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SIE updated > SIE Chapter 1 and 2 > Flashcards

SIE Chapter 1 and 2 Flashcards

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SIE Exam flashcards
1
Q

Types of Issuers

A

Legal entities that raise capital by issuing securities i.e. corporations, US Treasurey, State and Local governments, bank, foreign government

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2
Q

Types of securities that can be issued

A

Equity (used by corporations, represents ownership) and debt (notes and bonds, issuers promise to pay)

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3
Q

Agent or conduit that finds another party willing to take the other side of the trade

A

Brokers

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4
Q

Firm acts as the principal, takes the other side of the trade, have inventory risk

A

Dealers

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5
Q

Brokers make money though X

A

Commissions

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6
Q

Dealers make money through X

A

Mark up and mark down, the additional fee in addition to the spread

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7
Q

A broker dealer that chooses to display quotes to buy or sell specific securities at a specific price (must buy or sell at lease 100 shares at their quoted price)

A

market maker - subject to SRO rules (self-regulated rules)

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8
Q

Quotes are firm for at least x amount of shares

A

100 shares or “a round lot”

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9
Q

A client’s selling price that a brokerage is firm buying

A

Bid price

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10
Q

Client’s purchase price

A

Ask or Offer price

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11
Q

Difference between bid and ask price

A

Spread

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12
Q

How market makers make money

A

spread

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13
Q

a firm that charges customers fee for managing their securities, fee is based on AUM

A

Investment Advisor (IA)

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14
Q

A firm that advises municipalities on bond offerings and must be registered with the SEC

A

Municipal Advisor (MA)

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15
Q

Investors with large amount of assets to invest (i.e. 50 million)

A

Institutional invetsor

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16
Q

Individual investors without large assets

A

Retail Investor

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17
Q

Examples of Institutional investors

A

Banks, Insurance companies, investment companies corporations, individuals with large amounts of money, registered investment advisors, public and private pension plans, hedge funds

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18
Q

More sophisticated investors who can take on more risk and purchase private placements

A

Accredited Investors

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19
Q

What makes an accredited investor

A

an Institutional or individual who meets the following: net worth of 1 million excluding primary residence or annual income of 200,00 in each of the last two yeas (300k for married)

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20
Q

What makes a Qualified Intuitional Buyer (QIB)

A

Must own and invest a minimum of 100 million in securities and cannot be a natural person (cant be Jeff Bazos but can be his pension plan)

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21
Q

New Issue market when company is raising money through equity or debt (investment bankers help with this by underwriting)

A

Primary Market

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22
Q

What act looks over the primary market, requires SEC registration of new issues, goal to provide full and fair disclosure, must have prospectuses to proceed any solicitation of a new issue.

A

The Securities Act of 1933

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23
Q

Trading market that facilities the exchange of existing financial instruments among investors

A

Secondary market

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24
Q

What act regulates the secondary market, created to enforce securities laws, create margin requirements (reg T), registration requirements for BDs and RR, trading regulation, insider regulations

A

The Securities Exchange act of 1934

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25
Q

Where can securities trade?

A

Exchanges (NYSE or NASDAQ) or Over the Counter (OTCBB and PINK)

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26
Q

Two networks which provide dealers with

quotes on OTC securities, non exchanges just provide real time quotes

A

OTC Bulletin Board (OTCBB) or the Pink Marketplace (a platform that was created by the OTC Markets Group

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27
Q

Role is to facilitate distribution of new issues, assumes liability that varies with offering type

A

Underwriter

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28
Q

When an IPO does not sell all the securities initially, then sells another round of equity

A

Follow-on

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29
Q

Examples of physical or centralized exchanges

A

NYSE, Boston Stock Exchange, Chicago Stock Exchange, only 1 designated market maker per company

30
Q

Non-physical electron exchange with unlimited number or market makers, classified as an securities exchange

A

NASDAQ, still defined as an exchange

31
Q

Non-exchange issue / dealer to dealer market

A

OTC - often low price and thinly traded

32
Q

Market for listed securities traded OTC, trades included in NYSE volume totals

A

Third Market

33
Q

Market for transactions between institutions, most are internal crosses set up by money managers

A

Fourth Market

34
Q

Provides liquidity for large institutional investors (anonymously) and high frequency traders, quotes are not disseminated to the public and limit the impact on the market

A

Dark pools

35
Q

The payment and delivery process between the two parties

A

Settlement

36
Q

electronic system of market centers (i.e., exchanges) that allow for both the quoting and trading of exchange-listed securities and can be used by investors who want to trade anonymously

A

Electronic Communication Networks (ECNs)

37
Q

Securities depository and a national clearinghouse for
the settlement of transactions and automated book entry changes in ownership in equities, corporate, municipal, and U.S. government bonds, mortgage backed securities, money-market instruments, and over-the-counter derivatives. Provide clearing, settlement, and information services, guarantees settlement, removes counterparty risk. Goal is to expand the ability to process transactions by automating clearing and settlement

A

The Depository Trust & Clearing Corporation (DTCC)

38
Q

clears equity trades for both U.S. and foreign issuers

A

National Securities Clearing Corporation (NSCC)

39
Q

clears bond trades

A

Fixed Income Clearing Corporation (FICC)

40
Q

Back office for clearing firms, process trades

A

Introducing (correspondent) firms

41
Q

Two ways for introducing firms to process trades: Fully disclosed vs Omnibus

A

Fully disclosed account - clearing firm is responsible for individual client information, Omnibus account - introducing firm is responsible for individual client information

42
Q

Issues and guarantees options contracts, regulates exchange traded options, dealers directly with broker deals, trade settlement between broker dealers and OCC next business day

A

OCC (Options Clearing Corp)

43
Q

Offers specialized services such as custody, sec lending, margin financing, clearing, processing, and operational support

A

Prime Broker

44
Q

Responsible for providing trade comparison and reporting services, assists brokers dealers in transferring assets in customer accounts to another broker deal, offers customers ability to have real time trade matching

A

clearing corporation

45
Q

Function is to hold securities in book entry form

A

Depository facility

46
Q

Examples of SROs

A

FINRA, MSRB, Exchanges. the SEC is NOT an SRO

47
Q

an independent agency of the US Gov that functions as the US central bank

A

the Federal Reserve Board (FRB)

48
Q

Policy that controls money supply and discount rates, goal is to create max employment and stable prices

A

Monetary Policy

49
Q

Regulates the banking industry and insures banking depositors up to $250,000

A

Federal Deposit Insurance Corp (FDIC)

50
Q

Regulates amounts you have to put down for margins (currently 50%)

A

Regulation T

51
Q

State administrator (or commissioner) enforced uniform securities act, which is a model law, not actual law in any state

A

Sate (Blue Sky) Regulators

52
Q

Responsible for creating provisions an updating the Uniform Securities Act (USA)

A

North American Securities Administrators Association (NASAA)

53
Q

Act that regulates firms that are established as investment advisers (IAs) ABC Test (Advice, Business, Compensation)
 Incidental advisers (lawyers, accountants, teachers, engineers) are excluded from the
adviser definition

A

The Investment Advisors Act of 1940

54
Q

What defines an investment advisor

A

Provides advice, in the business of doing so, and receives compensation. Includes firms that management wrap accounts (i.e. collect a single fee for providing advice and executing transactions)

55
Q

What defines an investment advisor

A

Provides advice, in the business of doing so, and receives compensation. Includes firms that management wrap accounts (i.e. collect a single fee for providing advice and executing transactions). Excludes broker dealers that receive commissions only, banks, savings, and trust companies, professionals (lawyers, accountants, teachers, and engineers, and subscription publishers like WSJ).

56
Q

SEC can take what action (civil or criminal?)

A

Civil only, criminal aka jail time is only by the DOJ

57
Q

Non profit membership corporation, not a government agency, that protects separate customer (not accounts) if a BD bankruptcy accounts. Customers include IRS and joint / custodial accounts .

A

Securities Investors Protection Corporation (SIPC) establish by he Securities Investor Protection Act of 1970 (SIPA)

58
Q

Securities that are held in the name of the broker dealer

A

Street name securities

59
Q

What coverage does Securities Investors Projection Corp (SIPC) provide

A

Cash and street names securities of up to 500k, of which, only 250k can be in cash (no matter what, most would be 500k) . Securities specifically identifiable to a customer are distributed back to the customer without limit. if limits are exceeds, customer becomes a general creditor. Fraud, futures contracts, commodities, and fixed annuities are not covered.

60
Q

Act that defined insides, prohibited use of materials, non-public information, and that both tippers and tipees can be in violation  SEC may sue for treble damages (three-times)
 $5,000,000 maximum fine and/or 20 years imprisonment

A

Insider trading and securities fraud enforcement act of 1988

61
Q

Definition of an insider

A

Corporate officer, director, or owner of 10% or more of a companies common equity.

62
Q

Act regulates the solicited sales of certain low-priced securities to potential new
customers

A

The Penny Stock Reform Act of 1990

63
Q

Amendments created the Municipal Securities Rulemaking Board (MSRB) to act as the SRO for firms
that transact business in municipal securities

A

The Securities Acts Amendments of 1975

64
Q

Act that covers the administration of private, qualified retirement accounts, such as the popular 401(k)
plans.

A

The Employee Retirement Income Security Act of 1974 (ERISA)

65
Q

Defined as non-exchange-traded securities (i.e., OTC equities) that trade for less
than $5 per share.

A

Penny Stock

66
Q

assed to address consumer complaints that related to the practice of cold calling. )
 Do Not Call Lists
 Call time limited to 8:00 a.m. to 9:00 p.m. (customer’s time zone)

A

The Federal Telephone Consumer Protection Act of 1991

67
Q

The purpose of this Act is to deter and punish any terrorist acts that occur both in the U.S. and around the
world,
-Anti-Money Laundering (AMLS)
 Currency Transaction Reports (CTRs) for transactions exceeding $10,000
 Suspicious Activity Report (SAR) for transactions equal to or exceeding $5,000
 Customer Identification Program (CIP)

A

The USA PATRIOT Act of 2001

68
Q

Act regulates companies that are formed to pool together money from investors
and invest the funds in securities mgmt companies, unit investment trusts, face amount certificate companies. More than 100 shareholders
 Minimum $100,000 in assets
 Annual reports to SEC; semiannual reports to shareholders

A

The Investment Company Act of 1940

69
Q

Primary self-regulation organization SRO for the securities industry

A

Financial Industry Regulation Authority (FINRA)

70
Q

Formulates and interprets the rules that apply to broker deals and sales persons in the municipal business and municipal advertising but has zero enforcement power (just makes rules)

A

Municipal Securities Rulemaking Board (MSRB)

71
Q

Who enforces MRSB

A

for broker dealers - FINRA or SEC and for bank dealers - FRB, FDIC, or comptroller of currency

72
Q

Functions as a trading venue for options contracts in individual stocks, stock indexes, interest
rates, as well as exchange-traded funds (ETF) and is also the SRO for the options market

A

Chicago Board Options Exchange (CBOE)

SIE updated (6 decks)

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