appoint an AML officer 4. train employees 5. annually test the AML procedures 6. have a Currency Transaction Report for transactions over 10k
106
When can cold calling to prospects be done?
before 8 am or after 9 pm in the prospect’s time zone.
107
National Do-Not-Call List
No cold calls may be made to any person who has registered his or her telephone number on the Federal Trade Commission’s national do-not-call registry.
108
Types of Market Manipulation - When a RR receives a large order that will drive stock prices up, purchasing for the RR's personal account first then execute the client order and sell own shares
Front Running
109
Types of Market Manipulation - Trading excessively against the clients best interest to inflate commissions
Excessive Trading (Churning)
110
Prior to the market opening or closing, placing several trade orders for a company's stock leading to an increase in the demand for shares and price
marking the open (marking the close)
111
Purchasing a security that the RR does not pay for before turning around and selling.
Freeriding, account may be frozen for 90 dates
112
A market maker in a security fails to honor the bid and ask prices that they quoted for the security.
backing away
113
Max price of a security that a buyer is willing to pay
Bid Price
114
Minimum price a seller is willing to accept
Ask price
115
Penalties for insider trading
Individuals - up to 20 years and fines up to 5m. Business - fines up to 25m
116
General length records are kept
6 years
117
When an agent makes a recommendation for a client order and it must be marked as such on the order ticket
solicited order
118
AML, SARs, FINCEN ,OFAC
Laws preventing criminal activity - Anti-money laundering, suspicious activity reports, financial, crimes enforcement network, Office of Financial Asset Control
119
Register Representatives may not invest in what?
IPOs
120
Brokers make money on commissions, what do dealers make money on
Mark up or mark downs
121
SRO (Self-Regulatory Organizations) Registration Form to apply for membership as an associated person
Form U-4 (requires 10 years of history). Fingerprinting and 10 year look back period also required. U-5 is filed when you leave the firm.
122
Statutory disqualifications for Registered Reps
in past 10 years - felony convictions and misdemeanors involving money or securities
123
State Securities law exams
Series 63 or Blue Sky requirements
124
Continuing Education requirements
First CE test is taken 2 years after becoming registered then every 3 years after
125
Max gifts and Political contributions
RR may not receive or give gifts from customers more than $100 per year. RRs that work for a firm which markets municipal bonds must limit political contributions for politicians who may influence underwriting business to $250 per election
126
A city or town that has corporate status and local government
Municipality
127
Bonds that do not pay interest, rather the investor pays below the face value of the bond and receives the full value at maturity
zero coupon bonds
128
companies have the option to repay the loan with common stock rather than cash
convertible bonds
129
Unsecured securities, often referred to as promissory notes, issued by large corporations with high credit ratings. They are typically sold at a discount to face value and pay interest.
commercial paper
130
tradeable, interest-bearing securities purchased by institutions and wealthy investors in the money market.
Negotiable Certificates of Deposit
131
Number of business days in the year and number of settlement days for bonds
corporate and municipal bonds three settlement days and 360 in the year . US Gov 1 settlement date and 365 days in the year
132
Gives the owner of the call option the right (but not the obligation) to buy a certain underlying asset or security on or before the expiration date of the contract.
Call Options
133
Gives the owner of the put option the right (but not the obligation) to sell a certain underlying asset or security on or before the expiration date of the contract.
Put Options
134
Seller of an option
AKA the writer receives a premium (fee) in exchange for giving the buyer the right to buy or sell and asset at a price on or before expiration date
135
The word used for the market price of an option
Premium - the buyer pays the premium and seller receives the premium
136
The contractually agreed upon price at which a call or put option can be exercised
strike or exercise price
137
In the money
A call option is said to be in the money if the current price of the underlying stock is trading at a higher price than the strike price. A put option is said to be in the money if the current price of the underlying stock is trading at a lower price than the strike price.
138
CFTC and OCC
Commodities futures trading commission. OCC - options clearing corp, clears put and call options transactions
139
ODD
options disclosure document .
140
American vs European options trading
European style - options contracts are only allowed to be exercised on the expiration date. American-style options, on the other hand, allow for the contract to be exercised at any time, up to and including the expiration date.
141
Funds that are passively managed and have lower fees
Index mutual funds
142
Maintain long-term fixed portfolios of securities in order to meet a particular investment objective and are not actively managed. The trust sponsor will typically raise capital from investors through a one-time public offering of a fixed portfolio of securities, like a closed-end fund, and can buy back their units from investors at the estimated NAV, like a mutual fund. Have mandatory termination dates
Unit Investment trusts
143
type of permanent life insurance policy issued by an insurance company that pays out a specified death benefit to the policyholder’s beneficiaries upon their death.
Variable life insurance
144
Portfolios maintained by insurance companies into which variable annuity investors have their money invested, typically for long-term tax-deferred purposes.
Separate Accounts of Variable Annuities
145
college savings plans to save up for qualified postsecondary educational expenses like college tuition, textbooks, and more. These plans are technically referred to as municipal securities by the SEC since they are created and sponsored by each state.
529 College Savings Plans
146
Cap of load fees
8.5%
147
No-load funds
Funds are allowed to market themselves as no-load if their fees are below the FINRA-designated 12-1b charges, a maximum of 0.75% of the fund’s net assets.
148
ABLE accounts
Achieving a Better Life Experience or 529 A accounts - municipal fund securities that allow americans with disabilities to save up to 15k for disability related expenses each year. When used for qualified disability-related expenses, like transportation or healthcare expenses, withdrawals can be made from the account tax-free. In order to hold an ABLE account, individuals must either (1) already receive Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI) or (2) have a documented diagnosis of blindness or other disability prior to the age of 26.
149
LGIPs
Local Government Investment Pools - nvestment vehicles established by state governments. They pool the resources of different local governmental entities, such as cities, counties, or school districts, and then invest in short-term securities to achieve certain objectives like liquidity or return on investment (ROI). LGIPs are exempt from SEC registration and can be sponsored by (1) a state or local government or (2) several cities and counties joined together under a joint power agreement, depending on the state’s laws.
150
DPPs
Direct Participation Programs subject to a pass-through taxation model. -Most DPPs are legally organized as limited liability corporations (LLCs), real estate investment trusts (REITs) or limited partnerships.
151
REITs
Companies that pool money from investors and then invest in income-producing real estate and other real estate assets such as apartments, resorts, office buildings, mortgages, and more
152
Equity REITs
hese make up the majority of the REIT market. They acquire and manage commercial real estate properties, such as hotels or apartment complexes, and generate revenue by collecting rent from the tenants and businesses that lease the properties. Once the costs of operating these properties are met, equity REITs must pay out at least 90 percent of their income to shareholders via dividends, typically on a monthly or quarterly basis.
153
Mortgage REITs
: Also referred to as debt REITs, these make up less than 10 percent of the REIT market. They lend money to real estate buyers and then generate revenue by collecting interest on the debt instruments (mortgage loans, mezzanine loans, etc.). They are also required to pay out at least 90 percent of their annual taxable income to shareholders like equity REITs. Unlike equity REITs, mortgage REITs are unable to benefit from property price appreciation as they do not actually own any physical real estate.
154
Market Risk – systematic risk
A stock market ‘crash’ will tend to drive down the market price of nearly all stocks, even the best ones.
155
Business Risk — Non-Systematic
Putting all your eggs in one basket is not a wise investment strategy. If that one business you’ve invested in goes bad, you suffer substantial loss.
156
Interest Rate (Money Rate)
As interest rates increase, bond prices decrease. Fixed income investments are particularly susceptible to this risk.
157
mortgage-backed securities
packaged product in which the portfolio is a pool or collection of mortgages providing interest income to the investor
158
non-systematic risks
Liquidity risk, exchange rate risk, political risk (the risk of sovereignties acting in opposition to investor interests), credit risk, and non-diversification risk.
159
SEC Rule 144
governs the re-sale of common shares held by persons in a position of control in a publicly-traded company, often referred to as ‘control persons’ and include but are not limited to officers, directors, spouses and minor children thereof, persons owning 10% or more of the outstanding stock of that corporation.
160
f inflation is at 2% per year, which is our Federal Reserve’s target for inflation, $1.00 of income this year will buy only 98 cents worth of goods next year, and so forth and so on every year. This loss of purchasing power is known as what
purchasing power risk or inflation risk
161
Shorting Stock Rule
If stock is below $ need to put down 100% or 2.50, whatever is higher in margin. If stock is above $5, need to put 50% in margin
162
Dollar amount of margin Minimum in account
$2000
163
Created in 1934 act and regulates margins
Regulation T.
164
Regulation that does not allow brokerage firms to borrow more margin than client requested for own purposes
Regulation U
165
Who is an investment advisor
A person that gives advise, as a regular business, to receive compensation
166
who is an Investment advisor rep
any individual who provides or determines investment advice, manages accounts, solicits advisory services, manages those who perform these functions (but not accounting or HR).
167
what investment advisor firms are excluded from registering
Investment advisor reps - banks, savings, trusts, lawyers, accountants, teachers, engineers LATE, broker dealer and their agents, publishers, federal covered advisers
