1.2 Important Definitions In The Securities Industry Flashcards
Before a security can be traded, it must be issued to the public through what?
THE PRIMARY MARKET
In order to sell securities to the public, issuers (companies) usually use the services of?
An investment bank, also known as an UNDERWRITER
What is a PRIMARY OFFERING?
When the investment bank purchases securities from the issuer at a discount and then sells them to investors
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
UNDERWRITING SPREAD
The UNDERWRITING SPREAD is?
The underwriters commission
INITIAL PUBLIC OFFERING (IPO)
The first time a company issues and sell stock to the public
A FOLLOW-ON OFFERING is
If a company issues more shares after an IPO
A SECONDARY OFFERING is
The sale of securities by existing holders, such as insiders, institutional investors, or venture capitalists.
Both IPOs and follow on offerings are part of the primary market because?
The issuer (Company) is receiving the proceeds from the sale of the shares.
Most issues of securities are subject to federal regulations but exempt from ________ regulations
STATE
BLUE-SKY LAWS
Subject to federal regulations but exempt from state regulations.
Offerings include securities listed on a major exchange, mutual funds and most private placements.
OTC Securities are often subject to
State regulations
Trading between investors takes place in the?
Secondary market
None of the proceeds go to the company
All of the proceeds go to the investor who sold it
“Securities Trading” refers to?
Buying and selling securities
Secondary market transactions or executed by?
Brokers and Dealers
BROKERS
Individuals or firms that act as liaisons between the buyer and seller and take a commission for doing so
DEALERS
Individuals or firms that buy and sell securities out of their own inventory of securities
A dealer is said to be a?
Principal to the trade
Because a dealer is risking its own money, and the transaction adds to or depletes the dealers own account
BROKER-DEALERS
May perform either role, depending on the situation.
Financial firms may not act as both broker and dealer on the same transaction.
All broker dealers that do business across state lines must register with the?
SECURITIES AND EXCHANGE COMMISSION (SEC)
The SECURITIES AND EXCHANGE COMMISSION (SEC)
The primary federal regulator for the securities industry.
The (SEC) oversees?
SELF REGULATORY ORGANIZATIONS (SROs)
Examples;
NASDAQ
NEW YORK STOCK EXCHANGE
FINRA
NASDAQ is a?
SELF REGULATORY ORGANIZATION
The NEW YORK STOCK EXCHANGE is a ?
SELF REGULATORY ORGANIZATION
All broker dealers must become members of a?
SELF REGULATORY ORGANIZATION (SRO)
The biggest SELF REGULATORY ORGANIZATION is?
FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)
FINRA is responsible for?
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.
“MEMBER FIRM” means?
A firm that is a “member” of FINRA.
REGISTERED REPRESENTATIVE
A person actively engaged in the management of the firms investment banking or securities business, including;
sole proprietors, officers, partners, and managers.
PRINCIPALS are the?
Managers working in a broker-dealer
ASSOCIATED PERSON is?
A person employed by a broker dealer
ASSOCIATED PERSONS include?
Registered Representatives
Principals
Partner
Officer
Director
Branch Manager
ASSOCIATED PERSONS do NOT include?
Jobs that are solely clerical or ministerial
SECURITIES EXCHANGE ACT OF 1934 defines an EQUITY SECURITY as?
STOCK
CERTIFICATE
TRANSFERABLE SHARE
LIMITED PARTNERSHIP INTEREST
JOINT VENTURE
CONVERTIBLE SECURITY
WARRANT
RIGHT
OPTION such as a PUT, CALL or STRADDLE
What does SECURITY mean?
A claim on an asset
THE HOWEY DECISION came up with 4 characteristics that define a security…?
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
Examples of SECURITIES include?
STOCK
BOND
MUTUAL FUND
OPTIONS
OIL AND GAS PARTNERSHIPS
ADRs and GDRs
VOTING TRUST CERTIFICATES
WARRANTS OR RIGHTS
CMOs
INVESTMENT CONTRACTS
REITS
NOT a SECURITY
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
Certificates of deposit offered by a bank are a SECURITY? TRUE OR FALSE
FALSE
They are not considered securities
