Knowledge of Capital Markets Flashcards
SEC- Securities Exchange Commission
The securities industries primary regulatory body, regulates all exchanges and trading markets
SROS- Self Regulatory Organizations
Function under the SEC’s oversight, each SRO is accountable to the commission for enforcing the federal securities laws and supervising practices within an assigned jurisdiction.
What is the largest SRO?
FINRA
FINRA- Financial Industry Regulatory Authority
Regulates all matters related to investment banking
FINRA’s Purpose & Objectives
- promote investment banking securities business
- provide a medium for communication among members & pther agencies
- Adopt, administer & enforce rules
- Investigate grievances
MSRB- Municipal Securities Rulemaking Board
Regulates all matters related to underwriting and trading of state and municipal securities- does not have enforcement powers
USDT- US Dept of Treasury
Function= collect taxes
FRB- Federal Reserve Board
determines monetary policy and takes action to implement these
SIPC- Securities Investor Protection Act 1970
nonprofit membership corporation- pay assessments into a general insurance fund that is issued to meet customer claims in the event of broker/dealer bankruptcy
SIPC basic coverage amount?
500K per customer, only 250 in cash
FDIC- Federal Deposit Insurance Corp.
independent agency of US government that preserves public confidence in the baking system-ENSURES DEPOSITS.
Retail Investor
makes investments like purchasing securities for his/her own personal account rather than for an organization
Institutional Investor
Entity that pools money to purchase securities and other investment assets- can include banks, insurance companies pensions, hedge funds, etc.
Accredited Investor
- Net worth of 1 Million or more
2. Annual income of 200K or more or 300K with a spouse
Carrying Accounts
carries customer accounts and accepts funds and securities from customers- rank is among the larger broker/dealers - full capacity to do trade executions- clear and settle transactions, send confirms- statements
Fully Disclosed Firms
introduces customers to a cleaning firm- clearing firm holds securities- acts as back office
Prime Brokers
member selected to provide custody and other services
Underwriters
groups of broker/dealers or investment bankers that work with an issuer to bring securities to the market
Issuers
Entity/ cooperation wishing to offer securities for sale to the public for purpose of raising capital
Market Maker/Trader
entity willing to accept risk of holding a particular security. - stand ready to buy or sell- make the market money
DTCC
worlds largest securities depository - provides custody services for virtually all securities
Capital Markets
stock and bond markets
Primary Market
securities are sold to the investing public in what are known issuer transaction- issuer recieves the proceeds generated by the sale.
Secondary Market
where securities are traded between investors ( example is stock exxhanges
Third Market
NASDAQ intermarket- trades securities
Forth Market
market for institutional investors where large blocks of stock both listed and unlisted trade unassisted by broker dealers - open 24 Hours a day and act soley as agents
Federal Reserve Board- Policy tools
1, buying/selling securities
(changes in the discount rate on loans to member banks
Changes in reserve requirements
Monetary Policy
What the Federal Reserve board engages in when it attempts to influence money supply.
Fiscal Policy
government budget decisons by our congress and president – federal spending, money raised through taxes, deficits or surplusses
Federal Open Market Commitee
Directs government open market committee- when the FOMC buys securities it increases the supply of money, when it sells it decreases
Federal Funds rate
rate the commercial money center banks charge eachother for overnight loans of 1 million or more- its a baramoter of the direction of short term interest rates
Discount rate
rate the Fed’s charge for short term loans to banks
Prime Rate
interest rate that US money center commerican banks change their most credit worthy corporate borrowers for unsecured loans.
Call Loan Rate
Broker loan rate is the interest rate banks charge broker dealers on money they borrow to margin accounts
Stagflation
The unusual combination of inflation and high unemployment- generally occurs when the economy inst growing and there is a lack of consumer demand, but prices for goods are still rising
Defensive Industries
least affected by normal business cycles, typically non durable consumer goods (food, tobacco, pharmaceuticals, and general essential things like utility
Cyclical Industries
Highly sensitive to business cycles- example, heavy machinery, raw materials- steel and automobiles
Growth Industries
computers and biengineering are current growth- these grow faster than the economy as a whole
Special situation stocks
stocks of a company with an unusual profit potential resulting in non reoccurring circumstance example- new management, patent pending- new products
Keynesian Theory
Demand for goods ultimately controls employment prices - believed it was the governments right to manipulate overall demand - therefore artificially manipulate the economy. Fiscal policies help determine econ health
Monetarist Theory
Believe the amount of money in the system is a major influence on economic performance.
Supply Side economics
government should allow market forces to determine prices of all goods.
Balance of Payments
flow of money between the US and other contries
GDP
all goods and services produced within the nation
Primary offering
proceeds raised go to the issuing corporation
Public Securities Offering
regulated under the securities act of 1933- sold to the investing public
Securities act of 1933
requires full and fair disclosure in connection with the sale of securities- also requires to be registered from SEC before public sale
IPO- Initial Public Offering
the first time an issuer distributes securities to the public, anytime after its a APO- additional public offering.
Cooling off period
20 day period - no one can solicit sales. However you can indicate interest - called red herring
Tombstone Advertisements
bare bones and minimum information provided.- announcement and description of securities to be offered - not required to be filed with the SEC
Shelf Offering Registration
issuer of already public traded company can register new securities without selling any of the shares until later, or some of the shares initially, and waiting to sell the remaining portion of the shares- they are good for two years. - This allows issuers to raise capital when needed or when market conditions are favorable
USA- Uniform Securities Act
Legal framework for state registration of securities (blue sky)
Isolated nonissuer transactions
occur in secondary market- non issuer that are infrequent - these transactions generally do not involve securities professionals
unsolicited transactions
initiated by the client not the agent or representative
preliminary prospectus or red herring
prospecting tool- allows underwriters to gauge interest -no final price is included in this-
