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SIE Exam > Unit 1: Primary Markets and Secondary Market Trading > Flashcards

Unit 1: Primary Markets and Secondary Market Trading Flashcards

1
Q

Issuers sell to Investors in order to raise capital in what market?

A

Primary Market

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2
Q

Investors sell securities to investors in what market?

A

Secondary Market

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3
Q

_____ of the securities receives the proceeds generated by the sale of the securities in the primary market.

A

The issuer

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4
Q

The two types of securities in the primary market are …

A

the initial public offering
additional public offering

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5
Q

Rule 5130 applies to what primary offering?

A

IPO

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6
Q

_____ generally restricts, among other things, broker-dealers (or persons associated with them) from selling shares of a new issue, to an account in which a restricted person has a beneficial interest.

A

Rule 5130

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7
Q

______ ensures that the investing public is fully informed about a security and its issuing company when the security is first sold in the primary market.

A

Securities Act of 1933

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8
Q

______ is a type of broker dealer (investment banker) that works with an issuer to bring its securities to the market and sell them to the investing public.

A

An Underwriter

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9
Q

Types of Underwriting Offers

A

Firm Commitment
Best Effort
All- or None
Min-Max

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10
Q

____ is a type of joint venture where the BDs share both the risk and the profits from the offering.

A

A syndicate

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11
Q

Underwriter sells IPO shares from its own inventory

A

Firm Commitment

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12
Q

Investment Banker sells to public on behalf of the issuer

A

Best Effort

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13
Q

Investors in the primary markets may be divided into three groups: institutional, retail, and accredited

A

institutional, retail, and accredited

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14
Q

_____ are investing their own assets

A

retail investors

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14
Q

_____ are a subset of investors made up of all institutional investors and certain retail investors.

A

Accredited investors

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15
Q

An _____ is an entity that pools money to purchase securities and other investment assets. These investors can include banks, insurance companies, employee benefit plans like pensions, hedge funds, investment advisers, and mutual funds.

A

institutional investor

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16
Q

the Securities Act of 1933 is also called ____

A

the Paper Act

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17
Q

The Securities Act of 1933 protects investors who buy new issues by:

A

regulating the underwriting and distribution of primary issues

providing criminal penalties for fraud in the issuance of new securities.

requiring registration of new issues (unless exempt under the act);

requiring an issuer to provide full and fair disclosure about itself and the offering;

requiring an issuer to make available all material information necessary for an investor to judge the issue’s merit;

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18
Q

The cooling-off period lasts for a minimum of ______

A

20 calendar days

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18
Q

The Securities Act of 1933 requires that several steps be taken before a new issue is brought to market:

A

including the distribution of a registration statement,
a cooling-off period,
and the filing of a final prospectus.

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19
Q

_____ are an announcement and description of the securities to be offered.

A

Tombstone ads

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20
Q

Underwriting phases are

A

Files Registration Statement
Cooling-Off Period
Effective Date is reached

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21
Q

The Registration statement is filed with ____

A

SEC

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22
Q

During the cooling off period several things can be done:

A

Tombstone ads
The preliminary prospectus, or red herring
Indications of Interest Maybe Gathered
Due Diligence Takes Place
State Registration Requirements (Blue-Sky Filings) Are Addressed

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23
Q

the ______ when the SEC will allow the security to be offered to investors

A

Effective Date is reached

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24
Q

______ can be used as a prospecting tool, allowing issuers and underwriters to gauge investor interest and gather indications of interest.

A

The preliminary prospectus, or red herring,

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25
Q

The final prospectus will be delivered to ____

A

all who purchase the new security at the IPO.

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26
Q

The cooling-off period ends with the delivery of ____

A

a final prospectus, which is made available at release

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27
Q

(POP)

A

the public offering price

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28
Q

These securities have not been ______ by the SEC, nor have any representations been made about the accuracy or the adequacy of the information.”

A

approved or disapproved

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28
Q

if the issuer of the security is receiving the funds from an offering, it is ______

A

a primary market transaction.

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29
Q

A _____offering is an IPO in which a corporation allows some of the existing shareholders to sell their shares along with the newly issued shares.

A

split or combination

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30
Q

a ____ is when most of the money going to the corporation for the new shares and some going to individuals for their shares.

A

hybrid offer

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31
Q

______ allows the issuer to sell portions of a registered offering over the two-year period without having to reregister the security.

A

Shelf offering

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32
Q

For securities offered via ____ a supplemental prospectus must be filed with the SEC before each sale.

A

a shelf offering

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33
Q

An investor that buys a new security in the secondary market will be entitled to the ____if the purchase occurs

A

final prospectus

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34
Q

_______ are exempt from the registration and prospectus requirements of the Securities Act of 1933

A

The U.S. government;
municipalities;
national and state banks (but not bank holding companies); building and loans and savings and loans (S&Ls);
charitable, religious, educational, and nonprofit associations; and common carriers (e.g., railroad equipment trust certificates).

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35
Q

Certain issues (securities) are exempt from the registration statement and prospectus requirements of the Securities Act of 1933.

A

commercial paper, bankers’ acceptances, and other securities that have maturities of 270 days or less; and
insurance policies and fixed annuity contracts (but not variable annuities).

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35
Q

With the passage of the _____, a rule was put into place that would ease the requirements for small- and medium-sized companies to raise capital.

A

JOBS Act

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36
Q

______ provides two offering tiers for small- and medium-sized companies that allow the companies to raise capital under 2 tiers

A

Regulation A

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37
Q

______ Securities offerings up to $20 million in a 12-month period will be exempt from registration

A

Tier 1

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38
Q

_____ Securities offerings up to $75 million in a 12-month period will be except

A

Tier 2.

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39
Q

Under _____ offerings that take place entirely in one state are exempt from registration when the issuer has its principal office (headquarters) in the state and all purchasers are residents of the state.

A

Rule 147 Intrastate

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40
Q

Recognize that all of the following terms are synonymous with _____ stock:
Restricted (because it must be held for a six-month period)
Unregistered (no registration statement on file with the SEC)
Letter stock (investor agreed to terms by signing an investment letter)
Legend stock (a special inscription on the stock certificate indicates restricted transfer)

A

private placement

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41
Q

Under Regulation D: Exempt Transactions

A

The SEC does not require registration of an offering under Regulation D as long as there
are no more than 35 nonaccredited investors. There is no limit to the number of accredited investors that may invest in the private placement.

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42
Q

_____ created the SEC and gave it the authority to regulate securities exchanges and the OTC market

A

Securities Exchange Act of 1934

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43
Q

_____ operate as auction markets where stocks listed on the exchanges are traded.

A

Exchanges

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44
Q

______ is an interdealer computer and telephone network where market makers in stocks show the bid and ask prices for stocks in which they make amarket.

A

The OTC market ove the counter

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45
Q

In the _____, the seller is always the issuer; in the ______, the seller is never the issuer.

A

primary markets

secondary markets

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46
Q

The locations, both physical and electronic, where buyers and sellers may gather and place trades are called _____

A

market centers

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47
Q

The secondary markets in the United States have four types of market centers:

A

the exchanges, OTC, Nasdag, and the ENs.

48
Q

The ____ is composed of the NYSE and other exchanges on which listed securities are traded. This market is also known as an auction market

A

Exchange market

49
Q

The exchanges are defined primarily by their _____ and ___

A

physical location and pricing system

50
Q

The members of the exchange are:

A

Designated Market Maker
Floor Broker
Two-Dollar Broker
Floor Traders

51
Q

The _____ (sometimes called a specialist) is the member that acts as the dealer on the floor for a specific security. The ____maintains an inventory of the security and guarantees liquidity.

A

designated market maker (DMM)

52
Q

___ represent their firm and their firm’s clients on the floor. If your customer places a trade that will execute on an exchange, a floor broker will handle it.

A

Floor brokers

53
Q

If the floor brokers become overwhelmed by trades, they enlist the services of the ____

A

two-dollar brokers.

54
Q

____ are members that buy and sell on the floor for their firm’s accounts (not outside customers). They help maintain liquidity on the exchange.

A

The floor traders (also registered floor traders, FTs, or RFTs)

55
Q

_____ trading market in which exchange-listed securities are traded in the OTC market.

A

The third market, or Nasdaq Intermarket,

56
Q

_____ a market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by BDs. These transactions take place through electronic communication networks (ECNs). ECNs are open 24 hours a day.

A

fourth Market

56
Q

In ____ dealers buy and sell a security from inventory to provide liquidity. Also not a physical location

A

OTC Markets

57
Q

_____ are those who buy and sell securities in the secondary markets

A

Investors

58
Q

In the secondary markets, the seller of a security is not the _____.

A

issuer

59
Q

Types of Investors:

A

Retail investors
day trader
Accredited investors
institutional investor
Fiduciaries: (Custodian or trustee)
Investment adviser

60
Q

Those who engage in the secondary markets fall into two broad categories:

A

investors and facilitators

61
Q

_____help customers perform transactions in the secondary markets. There are a number of different types of companies involved in the process of buying and selling securities.

A

Facilitators

62
Q

_____ are (FINRA member firms) perform securities transactions for their own accounts or for their customers. Their primary source of revenue is from transaction fees like commissions and loads.

A

Broker-Dealers (BDs)

63
Q

There are three types of BD firms:

A

carrying firms, fully disclosed firms, and prime brokers.

64
Q

A _____ firm carries customer accounts and accepts funds and securities from customers. They have the capability to do trade executions, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks, such as sending trade confirmations and statements.

A

carrying firm, or clearing firm,

65
Q

A ____ firm is one that introduces its customers to a clearing firm

A

Fully disclosed firm, or introducing BD,

66
Q

the ____ provides custody and other services, while other firms called executing brokers–may be called on to handle certain trades placed by the customer.

A

prime broker/Prime account is selected by a customer or institution

67
Q

A BD may act as a broker ____ as a dealer on a transaction, but they may ____be both on the same transaction.

A

or
never

68
Q

The transfer and registration of stock certificates are two distinct functions that, by law, _____

A

cannot be performed by a single person or department operating within the same institution.

69
Q

The _____ for a corporation is responsible for:
Ensuring that its securities are issued in the correct owner’s name; canceling old and issuing new certificates;
maintaining records of ownership; and
handling problems relating to lost, stolen, or destroyed certificates

A

transfer agent

70
Q

_____ are licensed by the states and provide audit and oversight services for the transfer agents. The transfer agent maintains a count of the total number of shares of a company that are authorized and outstanding

A

Registrars

71
Q

______ is an intermediary between the buy and the sell sides of a transaction. The clearing agency receives and delivers payments and securities on behalf of both parties.

A

A clearing agency (sometimes called a clearing corporation)

72
Q

Main clearing agencies:

A

The Depository Trust and Clearing Corporation (DTCC)

Options Clearing Corporation (OCC

73
Q

_____ is the world’s largest securities depository. It provides custody services for virtually all securities except those subject to transfer or ownership restrictions (restricted securities).
Also it is a member of the Federal Reserve System and is not in the retail banking business

A

The Depository Trust and Clearing Corporation (DTCC)

74
Q

If a person believes that a given market or stock is likely to go up in value rather than down, that person is ____

A

bullish or “a bull.

75
Q

If a person believes that a given market or stock is going to go down in value rather than up, that person is ____

A

bearish or “a bear

76
Q

Components of a Quote:

A

bid, ask, size (number of shares units of 100 shares)

77
Q

The ____ is the highest amount someone is currently willing to pay for the security.

A

bid price

78
Q

The ____ is the lowest amount someone is currently willing to sell the security for.

A

ask price

79
Q

If an investor wants to buy, she is buying from the person making the offer, so the ____ is the price a buyer pays.

A

ask price

80
Q

The spread is ….

A

simply the difference between the bid and the ask prices.

81
Q

An _____ is an instruction given to a broker to buy or sell a security on behalf of an investor.

A

order

82
Q

Types of Orders:

A

Market Orders
Limit Orders
Stop Order
Stop Limit Order
Time Restricution Orders
Fill Restriction Orders

83
Q

_____ - Buy or sell; it is executed immediately at the best available market price.

A

Market order

84
Q

the ____ is the maximum purchase price if buying or the minimum selling price of selling.

A

Limit order-

85
Q

Stop order- Buy or sell, a _____ does not become a”live” working order in the marketplace until the stock trades at or through a specified price

A

stop order

86
Q

Once the Stop order is triggered by the stock reaching the specified stop price, the order becomes a ____

A

market order

87
Q

_____ has stop price and does not become a “live” working order until the stock trades at or through the stop price.

A

Stop limit order

88
Q

Once the Stop limit order is triggered by the stock reaching the specified stop price, the order becomes a ____ to buy or sell at the specified limit.

A

limit order

89
Q

_____ always take precedence over limit orders and are executed when entered in time priority (first come, first served).

A

Market orders

90
Q

____ is valid only until the close of trading on the day it is entered. If the order has not been filled, it is canceled at the close of the day’s trading.

A

A day order

91
Q

______ are valid until executed or canceled. However is automatically canceled if unexecuted on the last business day of April and the last business day of October.

A

Good-til-canceled (GTC) order

92
Q

_____ designated to be executed at the opening of the day or at the close of the day.

A

Market-at-open or market-on-close order-Market-at-open or market-on-close orders are market orders

93
Q

______ is an instruction to fill (execute in its entirety) the order immediately cancel the order completely. There can’t be a partial execution.

A

Fill-or-kill (FOK) order- A FOK order

94
Q

_____ orders are like FOK orders except that a partial execution is acceptable. In other words, if only a portion of the order can be filled, it is, and the remaining unexecuted portion is canceled.

A

Immediate-or-cancel (IOC) order- IOC

95
Q

_____ orders must be executed in their entirety or not at all. They differ from the FOKs in that they do not have to be filled immediately. In other words, they can be held until the end of the day (for day orders) or beyond (for GTC orders) until they can be filled in their entirety

A

All-or-none (AON) order- AON

96
Q

Broker Characteristics:

A

Agent or Agency
buy and sells on behalf of customers
charges commission
little capital risk

97
Q

Dealer Characteristics:

A

The principal or Market Maker
Buys into inventory, sells from inventory
profits on the difference between the buy and sell spread
significant capital risk

98
Q

Selling a security one does not own is known as having a _____ in the security.

A

short position (bearish)

99
Q

When an investor buys a security, he/she has taken _____ in that security, meaning he/she now owns the security and is hoping that the security will rise in value and that he/she will be able to sell it later for a profit.

A

a long position (bullish)

100
Q

There are two main types of trades____

A

agent and principal

101
Q

When customers make an _____ transaction, they are trading with another person through an exchange; the broker finds this other person with whom to trade.

A

agent

101
Q

When customers make a ____ transaction, they are making a trade directly with a dealer.

A

principal

102
Q

_____ is the process that ensures that both parties to a transaction receive what they are supposed to receive: money to the seller and securities to the buyer.

A

Settlement

103
Q

Regular way settlement occurs by the end of the business day either ____ days following the trade date

A

one T+1 or two T+2 business days

104
Q

What settles in one business day? (T+1).

A

All Treasury securities: T-bills, T-notes, and T-bonds ni regular way settlement are T+1

105
Q

What settles in two business days? (T+2)

A

Corporate issues (stocks and bonds) Municipal debt
Agency securities
GSE securities

106
Q

When an option _____, settlement is the next business day (T+1).

A

trades

107
Q

When an option is ____ by the owner (long), there is a required time for completion. This is often referred to as settlement; though it is not a settlement of a trade, the mechanics are similar.

A

exercised

107
Q

In an _____, the transaction must be completed by the second business day (T+2) after the exercise.

A

equity option exercise

108
Q

______ govern the delivery of physical stock and bond certificates in a trade. When a certificate is delivered, it must be:
Endorsed (signed) by all owners whose name appears on the face of the certificate and signed exactly as the name appears.

A

Good delivery rules

109
Q

Instead of signing the back of the certificate, the customer could sign a separate document called a _____. It is common to use a stock power when certificates will be mailed.

A

stock power or bond power.

110
Q

Tombstone Ads Include:

A

The name of the issuer

The expected price range of the offering

The total number of shares being offered

111
Q

What type of activity would be handled by a carrying firm and not an introducing firm?

A

would be handled by a carrying firm and not an introducing firm?

112
Q

This is an offering of stock to raise money for the issuer, which is (2) a primary transaction. The company’s stock is actively trading in the secondary markets so this must be additional shares. What type of offer is this?

A

APO

112
Q

When a broker-dealer buys and sells securities for its own account as the major portion of its business model (e.g., proprietary trading), it is functioning primarily as _____

A

a market maker (i.e., making markets in those securities).

113
Q

What are the criterion under Rule 147?

A

80% of the issuer’s revenue must be generated from a particular state
80% of the issuer’s assets are located in particular state
80% of the issuer’s proceeds will be used in particular state

114
Q

An option trade settles next business day (T+1); the exercise of an equity option settles in ____ days from exercise.

A

two

115
Q

the ____ are ultimately responsible for the accuracy and adequacy of these documents

A

issuers

116
Q

Shares held in ____ are normally registered to the broker-dealer, who hold them on behalf of the client at the broker-dealers clearing firm.

A

street name

117
Q

Public offerings of securities are regulated under the ____

A

Securities Act of 1933.

118
Q

A prospectus will not contain …

A

performance predictions, may not imply endorsement of the SEC, nor will it contain guarantees of gains or guarantees against loss.

SIE Exam (13 decks)

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