SIE Flashcards
1
Q
When was the SEC established?
•What is it designed to do?
A
1934 during the Great Depression
•Protect market participants (investors) and cultivate fair and efficient markets by ensuring US laws & regs are complied with
2
Q
What does the acronym SEC stand for?
A
Securities and Exchange Commission
3
Q
What bodies work to uphold and improve securities regulations?
A
•SEC
•Self-regulatory agencies
•State regulators
•Congress
4
Q
What is the “Secondary Market”?
A
Securities purchased through a brokerage firm e.g. Fideltiy or Charles Schwab
5
Q
Name two things that are prohibited under SEC Regulation 206(4) under The Investment Advisers Act of 1940
A
This section prohibits advertising that is “Faudulent, deceptive, and manipulative”
•Such as referring to external testimonials
•Cannot include externally produced charts without providing full disclosure of limitation of its use
6
Q
What is an “accredited investor”?
A
An individual or couple with a net worth of $1mil+ or earn $200k+ (indivdual) or $300k+ (couple) for 3 successive years
7
Q
Who may registered investor advisors charge performance fees to?
A
Accredited investors and qualified clients only
8
Q
Which of the following can the SEC directly supervise?
•Investment decisions
•Activities of the company
•Judge the merits of a company investments
A
None of the above
9
Q
How is a redemption required to be computed? How often?
A
Based on net assets
•Daily
10
Q
What percent does the SEC require to be in liquid securities of a company?
A
85%
11
Q
Name 4 SROs.
A
•NYSE
•Chicago Board Options Exch (CBOE)
•FINRA
•Municipal Securities Regulatory Board (MSRB)
12
Q
What is FINRA?
A
A non-profit charged with overseeing broker-dealers domiciled in the US
•Writes and enforces rules
•Examines broker-dealers for compliance
•Ensures market transparency
•Providing education to investors
13
Q
Where can call options be traded?
•On what?
A
CBOE
•Publicly traded stocks
•Exchange-traded funds
•Exchange-traded notes
14
Q
What is the MSRB?
A
Municipal Securities Regulatory Board (MSRB)
•Oversees the sales of municipal bonds, notes, and other municipal securities
15
Q
What are municipal securities?
A
Issued by a state, municipality, or county
•Funds public projects: airports, power plants, etc.
16
Q
What are municipal bonds?
A
Bonds issued by a state, municipality, or county
•Exempt from federal and some state and local taxes
•Interest paid is often tax-free
17
Q
What is the difference between bonds and securities?
A
Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in a company (i.e. they are owners), whereas bondholders have a creditor stake in a company (i.e. they are lenders). As creditors, bondholders have priority over stockholders.
18
Q
What branch of the government is the US Treasury part of?
•Why was it created?
A
Executive Branch
•To manage government revenue
19
Q
What does the US Treasury Oversee?
A
•IRS
•US Mint
•Bureau of Engraving and Printing
•Financial Crimes Enforcement Network (FinCEN)
20
Q
What does FinCEN enforce?
A
Financial Crimes Enforcement Network
•Currency and Foreign Transactions Reporting Act of 1970
•Designed to prevent money laundering
21
Q
What is a CTR?
A
Currency Transaction Report
•Under the Bank Secrecy Act (BSA) banks must submit a CTR for any transaction $10k+
22
Q
When was the FED created?
•Why was it created?
A
Est. 1913 under the Federal Reserve Act
•It is the Central Bank
•Mandated to maximize employment, stabilize prices, moderate long-term interst rates to provide a safe and healthy financial system
23
Q
What additional duties is the FED responsible for?
A
•Regulating banks
•Maintaining the stability of the financial system
•Providing financial services to depository institutions
24
Q
Who are members of the NASAA?
A
North American Securities Administrators Association
•Volunarily - US, Canada, and Mexico
25
What does the FDIC do?
Federal Deposit Insurance Corporation
•Provides deposit insurance to US bank depositors
•They supervise 5k+ banks and savings intitutions
•Insure up to $250k per depositor
26
What is the SIPC?
Securities Investor Protection Corporation (SIPC)
•Eligible investors are insured by SIPC for up to $250k in their broker accounts in the event of the bankruptcy
27
What is an accredited investor?
•Can be an individual or an entity
•Must meet reqs
•Permitted to trade in private securities not registered with the SEC (Venture Capital, etc.)
•Income reqs for ind or couple or net worth
28
Name 4 examples of Institutional Investors.
•Real Estate Investment Trusts
•Venture Capital Funds
•Insurance Companies
•Credit Unions
•Banks
•Pension Funds
•Hedge Funds
•Mutual Funds
29
What is another name for "dealers"?
Principal
30
What is the difference between a broker and a dealer?
•Broker trades in securities on behalf of its clients
•Deleaers trade on behalf of itself
*Many firms acts as both the broker and the dealer
31
What is are "Introducing Brokers"?
•They do not hold client funds
•Do not execute transactions
•They can receive orders for securities from clients, but must contract with a clearing firm to process them.
32
What are clearing firms?
Hold customer accounts and are responsible for trades and ensuring those trades reach settlement
33
What are Prime Brokers?
•Only service large financial institutions for outsourcing
•Clear and settle trades
•Perform risk and performance analysis
34
Name 3 examples of Investment Advisers.
•Portfolio Managers
•Wealth Managers
•Asset Managers
35
Define Issuer.
Legal entities that fund their operations by selling securities (such as common stock) to investors
36
Who facilitates the sale and distribution of an issuer's securities?
•How do they do this?
Underwriters
•Pricing Securities -> Purchasing securities from the issuer -> Selling securities to investors
37
What is another name for "Traders"?
Brokerage Firms
38
Define Market Makers.
Refers to a firm or individual who actively quotes two-sided markets in a particular security, providing bids and offers (known as asks) along with the market size of each. Market makers provide liquidity and depth to markets and profit from the difference in the bid-ask spread.
39
Define Custodian.
Holds the assets of a trust for safekeeping
•Typically a bank or brokerage firm
40
What is a trustee?
An entity in charge of governing a trust
•May be an individual, broker, bank, etc.
•Manage and admin investments on behalf of the beneficiary
41
What is a transfer agent?
Responsible for maintaining security holder records
•Distributing dividends on behalf of the issuing company
•Typically a bank or trust
•Intermediary between securities issuers and securities holders
*Company can act as their own transfer agent
42
What is the Deposit Trust & Clearing Corporation?
(DTCC)
•Manages the daily clearing and settlement processes for most securities transactions in the US
•All purchases/sales aren't "good" until they've cleared through the DTCC
43
Define Primary Market.
Refers broadly to newly created debt and equity securities. Investment banks who underwrite IPOs, price the shares, and issue them directly to investors.
44
Which market are securities purchased directly from issuers?
Primary Market
•Investors do not trade securities between each other in the primary market
45
What is another name for the Secondary Market?
Stock Market
46
What market are securities sold between brokerage firms?
Secondary Market--hence why it is called a trade
47
Define the Third Market.
Over-the-counter(OTC) trading
•Between institutional investors and broker dealers
•No broker fees or NYSE, etc.
•Not listed on an exchange
•e.g. Bonds, derivatives, crypto, etc.
48
Who is allowed to trade in the Fourth Market?
Institutional Investors only
49
What is the Fourth Market?
Institutional Investors only
•Trade large blocks of securities between each other
•Processed through the Electronic Communications Network (ECN)
•Can be both exchange-listed and OTC securities
*Can occur after hours
*Does not have any reporting reqs
50
What is the American Depository Receipt?
(ADRs)
•Trade on stock exchanges in the US for the foreign market and are priced in dollars
51
What is a Regulation S Offering?
•Offering by a US or foreign corp
•Offering takes place outside US
•Only non-US investors participate
•Exempt from SEC registration
52
Who is responsible for keeping the economy in good health?
The Fed
•By maintaining high employment and low inflation
•Keep interest rates within reasonable parameters
53
Explain Monetary Policy.
Action taken by the Fed to promote the health of the economy, separate from Congress & POTUS
54
What is the FOMC?
Federal Open Market Committee
•Meets 8x/year to review economic conditions and evaluate any necessary policy changes
55
What does the Federal Funds Rate affect?
Interest rates on credit cards, bank loans, mortgages, etc.
56
Explain Fiscal Policy.
Actions taken by Congress and POTUS in setting tax rates & policies
•An example of a fiscal policy would be to make retirement savings advantageous (401(k), etc.)
57
Explain the relationship between lendable money supply and the economy.
Increase supply -> decline in bank interest rates -> more consumer spending
Decrease supply -> increase rates -> lowers inflation
58
Name 3 different interest rates.
•Prime Rate
•Discount Rate
•Federal Funds Rate
59
Define Prime Rate.
Base interest rate offered by commercial banks for consumer loands, including credit cards
•Has a direct relationship with discount rate: both go up or down together
60
Define Discount Rate.
Interest rate offered to member banks who borrow money from the Fed to keep their reserves up
61
Define Federal Funds Rate.
The target rate set by the Fed to control inflation.
62
What are the business economic factors on a financial statement?
•Balance Sheet
•Income Statement
•Cash Flow Statement
•Shareholder Equity Statement
63
What is a balance sheet?
It details a company's assets, liabilities, and shareholders' equity at a specific point in time
•It is used in conjunction with the other financial statements, the balance sheet assists analysts and investors in gauging in the overall health of the company
64
What is an income statement?
It details the company's revenues and expenses over a period of time (typically a quarter or a fiscal year)
•Revenue - Expenses = Net Income
65
How is net income calculated?
Revenue - Expenses = Net Income
66
What is a cash flow statement?
Details cash inflows & outflows.
•Operating activities
•Investing Activities
•Financing Activities
67
What is a shareholder equity statement?
Details the changes in a company's equity accounts over a specified period of time
May include:
•Purchasing shares back from investors (treasury stocks)
•Issuing new common shares
68
What are treasury stocks?
Shares purchased back from investors
69
What are most commonly found on a shareholder equity statement?
•Preferred stock
•Common stock
•Treasury stock
•Additional paid-in capital
•Retained earnings
•Non-controlling (minority) interests
70
What are the stages of a business cycle?
•Expansion
•Peak
•Contraction (recession)
•Trough
•Recovery Phase
71
What is considered "healthy growth" for the economy?
When the GDP shows healthy growth in the 2-3% range
72
Define "peak" in regards to a business cycle.
When the economy can be said to be "overheated"
•Prices hit their highest level and economic indicators stop growing
73
Define contract in regards to the business cycle.
AKA Recession
•When economic growth weakens, and GDP growth falls below 2%
74
What is considered the official designation for identifying a recession?
When GDP declines for two or more consecutive quarters, then the economy has entered a recession
•Layoffs make headline news and unemployment rises
•Consumers and business find it hard to secure credit
75
Define trough in regards to a business cycle.
The economy reaches its lowest point before transitioning from the contraction phase to the recovery phase
76
Define recovery phase in regards to a business cycle.
Low prices help foster demand
•Employment and production begin to rise, and lenders are more willing to lend
77
What are the three categories of economic indicators?
•Leading - indicate where the economy is headed in the short term
•Lagging - reveals trends in the economy after major economic, financial, or business events have occured
•Coincidental - statistics that tell analysts how the economy is currently
78
Name 3 leading economic indicators.
•Stock market returns
•Index of consumer expectations
•Building permits
79
Name 3 lagging economic indicators.
•Unemployment rate (most common)
•Corporate profits
•Consumer Price Index (CPI)
80
Name 4 concidental economic indicators.
•GDP
•Industrial Production
•Personal Income
•Retail sales
81
What sectors of the market are considered 'cyclical'?
Leisure, luxury, and cruses/travel industries
*Businesses that follow the standard business cycle--do well in a good economy but poor in a down economy
82
What sectors of the market are considered 'defensive'?
Public utilities, basic food and clothing, consumer goods such as soap, shampoo, cosmetics, etc.
*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
83
What sectors of the market are considered 'growth industries'?
Technology, health case, and biomedical
*Industries that are expected to grow faster than the economy in general
84
Name 2 principal economic theories.
•Keynesian - govt's role is significant
•Monetarist - govt's role is minimal
85
What is the keynesian economic theory?
Theorizes that an increase in govt expenditures and a decrease in taxes can prevent or repair an economic recession
86
What is the monetarist economic theory?
Theorizes that controlling the money supply and letting the market work itself out can curb inflation and is essential for a healthy economy
87
Define Balance of Payments.
Refers to the net transactions between countries.
•Transactions from govts, companies, individuals, etc.
•How trade deficits and surpluses are calculated between nations
88
Define GDP.
Gross Domestic Product
•Total value of all goods and services produced within a country by its nationals and foreigners alike
•Used by analysts and economists to determine the rate at which an economy is growing from one year to the next
89
Define GNP.
Gross National Product
•The total value of all goods and services produced by its citizens despite where they live
90
What are the two main types of offerings?
•Equity
•Debts
91
What is the difference between an IPO and an APO?
Intial Public Offerings are strictly the first time a company offers its shares to the investing public
•APO - Additional Public Offering or Follow-on Offering - is a subsequent offering of shares to the investing public
92
What is an intrastate offering?
AKA Single state offering
•When a corporation goes public but sales are confined to residents of one state
93
What is a private placement?
AKA Private offering
•Issuer does not sell securities to the investing public--only accredited investors
94
What is Reg D?
Allows some smaller companies to access capital markets by offering and selling securities that couldn't afford the costs of a standard SEC registration
95
What is the difference between a Secondary Offering and a Follow-on Offering?
A secondary offering is a block of public company shares sold by the present holder of the shares rather than the issuing company
96
When are share repurchases prohibited?
The last 30 minutes of the trading day--to prevent fraud
•The last 10 minutes for companies with higher-than-avg trading volumes
*Price may not exceed the highest indepenent price bid made during the day
**Repurchases must be through a single broker and may not exceed 25% of the stock's avg daily volume
97
Name 4 methods of distribution for securities.
•Firm Commitment
•Best Efforts
•All or none
•Minimum-Maximum
98
Define Firm Commitment in regards to securities distribution.
The investment bank commits to purchase all the securities in an offering from the issuer and then resells them to the public
•Bank assumes the financial responsibility
•Any unsold shares are paid for and held by the bank
99
Define Best Efforts agreements in regards to securities distribution.
The investment bank agrees to market and sell the issuer's securities
100
Dfine All or none commitments in regards to securities distribution.
A variation on best efforts, but if 100% of the shares aren't sold, then the entire offering is nullified and the shares are returned to the issuer
101
Dfine Minimum-Maximum agreements in regards to securities distribution.
AKA Mini-Max
•A variation on all or none
•A lesser minimum is set, such as 50%, as long as that % is sold to the public, then the deal goes through
102
What is an underwriting syndicate?
With an IPO, an underwriting syndicate is typically formed (comprised of more than one investment bank or broker-dealer) with one of the firms acting as the lead underwriter and the others acting as syndicate members--to spread out the risk.
103
What two types of sales are municipal bond offerings sold under?
•Negotiated Sale - issuers negotiate directly in a "two-party" process
•Competitive Sale - issuers advertise their bonds are for sale by releasing a notice to the public; from there underwriters place bids on a spcified date/time.
104
What is a IOI?
Indication of Interest - investors submit IOIs in negotiated sales which then help the underwriter(s) finalize the offering price and sell the bonds.
105
What is shelf registrations and distributions?
Issuers who plan to sell their securities over a period of time rather than all at once
•Registers the offer/sale of securities on a delayed (future) basis or on a continuous basis
•Shares that aren't sold right away are said to be "sitting on a shelf"
106
What is a Shelf Registration Statement?
A filing made by the issuer with the SEC
•Can cover multiple primary offerings, secondary offerings, or both
•By filing this statement an issuer can take securities "off the shelf" and then offer them for sale relatively quickly, such as when market conditions are favorable
107
What offering documents are required to be delivered to investors?
•Prospectus
•Private Placement Memorandum (PPM)
•Official Statement
•Program Disclosure Document
*Required for SEC registration unless the offering meets an exemption
108
What is a Prospectus?
A document filed with the SEC for public securities offerings.
•Discloses relevant info about the issuer and the investment, such as the company's summary, the number and type of securities being offered, names of the underwriters, and risks involved.
•Req'd to file both a preliminary and final prospectus
109
What is a PPM?
Private Placement Memorandum
•Document to potential investors in a private placement that discloses relevant issuer inof as well as the objectives, terms, and risks.
*Exempt from SEC registration, but it is still required to comply with federal securities laws
110
What is contained in the Official Statement for municipal bond offerings?
•Interest rates
•Timing of interest and principal payments
•Tax considerations
•and more…
111
What is a Program Disclosure Document?
A doc containing info about 529 plans such as fees and expenses
112
What are blue sky laws?
State-level, anti-fraud regulations that require issuers of securities to be registered and to disclose details of their offerings.
•Blue sky laws create liability for issuers, allowing legal authorities and investors to bring action against them for failing to live up to the laws' provisions.
