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SIE > Equity Securities > Flashcards

Equity Securities Flashcards

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SIE Exam flashcards
1
Q

Common stock can be classified how

A

authorized
issued
outstanding
treasury

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2
Q

What is auth stock

A

max amount that CAN be issued

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3
Q

Are auth stock counted toward the comps total capitalization

A

no

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4
Q

Why might a comp keep unissued stock

A

to raise later
paying stock dividends
exchanging com stock for outstanding convertible bonds or preffered stock

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5
Q

What is outstanding stock

A

Issued stock - treasury stock
(amount of stock held by investors)

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6
Q

What is issued stock

A

All shares the company has issued

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7
Q

What is treasury stock

A

outstanding stock that was bought back by the comp

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8
Q

What is market cap

A

outstanding X current market value

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9
Q

What is a penny stock

A

unlisted
less than 5$/share

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10
Q

Are Penny stocks are considered
speculative
highly speculative

A

highly speculative

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11
Q

What does the SEC require before purchasing a penny stock from a cold call

A

risk disclosure doc

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12
Q

What ongoing things does the BD have to do for a penny stock owner

A

provide monthly statement about the market value, # of shares, and issuers name

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13
Q

What’s the first thing a BD must do during a solicitation for a penny stock to the customer

A

determine sutability based on their finances and objectives

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14
Q

What does a BD disclose and what does the customer sign when they are buying a penny stock during a cold call

A

of shares

they must disclose:
stock name
number of shares to be purchased
current quotation
commission for him and the firm

They must sign the suitability statement

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15
Q

Established customers are exempt from what when buying a penny stock during cold calls

A

suitability statement

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16
Q

What makes an established customer for penny stocks

A

held acc with the BD for a least a year with a deposit
OR
has made 3 or more penny stock purchases of diff issuers on diff days

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17
Q

Unsolicited transactions for penny stock dont have to follow what

A

the suitability and disclosure rules

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18
Q

What are the three types of dividends from com stock

A

cash
stock
product

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19
Q

When are cash dividends on common stock usu dist

A

quarterly

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20
Q

For cash dividends on com stock, what are the two ways they are delivered to the shareholder

A

by check if the shares are paper certs
direct dep if held in street name

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21
Q

Where do stock dividends of com stock come from

A

auth or treasury stock

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22
Q

Consideration for stock dividends of com stock

A

cost per share drops so tax implications when sold

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23
Q

Are stock dividends taxable

A

no

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24
Q

Cash dividends of com stock may be taxed as

A

unqual or qual
unqual is the investors norm income tax rate
qual is based on IRS tax code and the invs income bracket (usu cheaper)

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25
Q

What are the 4 dates of divi disbursements

A

declaration
ex-dividend
record
payable

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26
Q

Acronym for divi disbursement

A

DERP

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27
Q

Which in DERP is set by Regs

A

Ex-dividend

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28
Q

If you wanna vote but cant make it, then what

A

an absentee ballot/proxy is set up

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29
Q

hat are the voting types of com stock and define thme

A

Statutory- 1 vote/share per ballot (can use all shares per ballot)
Cummulative- votes must be split between ballots

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30
Q

Cummulative voting benefits who

A

the small investor

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31
Q

Com stock holders have what rights

A

limited access to the books
meeting minutes
list of other stock holders if reasonable
audited financial statements

32
Q

Whats the risk of com stock at dissolution

A

lowest priority

33
Q

what are some diffs of pref stock vs com

A

fixed rate of return represented by an annual divi
no voting or preemptive rights

34
Q

What are preemptive rights and who has them

A

right to purchase newly issued stock before the public to keep % ownership in the comp
com stock

35
Q

Does pref stock typically have more growth potential than com stock

A

no

36
Q

what are the benefits of pref stock vs com

A

first dibs on divi’s
priority at dissolution

37
Q

what are some risks of pref stock

A

inflation may impact the PP of the fixed income
Interest rate risk (rates rise, the value of the pref stock falls)
Decrease or cease of divi’s

38
Q

If divi’s stop for pref stock, what might happen in the back ground

A

payments are accruing

39
Q

What are the types of pref stock

A

straight
cumulative
callable
convertible
adjustable rate
participating

40
Q

What is straight pref stock

A

doesn’t accumulate if divi’s are missed

41
Q

what is cummulative pref stock

A

Ceased or decreased divi’s accrue

42
Q

what is callable pref stocks

A

comp can buy back at stated prices at specified date
Its like a refi

43
Q

What is convertible pref stock

A

can exchange pref stock for a fixed number of com stock

44
Q

What are the advantages of convertible pref stock

A

if the comp is doing well, they can convert into com stock to enjoy the ride

45
Q

the value of convert pref stock is linked to what and what does that mean

A

com stock bec its assumed it will be converted in the future
it means once the price of the com stock hits the same price as the pref, the pref tracks the com stock

46
Q

What are adjustable rate pref stocks

A

the rate of return is usu linked to a benchmark like T bills or money market rates

47
Q

What are participating pref stocks

A

allowed to get extra divi’s from profits AFTER all divi’s and interest are paid
So it might be described like:
6% preferred participating to 9%

48
Q

What type of pref stock would be the worst to recommend someone wanting fixed income

A

adjustable rate pref

49
Q

What an American Depositary Receipt

A

allows investors to purchase foreign stock where one ADR may represent one or more shares in the foreign company

50
Q

What are the advs and risks of ADRs

A

Most listed on US exchanges
taxes from the foreign country are credits toward taxes in US
political risks of that country
currency exchange rate risk

51
Q

Broadly what does rule 144 Restricted stock and control persons do

A

regs nonstandard offerings
has restrictions on reselling and on control persons

52
Q

How long is the holding restriction for restricted stocks and what will show on the certification of shares

A

6 mo
a warning about the holding period

53
Q

Whats another name for restricted stock

A

legended

54
Q

What must the issuer of restricted stock do before the restricted stock can be sold

A

lift the restriction

55
Q

Are the buyers of previously restricted stock subject to Rule 144

A

no

56
Q

What is a control person for restricted stock

A

10% or more owners

57
Q

What is a rule with family members about control persons

A

if the combined ownership of the family is >10% than everyone is control person

58
Q

What must a control person do to sell their shares and what are the limitations

A

sign form 144

They can sell the greater of either 1% of the outstanding shares of the comp or the average weekly trading volume of the last 4 weeks over the nxt 90 days

59
Q

Other than maintaining ownership %, how can you benefit from Preemptive rights

A

to buy the new issue at below market value
sell the rights to profit from the current and market value diff

60
Q

How many preemptive rights does some have

A

one per share

61
Q

What is a warrant

A

like a right but allows to purchase at future date usu at a specified higher price

62
Q

What is the goal of owning a warrant

A

that the market price is higher than the warrant price by the time you can exercise the warrant

63
Q

Does the total value of a postion change with forward or reverse splits

A

no

64
Q

What is a forward split

A

splits the shares

65
Q

What are the tax implications for splits

A

your cost basis drops

66
Q

Is a stock divi or split a taxable event

A

no

67
Q

What is a merger

A

two or more comps combine
old shareholders are issued new stock
operations and assets are combined

68
Q

What is an acquisition

A

the operations and assets of the bought company are taken over

69
Q

What is a tender offer

A

the company offers to buy a sec directly from the owner without using the secondary market
like a comp buying back its own debt or
buying shares of another company

70
Q

Buybacks and tender offers are usu what because why

A

taxable event bec they usu cash

71
Q

actions like issuing
cash divi
stock divi
rights or warrants
OR
doing a split require what due to regulations

A

the issuer to give notice

72
Q

What needs to be included in the notice of corp actions like divi’s, splits , right, or warrants

A

Title of the security
date of declaration
Date of record
date of distribution
Details depending on which one

73
Q

When should a notice be given for corp actions like divi’s, splits , right, or warrants

A

10 days before record

74
Q

What are the rules for proxy solicitations

A

company needs to provide info of the ballot to the shareholder
SEC needs to review that info before send the proxy
If in a proxy contest:
participants must be registered with SEC
anyone who provide the shareholder with unsolicited advice is considered a participant

75
Q

Whats a member BDs role in proxies and important material

A

to act as a forwarding agent to between the corp/proxy and the shareholder
if proxy sent but how to vote was not indicated, BD must vote based on issuers management recommendations

76
Q

If a proxy is not received by the 10th day before the meeting, then what for the BD

A

vote for the customer as they see fit for minor issues
no vote on major issues

SIE (17 decks)

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