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SIE 9-11 Flashcards

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SIE Exam flashcards
1
Q

Difference between ETFs and Index Funds

A

ETFs trade on the secondary market but Index Funds are redeemed by the fund and cannot be sold short or purchased on margin. Both have baskets of securities and low expenses. both are pass through entities and passively managed

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2
Q

what price do you pay for an ETF and when are they priced

A

NAV + Commissions, priced intra-day

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3
Q

An ETF that moves in the opposite direction of the market (if market rises, ETF value falls). Similar to short selling without unlimited risk

A

Inverse ETF

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4
Q

An ETF constructed to deliver 2x to 3x the index it is tracking

A

Leveraged ETFs

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5
Q

Structed unsecured debt that trade on exchanges, have low fees, and provide access to challenging areas of the market, includes market and credit risk

A

Exchange Traded Notes (ETN)

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6
Q

Investment fund for accredited investors, not considered registered investment companies, not required to publish Daily NAVs

A

Hedge Fund

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7
Q

Investment that raises capital through sale of limited partnership unites under the Reg D exemption, accredited investors, unregulated and limited trading opportunities

A

Private Equity / Venture Capital Funds

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8
Q

A company that manages are portfolio of real estate investments in order to earn profits for its shareholders. Subject to regulation requirements of 1933 act. and high dividends

A

Real Estate Investment Trusts REITs

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9
Q

Types of REITS

A
  1. Mortgage / Debt - issue secured loans that are backed by real estate purchases 2. Equity - own and operate income producing real estate (most popular) 3. Hybrid
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10
Q

REITs are not taxed if they distribute x amount of income after expense. Cannot pass through losses

A

90%

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11
Q

What percentage of distributed income from REITS is tax-deductible

A

20%

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12
Q

Methods of offering REITs

A
  1. Exchange (registered w SEC) 2. Registered by not exchange listed, pink market, lack of liquidity 3. Private Placement / Unregistered
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13
Q

Advantages of limited partnerships (DPP)

A
  1. can pass through income and losses 2. Not double taxed, income flows through as passive income, 20% is deducted and remainder is ordinary income 3. limited liability to the amount invested plus loans assumed
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14
Q

disadvantages or limited partnerships

A
  1. Illiquid 2. lack of control (no voting power and no managerial authority 3. effects of tax law change and tax complexity
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15
Q

General partner v limited partner

A
  1. General partner must have 1% interest, managed day to day, fiduciary relationship to limited partners, last to liquidation 2. Passive investor with limited liability, contributes capital, rights to lend money and inspect books and complete, if the negotiate contracts hire or fire or lend name, no longer limited partner
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16
Q

In a limited partnership what is the payout order in liquidation

A

Secured lender - general creditor -limited partner - general partner

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17
Q

How do DPPs raise money

A
  1. Public offering (register with 1933, underwriter used, MLPs) 2. Private placement(more common) securities qualify for exemption from registration through Reg D
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18
Q

Real Estate Limited Partnerships

A
  1. Raw land (speculative, no income, risky) 2. New construction risk of costs overruns and long duration 3. Existing - income producing but potential lease issues 4. Low Income (gov assisted) safest beneficial tax credits, building wont appreciate but subsidized rental income
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19
Q

Oil and Gas Limited Partnerships

A
  1. Exploratory high risk potential high reward 2. Developmental - drilling near existing field 3. Balanced combined of explore and developmental -lower risk 4. Income - lowest risk, buying existing producing wells
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20
Q

DPPs risk

A
  1. mgmt of general partner 2. Illiquid 3. unpredictable income 4. tax and gov reg changes 5. environment occurrences
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21
Q

a type of exchange-traded fund (ETF). It can be used to refer to a specific exchange-traded fund that tracks the S&P 500 or a group of ETFs.

A

Standard & Poor’s Depositary Receipt (SPDR)

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22
Q

A registered representative is NOT permitted to exercise discretion as it relates to what instrument

A

DPPs

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23
Q

who are the parties in the option

A

Writer / seller of the option (short the option and receives the premium) and the Buyer / Owner of the options (pays the premium for the option and right )

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24
Q

In a call option, what is the buyers right and sellers obligation

A

Buyer has the right to buy the stock (hopes the price increases) seller is obligated to sell the stock

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25
Q

In a put option, what is the buyers rights and sellers obligation

A

Buyer has the right to sell the stock (hopes price goes down) and seller is obligated to buy the stock

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26
Q

Components of an equity option

A

Buy or sell a specific number of stock at a fixed price over a certain period of time i.e. Buy 1 ABC June 50 Call at 5 = Call Option to buy ABC 100 shares at 50/ share by the third friday in June and pay 5/share up front

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27
Q

In-the-Money vs Out of the Money for options

A

Calls are in the money when the market price is above the strike price (ignores premiums). Puts are in the money when the market price is below strike price

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28
Q

what is the calculation of a premium in an Option

A

Intrinsic Value (in the money amount) + Time Value (time left until expiration and market volatility, calced by premium less any intrinsic value, aka no intrinsic value the whole premium is time value)

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29
Q

Max life for equity options

A

9 months

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30
Q

LEAPs equity options

A

Long options 39 months until expiration

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31
Q

Break even for calls (both buyer and seller)

A

Strike price + Premium

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32
Q

Break even for puts (both buyer and seller)

A

strike price - premium

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33
Q

Maximum loss for buyers of options

A

premiums

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34
Q

two ways to use options (why use options)

A

Speculation and hedging

35
Q

Short calls (seller) and long puts (buyer) are bearish

A

hope decreases in price

36
Q

Long put protects against what

A

long stock positions

37
Q

Long call protects against what

A

short stock positions

38
Q

American style vs European style options

A

American - options may be exercised any time until expirations and American - options may be exercised on day of expirations only

39
Q

Liquidating options vs Exercising Option

A

Liquidating (selling the options contract on the secondary market) usually includes intrinsic value and time value and has less fees.

40
Q

Issues and Guarantees listed option contracts, eliminates counterparty risk

A

Options Clearing Corporation OCC

41
Q

Trade settlement between OCC and broker deals is how many days

A

T+1 (stock transactions selttle T+2)

42
Q

Trade settlement between OCC and broker deals is how many days

A

T+1 (stock transactions settle T+2)

43
Q

Deadlines for Equity Options

A

Third friday. ceases trading at 4pm ET and 3pm CT. Buyer must submit exercise notices to broker by 5:30pm. Options expire at 11:59. In the money options will automatically be exercised at expiration unless you give counter instructions otherwise

44
Q

Options on an Index

A

Index Options - speculate or hedge based on movement of index, these options are cash settled. The writer pays the buyer the difference between the closing index value and strike price

45
Q

covered vs uncovered calls

A

Covered - own the stock that can be called away Uncovered - you do not own the stock

46
Q

Uncovered options are done in what accounts?

A

Margin accounts, not cash accounts. Covered can be done in margin or cash

47
Q

What is the best hedge for a long position stock

A

Buying a put

48
Q

Public offerings are through the 1933 Act. What are private offerings usually through?

A

Regulation D

49
Q

A private raising of capital by a company that is publicly traded

A

Private Investment In Public Equity PIPE

50
Q

When a company that already had an IPO raises additional funding through a public offering

A

Follow-on offering

51
Q

Primary offerings vs Secondary Offerings

A

Primary - money goes directly to company Secondary - shareholders selling firms (owners of company, VCs, who bought while private) proceeds go to seller not firm

52
Q

A firm Commitment underwriting

A

the Syndicate (BDs doing underwriting) take a firm commitment that they will be responsible for any unsold shares. asks as a principal / dealer

53
Q

Best Efforts underwriting

A

Any unsold shares retained by issuer. Underwriter acting as an Agent / broker

54
Q

Best Efforts - All or None underwriting

A

Offering is cancelled if all share are not sold. Underwriter acting as agent

55
Q

Best efforts - Mini Maxi underwriting

A

Offering is cancelled if a set minimum is not sold. Underwriter acting as an agent

56
Q

Stand By underwriting

A

Syndicate agrees to buy any shares that are not bought through a rights offering - syndicate acting as principal / dealer

57
Q

when an issuer files a registration statement with the SEC and can issue on a delayed basis for up to 3 years

A

shelf registration

58
Q

Provides underwriter ability to cancel the agreement with reasons limited and disclosed in the clause

A

market-out clause

59
Q

A group of investment bankers or BDs that get together to underwrite an IPO

A

Syndicate Members

60
Q

Agreement between the syndicate / leader underwriter and the issuer

A

Underwriting agreement

61
Q

Agreement among syndicate members when underwriting an issuer

A

Syndicate agreement

62
Q

BD accepting no liability only assist in sales, signs selling agreement with Underwiring manager in an IPO

A

Selling Group

63
Q

The underwriting spread

A

Public Offering Price - majority to issuer and the rest to underwriters fee, managers fee (lead mgmr), and concession (selling concession whoever sells that share)

64
Q

Purpose of the securities Act of 1933

A

Full and Fair Disclosure. The SEC Does NOT APPROVE issuances just sets guidance. Requires SEC registration of new issuers

65
Q

What is the liability for issuers regarding information to investors

A

Unconditional. But it is conditional for underwriters as long as they perform reasonable investigation and due diligence

66
Q

What is the registration process

A

Pre-registration period - cooling off period - post registration period

67
Q

What happens during the cooling off period

A

File the registrations statement, issuer distributes preliminary prospectus (red herring), blue sky the issuer (state security laws), and final due diligence meeting is held

68
Q

After-Market Prospectus requirements

A

Distributions participations that sell securities in the after market must provide purchases with a company of the prospectus after the effective date for: 1. non-listed IPOs 90 days, Non-listed follow on 40 days, listed IPO 20 days, exchange listed follow on no requirements

69
Q

Any communication that does not meet the standards of a statutory prospectus

A

free writing prospectus (still need to be filed with the SEC)

70
Q

1933 exempt securities examples

A

US Gov Agency, Municipal Securities, securities issued by banks or non profits, short corp debt (270 days) and securities issued by the Small Business Investment companies. All are still subject to antifraud provisions of the Act

71
Q

Exempt transactions from 1933 act

A

Regulation D - private placement, sale of securities directly to accredited investors / limited (35 max) non-accredited. Regulation d are the safe harbor rules

72
Q

Regulation D- Private Placement

A
  • Unaccredited investors need a purchaser representative who is not an officer, director, or greater than10% owner of the issuer, unless related to the investor. Private placement memorandum (disclosure doc) not required if all investors are accredited
73
Q

Rule that permits the sale of restricted and control stock. Need to file a notice with the SEC by the time the order is placed

A

Rule 144

74
Q

Unregistered stock typically acquired through private placement, or as compensation for senior execs. has a 6 month holding period before it can be sold.

A

Restricted stock

75
Q

Registered stock at is part of the issuers public flat and purchased on the open market by officers, directors, or greater than 10% shareholders

A

Control stock

76
Q

Rule that provides exemption for restricted securities that are sold to Qualified Institutional Buyers. May be equity or debt securities and can be offered by domestic or foreign issuers. The same securities cannot be listed on an exchange. Typically used for corporates debt offerings

A

Rule 144a

77
Q

Rule that regulates the reclassification of one security into a new security. Reclassifications are generally considered sales and subject to registration and prospectus requirements. Usually as a result of merger or acquisitions (considered offerings subject to regulations)

A

Rule 145

78
Q

Provides an exemption for the sale of securities to residents of one state, provides an exemption if one of the following are met: 80% of assets located, 80% of revenues generated, 80% of proceeds used, a majority of issuers employees are based in the state. 100% of initial residents must be in state resales to non-residents are prohibited for 6 months

A

Rule 147 and Rule 147a

79
Q

Municipal bonds (GO and Rev bonds) are exempt from the registration and prospectus requirements

A

True

80
Q

General Obligations require what approval

A

Voter approval (usually backed by taxes) and subject to debt limitations

81
Q

When issuing a revenue bond, this consultant is hired to produce what

A

A feasibility study

82
Q

two methods municipalities use to select an underwriters

A
  1. Competitive Sale (out for bid by publishing a notice of sale) or 2. Negotiated sale (
83
Q

Documents for Municipal offerings

A
  1. Official Statement usually used as a disclosure document (not required) 2. Lega Opinion prepared by bond Counsel which shows issuer is legal and value and tax exempt status, does not show credit rating 3. New Issue Confirmation provided to purchases by settlement date 4. CUSIP (Committee on Uniform Securities Identification Procedures) to identify each security.
84
Q

Electronic information on Municipal Security by MSRB

A

Electronic Municipal Market Access (EMMA)

SIE updated (6 decks)

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