Chapter 1 Terms Flashcards
Security
It constitutes and investment on money w/ expectations of profits. Can be ownership interest (equity) or creditor relationship (debt obligation).
Equity Security
Investors purchase shares of a company to profit of company gains. Risky for investor, conservative for issuer. Issuer has no obligation to give money back.
Debt Security
Investors purchase company debt by lending money to a company as a credit. Risky for issuer, conservative for investor, and the issuer is obligated to give money back.
Securities Exchange Commission (S.E.C.)
Regulates securities markets in the U.S. as a whole. Created by the Securities Exchange Act of 1934. In 1938 it was given authority to establish other “self regulatory organizations” (SRO’s).
National Association of Securities Dealers (NASD)
First membership to regulate organizations within assigned jurisdictions, comprised of the broker-dealer firms.
Financial Industry Regulatory Authority (FINRA)
An SRO that regulates participants in the “over the counter” (OTC) markets as well as the New York Stock Exchange (NYSE). Its a successor to the NASD.
Self Regulated Organization (SRO)
Non-federal agencies that enforce federal securities laws on their members and are accountable to the SEC. They work within assigned jurisdictions. Examples include the National Association of Securities Dealers (NASD), and the Financial Industry Regulatory Authority (FINRA).
Primary market transaction/Primary Offering
When securities are traded between investors, through secondary market transactions. Some include stock exchanges, over the counter (OTC) market, or sometimes both.
Exchange listed securities
Priced by auction on the trading floor. An example are like exchanges on the New York Stock Exchange (NYSE).
Brokerage houses
Purchase securities for their customers at the lowest available/asked offering price, or sell at the highest bid.
Over The Counter (OTC) Securities
Are priced by negotiation rather than auction, and have no centralized trading location. They are regulated by the Financial Industry Regulatory Authority (FINRA).
Broker Dealers/Market Makers
Maintain inventory of Over The Counter (OTC) securities to sell to other broker dealers for their inventory at their bid price.
Member
Any individual, partnership, corporation, or legal entity admitted to membership in the Financial Industry Regulatory Authority (FINRA).
Associated Person (AP)
Any employee, manager, director, officer, or partner of a member broker-dealer or authority entity (issuer, bank), or any person controlling, controlled by, or in common control with that member.
Broker
An individual/firm that charges a fee or commission for executing buy and sell orders, submitted by another individual/firm.
Dealer
Any person engaged in the business of buying and selling securities for their own account, and at their own risk, either directly or through a broker, that is not a bank, then charges customers a markup or markdown.
Customer
Any individual/person/partnership/corporation/legal entity that is “not” a broker dealer, or municipal securities dealer. -(The Public)
Difference between Stocks and Bonds
“Stocks” represent equity or ownership in a company.
“Bonds” are a loan to a company.
Balance Sheet
Disclosed composition of a company’s total capitalization of debt and equity.
Assets
What a company owns, cash in the bank, accounts receivable (money owed), investments, property, inventory.
Liabilities + Networth = Assets
Liabilities
What a company owes, accounts payable (current bills it must pay), short term and long term debt and other obligations.
Net Worth (Shareholders Equity)
the excess value between assets and liabilities.
Assets - Liabilites = Networth
Total Capitalization
Networth + Long term debt
Common Stock
1 of the 2 types of stock that corporations issue. Primary means of raising capital, investors share ownership in company net worth. What ever the business owns (assets - liabilities) belongs to the business owners (its stockholders).
Authorized Stock
Authorized by state for a corporation to issue or sell stock of a specific number of shares as part of its original charter. Note: if they want/need to sell more shares they much amend its charter through a stockholder vote that approves more shares.
Issued Stock
Authorized, then can be issued to investors. It’s not considered in “total capitalization”. Note: it does not have rights like voting/dividends.
Treasury Stock
A stock that a corporation has issued and repurchased from the public. Note: it does not have rights like voting/dividends.
Outstanding Stock
Any shares that a company issued but has not repurchased. Basically an “investor owned stock”.
