Free SIE Flashcards

Where existing securities trade between investors. The issuer is not a party. Most exchange trading happens here.

OTC trading of exchange-listed securities. Lets institutions trade outside the listing exchange when it suits them.

Direct trades between institutional investors, typically through electronic networks. Bypasses exchanges and broker-dealers.

Exchanges are centralized auction markets with listed securities (e.g., NYSE). OTC is a dealer network of negotiated trades (e.g., Nasdaq, most corporate bonds).

Electronic Communications Network. Computerized system that matches buy and sell orders directly between participants outside a traditional exchange.

A dealer that quotes a two-sided market (bid and ask) and stands ready to buy or sell from its own inventory. Provides liquidity.

A dealer buys and sells from its own account (acts as principal). A broker matches buyers and sellers and charges commission (acts as agent).

Initial Public Offering. The first time a company sells stock to the public. Proceeds go to the issuer.

Additional Public Offering. A public company issues more stock after its IPO. Also called a follow-on offering.

An offering of shares already outstanding, sold by existing shareholders. The issuer does not receive the proceeds.

Public offerings require SEC registration and a prospectus. Private offerings are exempt from registration (e.g., Reg D) and have limited investor access.

A group of underwriters formed to share the risk and effort of selling a large new issue.

A broker-dealer that helps an issuer bring a new security to market by buying it from the issuer and reselling to investors.

Firm commitment: the underwriter buys the entire issue and bears unsold-inventory risk. Best efforts: the underwriter sells what it can and returns the rest unsold.

SEC rule that exempts certain offerings from full registration. Rule 506(b) and 506(c) are the most common pathways for private issuers.

Governs the primary market. Requires registration and a prospectus for new public offerings. Nicknamed the "Truth in Securities" or "Paper Act."

Governs the secondary market. Created the SEC, regulates exchanges and broker-dealers, and prohibits insider trading.

Securities and Exchange Commission. Federal agency that oversees U.S. securities markets and enforces federal securities laws. Created by the 1934 Act.

Financial Industry Regulatory Authority. Self-regulatory organization (SRO) that oversees broker-dealers and registered representatives in the U.S.

Municipal Securities Rulemaking Board. Writes rules for the municipal securities market. Does not enforce its own rules — that falls to FINRA and the SEC.

Securities Investor Protection Corporation. Protects brokerage customers if a member firm fails, up to $500,000 per customer (with a $250,000 cash sub-limit).

SIPC protects brokerage accounts against broker-dealer failure (up to $500k, $250k cash). FDIC protects bank deposits. Neither covers ordinary market losses.

New York Stock Exchange. Centralized auction market with listed equity securities. Uses designated market makers (DMMs) to provide liquidity.

Electronic dealer market. Operates without a physical trading floor and uses competing market makers rather than a single specialist.

Disclosure document that accompanies a new public issue. Contains material facts about the issuer and the offering. Required under the Securities Act of 1933.

Expansion, peak, contraction (recession), trough. The economy cycles through these stages over time.

Phase of the business cycle marked by rising GDP, falling unemployment, and increasing corporate profits.

Phase marked by declining economic output. Commonly defined as two consecutive quarters of negative GDP growth.

Actions by the Federal Reserve to influence the money supply and interest rates. Tools include open market operations, the discount rate, and reserve requirements.

Government decisions about taxation and spending. Set by Congress and the President — not the Fed.

Federal Open Market Committee. The Fed body that sets monetary policy and decides the federal funds target rate.

The interest rate the Fed charges banks for short-term loans from its discount window. A monetary policy tool.

Minimum percentage of deposits that banks must hold in reserve rather than lend out. A traditional Fed tool.

Ownership in a corporation. Carries voting rights, a residual claim on assets, and potential dividends. Last in line in a liquidation.

Equity with a fixed dividend and priority over common stock in dividends and liquidation. Usually does not carry voting rights.

Preferred stock where missed dividends accumulate as "dividends in arrears." All arrearages must be paid before common shareholders see a dividend.

Preferred stock that can receive extra dividends beyond the stated rate when the company performs above a threshold.

Preferred stock that can be converted into a fixed number of common shares at the holder's option.

Common stockholders typically vote on board members and major corporate actions. Preferred shareholders usually do not vote.

A distribution of cash to shareholders, declared by the board of directors. Paid out of after-tax earnings.

The issuer increases the number of shares outstanding and proportionally reduces the price per share. A 2-for-1 split doubles shares and halves price.

The principal amount the issuer agrees to repay at maturity. Also called par value. The standard for corporate bonds is $1,000.

The annual interest rate the issuer pays on the bond's face value. A 5% coupon on a $1,000 bond pays $50 per year.

The date the issuer is obligated to return the bond's face value to the holder. Coupons stop accruing after this date.

Annual coupon income divided by the bond's current market price. Reflects the income return at today's price.

The total return an investor would earn if the bond is held to maturity, including coupons and any capital gain or loss vs purchase price.

The yield earned if the issuer calls the bond at the first call date. For a premium callable bond, this is usually the lowest yield disclosed.

Interest that has built up between coupon payment dates. The buyer of a bond pays the seller for accrued interest at settlement.

A bond that lets the issuer redeem the bond before maturity, usually at par or a small premium. Reduces upside for the holder if rates fall.

An order to buy or sell at a specific price or better. Buy limits execute at or below the limit price; sell limits at or above. Price is guaranteed; execution is not.

An order to buy a security at a specified price or LOWER. Used by buyers who want to pay no more than a target price.

An order to sell a security at a specified price or HIGHER. Used by sellers who want to receive no less than a target price.

An order that becomes a market order once the stop price is hit. Buy stops trigger above the current price; sell stops trigger below. Used to limit losses or protect profits.

A stop order to buy that becomes a market order when the stock rises to a specified price. Used to limit losses on a short position or to enter on upward momentum.

A stop order to sell that becomes a market order when the stock falls to a specified price. Used to limit losses on a long position.

A stop order that becomes a LIMIT order (not a market order) when the stop price is hit. Avoids surprise execution prices in fast markets but risks no execution if the limit isn't met.

An order that expires at the end of the trading day if not executed. The default time-in-force on most orders.

An order that remains active until the customer cancels it or the broker's GTC period expires (often 60-90 days). Used to leave standing limit orders in the market.

An order that must execute immediately, in whole or in part. Any unfilled portion is cancelled. No standing portion left in the market.

An order that must execute immediately AND in full, or it's cancelled entirely. No partial fills allowed.

A qualifier on buy-limit or sell-stop orders. Prevents the order price from being reduced when the stock goes ex-dividend. Without DNR, those orders are automatically reduced by the dividend amount.

The highest price a buyer is currently willing to pay for a security. Sellers can immediately sell at the bid.

The lowest price a seller is currently willing to accept for a security. Buyers can immediately buy at the ask.

The difference between the ask price and the bid price. Wider spreads indicate less liquidity; tighter spreads indicate more liquidity.

Owning a security with the expectation that its price will rise. Profit when price goes up. Maximum loss is the original investment.

Selling borrowed securities with the expectation of buying them back at a lower price. Profit when price falls. Theoretical loss is unlimited if price rises.

Regular trading session: 9:30 AM to 4:00 PM Eastern Time. Pre-market and after-hours sessions exist but have lower liquidity and wider spreads.

Automatic pauses triggered by extreme price movements. Designed to prevent panic selling and give markets time to absorb information. Apply to individual securities or the entire market.

Trades settle one business day after the trade date. Effective since May 2024 (previously T+2). Applies to most U.S. equity and corporate bond trades.

Trade executed on a Tuesday settles on Wednesday (1 business day later). Trade on Friday settles on Monday (skipping the weekend). Holidays push settlement out further.

The day the transaction is executed in the market. Settlement happens later according to the settlement rule (T+1 for most equities).

The day ownership officially transfers and payment is due. For most U.S. securities, this is one business day after the trade date under T+1.

Same-day settlement — trade settles on the trade date itself. Used in special situations. Cash settlement orders must be entered before a cutoff time in the trading day.

The date the company's board announces a dividend. The four key dividend dates: declaration, ex-dividend, record, and payment.

The first day the stock trades WITHOUT the right to the upcoming dividend. Under T+1 (effective May 2024), the ex-date is typically the SAME day as the record date. To receive the dividend, you must buy BEFORE the ex-date.

The date the company checks its books to identify which shareholders receive the dividend. Under T+1, this typically falls on the same day as the ex-dividend date.

The date the company actually distributes the dividend to qualifying shareholders. Typically several weeks after the record date.

The legal owner of a security after settlement is complete. To be a settled owner on the record date, you must buy the stock before the ex-dividend date so T+1 settlement completes in time.

An account where the customer must pay in full for every purchase by settlement date. No borrowing allowed. Simplest account type and required for retirement accounts.

An account that allows the customer to borrow from the broker to buy securities. The customer puts up part of the purchase price; broker lends the rest. Securities serve as collateral.

Federal Reserve rule that governs the initial margin requirement for purchases in a margin account. Currently sets initial margin at 50%.

The percentage of a purchase the customer must pay upfront in a margin account. Under Reg T, this is 50% — buy $10,000 of stock, deposit $5,000 in cash or equity.

The minimum equity the customer must maintain in a margin account. FINRA's minimum is 25% for long positions. If equity falls below maintenance, a margin call is issued.

A demand from the broker for additional funds when account equity falls below the maintenance margin requirement. If unmet, the broker can liquidate positions to cover the shortfall.

A Reg T call is issued when initial margin isn't met on a new purchase. A house call is issued when account equity falls below the broker's own (often stricter) maintenance requirement, which can exceed FINRA's 25% minimum.

You deposit 50% of the purchase price; the broker loans the rest. Buy $10,000 of stock: deposit $5,000, broker loans $5,000 (debit balance). LMV = $10,000, debit = $5,000, equity = $5,000.

An account owned by one person. That person has sole authority and tax responsibility. Simplest account type.

A joint account where, upon death of one owner, that owner's interest passes to the surviving owner(s) automatically. Bypasses probate. Common between spouses.

A joint account where each owner has a divisible interest. Upon death, the deceased owner's share passes to their estate (per their will), not to the surviving owner.

A joint account form available only to married couples in some states. Includes rights of survivorship plus creditor protections. Both spouses must consent to transactions.

Available in community-property states. Property acquired during marriage is owned equally by both spouses, regardless of who earned it.

An account where the broker has written authorization to make trades without consulting the customer for each transaction. Requires prior written customer approval AND firm principal approval.

A custodial account for a minor. Limited to securities and cash gifts. The custodian manages assets until the minor reaches the age of majority (varies by state).

A broader custodial account for minors. Allows a wider range of assets (real estate, collectibles, etc.) than UGMA. Adopted by most states; UGMA is the older, narrower version.

The minor owns the assets; the custodian only manages them. Once the minor reaches the age of majority, control transfers to the minor irrevocably.

An account owned by a trust, managed by the trustee for the benefit of the beneficiary. The trustee follows the terms of the trust agreement. Common in estate planning and asset protection.

An account opened in the name of a deceased person's estate. Managed by the executor or administrator. Used during probate to liquidate or transfer the deceased's assets.

A tax-deferred retirement account. Contributions may be tax-deductible. Withdrawals in retirement are taxed as ordinary income. Required minimum distributions begin at a specific age set by the IRS.

A retirement account funded with after-tax contributions. Qualified withdrawals in retirement are tax-free. No required minimum distributions during the original owner's lifetime.

Traditional: tax deduction now, taxed in retirement. Roth: no deduction now, tax-free in retirement. Choice depends on whether your current tax bracket is higher or lower than your expected retirement bracket.

An employer-sponsored retirement plan. Employees contribute pre-tax (traditional) or after-tax (Roth) dollars, often with employer matching. Higher contribution limits than IRAs.

A 10% IRS penalty on retirement account withdrawals before age 59½, in addition to ordinary income tax. Exceptions exist for hardship, first-home purchase, education, and disability.

Moving funds from one retirement account to another (e.g., 401(k) to IRA). Direct rollovers move funds trustee-to-trustee with no tax impact. Indirect rollovers must be redeposited within 60 days.

The document completed when opening a new brokerage account. Captures customer identification, financial profile, investment objectives, and risk tolerance. Required before any trading.

Required by the USA PATRIOT Act. Firms must verify customer identity at account opening: full name, date of birth, address, and Social Security or tax ID number. Part of AML compliance.

The broader requirement to understand a customer's identity, financial situation, and investment objectives. Informs suitability and Reg BI determinations on every recommendation.

Written authorization allowing one person to act for another. Limited POA covers specific transactions; full POA grants broader authority. Required for discretionary trading on someone else's account.

Full legal name, date of birth, address, Social Security or tax ID, employment status, financial profile, investment objectives, and risk tolerance. Firms may collect additional details depending on account type.