WEEK 1: Market Regulators & Taxation of Securities Flashcards
memorize terms
regulatory authorities
congress, SEC, commodity future trading commission, FINRA, Exchanges
Securities and Exchange Commission (SEC)
independent US regulatory agency established to enforce Congressional securities laws
Self-regulatory Organizations (SROs)
FINRA, exchanges, MSRB, clearing houses, industry organizations
Financial Industry Regulatory Authority (FINRA)
private, non-profit regulatory entity with the mission of safeguarding the investing public against fraud and bad practices
Municipal Securities Rulemaking Board (MSRB)
regulatory, non-profit entity with the mission to protect the public who invest in state/local government debt
Securities Exchanges
exchanges provide an efficient and transparent platform to trade securities (secondary market)
Securities Act of 1933
new securities, full disclosures, prospectus, prohibit fraud
Securities Exchange Act of 1934
created SEC, registration broker-dealers, 10k fillings all publicly-traded securities
Maloney Act of 1938
established NASD
Investment Company Act of 1940
regulation of all investment companies that are open to the public,
Investment Advisers Act of 1940
establishes standards for persons deemed to be investment advisers
Federal Deposit Insurance Co (FDIC)
government agency that examines and supervises financial institutions. protected assets include traditional bank products for up to $250,000
Securities Investor Protection Co (SIPC)
non-proft, member-based entity that insures customer accounts at SIPC-member brokerage firms. protected assets include securities held in street name and up to $500,000
Institutional investors
business entities (asset managers, pension funds, insurance companies, mutual funds, etc.)
Retail investors
general public who buy/sell securities for own account. non-professional investors (self-directs or advised)
“Accredited” retail investors
considered sophisticated retail investors who are capable of informed decisions without regulatory protection. Based on assets (>1M excluding residence) income (200/300k test over last two years with expectation of same in the current year) and/or relevant certifications
broker-dealer (firm)
as a dealer, the firm will buy securities for their own accounts and then sell those securities to customers. as broker, they serve as an intermediary between customer and a third party. Apart of DTCC and OCC.
brokers (registered representative)
employed by broker-dealer and act in an agent capacity, build a customer book of business, solicit and receive customer buy or sell orders
investor advisers vs municipal advisers
investor advisers receive compensation for offering investment advice. municipal advisers are registered professional offering advice about municipal financial products to states, cities, and districts
market makers
firm or individual who is willing to buy and sell a particular security on a continual basis and publish bid-ask quotes. profits by buying at the bid and selling at the ask
traders
buys and sells securities for customers or own account, do not provide market-maker duties. profit from customer fees or gains on own account.
custodians
firm that holds and safeguards customer securities and cash
trustees
legal ownership of trust and power to manage assets. beneficiary holds equitable title to property
depositories and clearing corporations
process daily security transactions and trades
Depository Trust Clearing Corporation (DTCC)
settles stock, bonds, mortgage-backed securities, mutual fund and money market trades.
Option Clearing Corporation (OCC)
settles option and future trades
transfer agents
keep track of individuals and entities that own company securities
issuers
company that offers equity or debt to investors in exchange for the capital contribution
underwriters
analyze company issue to determine fair price. intent is to bring security to market at a price that will be filled by demand.
private offering
placement to one or small group accredited investors, terms can be customized, exempt from SEC, lack of liquidity
public offering
placement to the general public which requires SEC, high costs, 4 types
Qualified Institutional Buyers
QIB status necessary in order to buy private placements, restricted stock, below investment grade securities.
Follow-on offering (after IPO)
issuing company offers additional set of shares into marketplace, thereby diluting the number of existing shares, SEC registration and prospectus.
Content of Prospectus
describes essential information about security issue, company information, underwriters, type of offering, share count, business objective/strategy, etc
secondary offering
following IPO, existing shareholder offers large number of shares to the public, typically offered at a discount to market price
stock rights offering
allows existing shareholders to purchase additional shares (right), number of shares is in proportion to current percentage of ownership in company
primary market
market where new or existing securities are offered to institutional or retail investors for first time
secondary market
market in which retail investors and institutional investors trade exchange-listed securities, physical stock exchange or electronic market
third market
over the counter, large-block trades between institutional investors and/or broker-dealers
fourth market
over the counter trading of non exchange listed securities directly between two institutions, without broker-dealer
ordinary income taxes
applied on earned income, passive income, portfolio interest, ordinary dividends
capital gain taxes
sale of capital assets, including financial securities and property, and qualified dividends
ordinary stock dividends
cash, stock or property paid out to shareholders. dividends paid from profits or retained earnings are taxed as ordinary income
qualified companies
dividends from domestic and certain foreign companies that meet the IRS definition. taxed at long-term capital gain rates
