1.2 Important Definitions In The Securities Industry

Question 1

Before a security can be traded, it must be issued to the public through what?

Answer 1

THE PRIMARY MARKET

Question 2

In order to sell securities to the public, issuers (companies) usually use the services of?

Answer 2

An investment bank, also known as an UNDERWRITER

Question 3

What is a PRIMARY OFFERING?

Answer 3

When the investment bank purchases securities from the issuer at a discount and then sells them to investors

Question 4

The difference between the price at which the investment bank purchases the securities from the issuer and the higher price at which the investment bank sells the securities to the investor

Answer 4

UNDERWRITING SPREAD

Question 5

The UNDERWRITING SPREAD is?

Answer 5

The underwriters commission

Question 6

INITIAL PUBLIC OFFERING (IPO)

Answer 6

The first time a company issues and sell stock to the public

Question 7

A FOLLOW-ON OFFERING is

Answer 7

If a company issues more shares after an IPO

Question 8

A SECONDARY OFFERING is

Answer 8

The sale of securities by existing holders, such as insiders, institutional investors, or venture capitalists.

Question 9

Both IPOs and follow on offerings are part of the primary market because?

Answer 9

The issuer (Company) is receiving the proceeds from the sale of the shares.

Question 10

Most issues of securities are subject to federal regulations but exempt from ________ regulations

Answer 10

STATE

Question 11

BLUE-SKY LAWS

Answer 11

Subject to federal regulations but exempt from state regulations.

Offerings include securities listed on a major exchange, mutual funds and most private placements.

Question 12

OTC Securities are often subject to

Answer 12

State regulations

Question 13

Trading between investors takes place in the?

Answer 13

Secondary market

None of the proceeds go to the company

All of the proceeds go to the investor who sold it

Question 14

“Securities Trading” refers to?

Answer 14

Buying and selling securities

Question 15

Secondary market transactions or executed by?

Answer 15

Brokers and Dealers

Question 16

BROKERS

Answer 16

Individuals or firms that act as liaisons between the buyer and seller and take a commission for doing so

Question 17

DEALERS

Answer 17

Individuals or firms that buy and sell securities out of their own inventory of securities

Question 18

A dealer is said to be a?

Answer 18

Principal to the trade

Because a dealer is risking its own money, and the transaction adds to or depletes the dealers own account

Question 19

BROKER-DEALERS

Answer 19

May perform either role, depending on the situation.

Financial firms may not act as both broker and dealer on the same transaction.

Question 20

All broker dealers that do business across state lines must register with the?

Answer 20

SECURITIES AND EXCHANGE COMMISSION (SEC)

Question 21

The SECURITIES AND EXCHANGE COMMISSION (SEC)

Answer 21

The primary federal regulator for the securities industry.

Question 22

The (SEC) oversees?

Answer 22

SELF REGULATORY ORGANIZATIONS (SROs)

Examples;

NASDAQ

NEW YORK STOCK EXCHANGE

FINRA

Question 23

NASDAQ is a?

Answer 23

SELF REGULATORY ORGANIZATION

Question 24

The NEW YORK STOCK EXCHANGE is a ?

Answer 24

SELF REGULATORY ORGANIZATION

Question 25

All broker dealers must become members of a?

Answer 25

SELF REGULATORY ORGANIZATION (SRO)

Question 26

The biggest SELF REGULATORY ORGANIZATION is?

Answer 26

FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)

Question 27

FINRA is responsible for?

Answer 27

Regulating the over-the-counter (OTC) securities markets.

It also plays a role in regulating the exchanges. This role includes writing and enforcing its rules.

It also is responsible for registering broker dealers throughout the security industry.

Question 28

“MEMBER FIRM” means?

Answer 28

A firm that is a “member” of FINRA.

Question 29

REGISTERED REPRESENTATIVE

Answer 29

A person actively engaged in the management of the firms investment banking or securities business, including;

sole proprietors, officers, partners, and managers.

Question 30

PRINCIPALS are the?

Answer 30

Managers working in a broker-dealer

Question 31

ASSOCIATED PERSON is?

Answer 31

A person employed by a broker dealer

Question 32

ASSOCIATED PERSONS include?

Answer 32

Registered Representatives

Principals

Partner

Officer

Director

Branch Manager

Question 33

ASSOCIATED PERSONS do NOT include?

Answer 33

Jobs that are solely clerical or ministerial

Question 34

SECURITIES EXCHANGE ACT OF 1934 defines an EQUITY SECURITY as?

Answer 34

STOCK

CERTIFICATE

TRANSFERABLE SHARE

LIMITED PARTNERSHIP INTEREST

JOINT VENTURE

CONVERTIBLE SECURITY

WARRANT

RIGHT

OPTION such as a PUT, CALL or STRADDLE

Question 35

What does SECURITY mean?

Answer 35

A claim on an asset

Question 36

THE HOWEY DECISION came up with 4 characteristics that define a security…?

Answer 36

An investment of money

Involving a common enterprise

In which the investors expect to make a profit

The profits will be derived from the efforts of someone other than the investor

Question 37

Examples of SECURITIES include?

Answer 37

STOCK

BOND

MUTUAL FUND

OPTIONS

OIL AND GAS PARTNERSHIPS

ADRs and GDRs

VOTING TRUST CERTIFICATES

WARRANTS OR RIGHTS

CMOs

INVESTMENT CONTRACTS

REITS

Question 38

NOT a SECURITY

Answer 38

Commodities

Futures contracts

Precious metals

Currency such as rare coins

Real estate

Antiques and collectibles

Retirement plans such as IRAs and keogh plans

Fixed annuities and other insurance contracts that don’t have a “variable” feature

Question 39

Certificates of deposit offered by a bank are a SECURITY? TRUE OR FALSE

Answer 39

FALSE

They are not considered securities