Securities Industries Essentials Exam (SIE)

The FDIC guarantees what

$250,000 for each deposit ownership category in each insured bank.

Notice FIling

(1) Method by which a registered investment company and certain other federal covered securities file records with state securities Administrators. (2) SEC-registered advisers (federal covered) may have to provide state securities authorities (the Administrator) with copies of documents that are filed with the SEC and pay a filing fee.

Exempt from registration securities are?

-US government sec's -municipal bonds -commercial paper and banker's acceptances that have maturities of less than 270 days -insurance policies and fixed annuity contracts (BUT NOT VARIABLE ANNUITIES) -national and state bank sec's -building and loan sec's -charitable, religious, educational, and nonprofit association issues -interests in railroad equipment certificates -banks

The Registration Statement must contain:

-a description of the issuer's business -the name and addy of company officers and directors, their salaries, and a five year business history of each -the amount of corporate securities company officers and directors own -the company's capitalization, including its equity and debt -a description of how proceeds will be used -whether the company is involved in any legal proceedings

The Cooling-Off Period:

-after the issuer files with the SEC, a 20 day cooling off period occurs before the registration becomes effective. -SEC usually takes longer than the 20 days, however the minimum is 20 calendar days. *no one can solicit sales during the cooling off period, but indications of interest can be solicited with a red herring. *SEC may issue a stop order if the registration has not met requirements, or if fraud is suspected.

All broker/dealers registered with the SEC must be SIPC memebrs except?

-banks that deal exclusively in municipal securities -firms that deal exclusively in U.S. government securities -firms that deal exclusively in redeemable investment company securities

Initial Public Offering Rules and Regulations:

-members make a bona fide public offering of sec's to the public offering price -members do not withhold sec's in a public position to direct future business to the member -industry insiders such as members and their associated persons, do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers

what are Tombstone Ads limited to?

-name of issuer -type of security being offered -number of shares to be sold -public offering price -names of the UW members

The 4 types of industries and investments are?

1. Defensive Industries 2. Cyclical Industries 3. Growth Industries 4. Special Situation Stocks

What must the Final Prospectus include?

1. Description of offering 2. offering price 3. selling discounts 4. offering date 5. use of the proceeds 6. description of the UWing, but not actual contract 7. stmnt of the possibility that the issue's price may be stabilized 8. history of the business 9. risks to the purchasers 10. description of management 11. material financial info 12. legal opinion concerning the formation of the corp 13. SEC disclaimer

The Business Cycle 4 stages:

1. Expansion 2. Peak 3. Contraction 4. Trough

2 Exemptions to state registration

1. Isolated Non issuer Transactions- transactions occurring in the secondary market that occur infrequently. generally do not involve security professionals. 2. Unsolicited Transactions- transactions initiated by the client not the agent or representative. e.g. if a client calls and request agent to buy or sell securities then this is exempt from registration.

The FRB affects the money supply through its use of three policy tools:

1. open-market ops (buying/selling government securities) 2. changes in the discount rate (on loans to member banks) 3. changes in reserve requirements

Number of days if the security is to be listed on the NASDAQ?

25 days

If the security is NON-NASDAQ, number of days?

45 days

Number days if the security is to be quoted on the OTC or over the OTCBB (NON NASDAQ)?

90 days

Prospectus Delivery Requirement Period:

A final prospectus must be delivered to all buyers in the secondary market for a specified time following the effective date.

Gross Domestic Product (GDP)

All of the goods and services produced within a nation Location based.

Coincident Indicators

Confirm where it is e.g. number of hours worked employment levels etc.

Federal Deposit Insurance Corporation (FDIC)

Created during the great depression in response to bank failures. an independent agency of the US federal government that preserves public confidence in the banking system by insuring deposits.

Largest SRO?

FINRA (Financial Industry Regulatory Authority) regulates all matters related to investment banking, trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons.

The cost of money is called?

Interest

Does the SEC approve any offering for sale?

No; they simply clear, or release the offering for sale

Third Market

Or NASDAQ Inter market trading market in which exchange listed securities are traded in the OTC market. All sec's listed on the NYSE and most sec's listed on the regional exchanges are eligible for OTC trading.

Gross National Product (GNP)

Ownership based. If a foreigner creates a company in the US this will count as GDP, but not GNP. if a US company opens a new plant abroad, this investment will be included in GNP but not GDP.

Prime Brokers

Prime account allows a customer to select one member firm (prime broker) to provide custody and other services, while other firms -called executing brokers- handle all trades placed by the customer. Key Advantage: trading with multiple brokerage houses while still maintaining a centralized master account

Recession vs. Depression

Recession= lasts for 6 months are more Depressions= 18 months or more (6 quarters)

Public vs. Private Securities offering Public-

Regulated under the Securities Act of 1933. Securities are offered and sold to the investing public. This can raise relatively large amounts of capital via the sale of stocks or bonds and may attract investors with smaller budgets

Self-regulatory organizations

SROs - function UNDER the SEC's oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction.

The Securities Act of 1933

The Acts main purpose is to ensure that the investing public is fully informed about a security and its issuing company when the security is first sold in the primary market.

The Effective Date

The Date on which you may sell securities but it is PROHIBITED before.

The Securities Investor Protection Corporation (SIPC) was created under the Securities Investor Protection Act of 1970:

The corporation is a nonprofit membership organization. SIPC members pay assessments into a general insurance fund that is used to meet customer claims in the event of a broker-dealer bankruptcy

FRB (Federal Reserve Board) SELLS securities when they want?

The economy to contract. Money supply goes down, interest rates go up, borrowing and spending for consumers becomes more difficult and the economy contracts.

FRB (Federal Reserve Board) BUY securities when they want?

The economy to expand. Securities comes out of the economy and money goes in

Initial Public Offering (IPO)

The first time an issuer distributes securities to the public is called IPO Any subsequent issuance of new shares to the public is called a subsequent public offering (SPO) or additional public offering (APO)

Balance of payments?

The flow of money between the United States and other countries is known as Balance of payments May be a surplus or a deficit Deficit when interest rates are higher in other countries bc money flows to where it earns the highest return

2. Qualification-

The issuer must respond to any requirement the state specifies. This method is effective only when so ordered by the state sec's administrator

Securities and Exchange Commission (SEC)

The securities industry's primary regulatory body. Broker-Dealers that transact securities business with customer or with other broker-dealers must apply and be approved for registration. SEC regulates all exchanges and trading markets.

Capital Markets

The stock and bond markets. Both public and private sectors sell securities in order to raise funds.

Exchange Rates:

The value of one currency against another. The value of the US dollar against foreign currencies affects the balance of trade. More money flows into the US --surplus. When the dollar is strong, foreign currency buys fewer US goods and vice versa.

4. Trough

When business activity stops declining and levels off is known as Trough

Final Prospectus

When the registration becomes effective, the issuer amends the prelim prospectus and adds info, including the final offering price for the final prospectus

Primary Markets

Where securities are sold to investing public in what are known as issuer transactions.

Firm Commitment Underwriting:

Widely used UW contract. the UW's contract with the issuer to buy the securities. Here the UWs are acting as principals rather than agents.

Inflation

a general increase in prices mild inflation can encourage economic growth bc gradually increasing prices tend to stimulate business investments

Fourth Market

a market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers These take place through ECNs (electronic communication networks) and are open 24 hours a day and act solely as agents.

Investors: Institutional investor-

an entity that pools money to purchase securities and other investment assets. (banks, insurance companies, pensions, hedge funds, and mutual funds)

Investors: Retail investors-

an individual who makes investments such as the purchase of securities for his or her own personal account rather than for an organization

Leading indicators

are spot checks of business activity that reliably predict trends in the economy e.g. money supply, building permits, etc.

Monetarist Theory-

believe that the quantity of money, the money supply, is the major determinant of price levels. They believe a well-controlled, moderately increasing money supply leads to price stability.

The broker loan rate is also known as what?

call loan rate OR call money rate

Best Efforts Underwriting

calls for UWs to buy sec's from the issuer acting simply as an agent, not as the principal. This means that the UW is not committed to purchase the shares themselves and therefore not at risk.

preliminary prospectus (red herring)

can be used as a prospecting tool. allowing issuers and UW's to gauge investor interest and gather indications of interest.

Carrying Firm

carries customer accounts and accepts funds and securities from customers; carrying and clearing firms typically rank among the larger broker-dealers.

1. Expansion

characterized bu increased business activity -- increasing sales, manufacturing, and wages--throughout the economy

SIPC does not cover what?

commodities or commodities futures contracts, because they are not considered securities

The Federal Reserve Board (FRB)

consists of 12 regional federal reserve banks and hundreds of national and state banks that belong to the system. The FRB determines monetary policy and takes actions to implement its policies

Official Statement is used in place of prospectus for EXEMPT securities and says:

contains any material information an investor might need about a municipal bond issue.

Investors: Accredited Investor-

defined as: a net worth of 1 million or more has an annual income of 200K or more in each of the two most recent years

Broker-Dealer

each member firm broker-dealer operates under an individualized membership agreement with FINRA or other SRO. The membership agreement explains with lines of business the broker-dealer undertakes.

Stagnation

economic stagnation refers to prolonged periods of slow or little economic growth, accompanied by high unemployment

3. Growth industries

every industry passes through 4 phases during its existence; intro, growth, maturity, and decline. computers and bio-engineering are current growth industries bc the industry is growing faster than the economy as a whole growth stocks pay little or no dividends

lagging Indicators

factors that change after the economy has begun a new trend but serve as confirmation of the new trend. e.g. average duration of unemployment labor cost per unit of output etc.

Deflation

general decline in prices usually occurs during severe recessions

Economic Theories: Keynesian theory-

government involvment in the economy is vital to the health and stability of a nation's economy

2. Cyclical Industries

highly sensitive to the business cycle; produce durable goods such as heavy machinery, raw materials, etc.

Supply-Side Economic theory-

holds that government should allow market forces to determine prices of all goods. Reduce federal gov. spending as well as taxes.

Two types of best effort UWing: 1. All or None

in an all or none UWing, the issuing corp has determined that it wants an agreement outlining that the UW must either sell all of the shares or cancel the UW.

Federal and State regulatory agencies: Department of the Treasury/IRS

is an executive department and and the treasury of the US federal government. Collection of taxes = IRS

Secondary Offering:

is one which one or more stockholders in the corporation are selling all of a major portion of their holdings to the public; The proceeds of course are then paid to the stockholders not the corporation;

The Securities Act of 1933?

is to require full and fair disclosure in connection with the sale of securities to the public. Requires that a new issue, unless specifically exempted from the Act, must be registered with the SEC

Monetary Policy:

is what FRB engages in when it attempts to influence the money supply. The money supply is the capital available to be lent to consumers and ultimately the money supply.

1. Defensive industries

least affected by normal business cycle; companies in defensive industries generally produce non-durable consumer goods, such as food, drugs, tobacco, etc. or supply services such as utility companies. remains fairly steady; Investments into these is LOW RISK and LOWER investment returns

What UW's CANNOT do during that cooling off period?

make offers to sell take orders distribute sales literature or ads

FOMC (Federal Open Market Committee)

meets regularly to determine whether they need to buy or sell securities to or from banks

Basic coverage under SIPC?

no more than $500,000 per separate customer NOT per separate account (of that 500K, SIPC covers no more than 250,000 in cash.

Private-

occurs when the issuing company, usually with the assistance of an investment bank, sells securities to private investors as opposed to the general investing public. Accredited investors only Generally exempt from the registration requirements of the Securities Act of 1933

Full service BDs

offer all types of investment products: stocks, bonds, mutual funds, options and many others

Primary Offering:

one in which the proceeds raised go to the issuing corporation Done in the Primary market. Corporation increases its capitalization by selling stock

A fully disclosed firm (introducing BD)

one that introduces its customers to a clearing firm

The Uniform Securities Act

provides legal framework for the state registration of securities. Registrations must be renewed annually

Fiscal Policy:

refers to governmental budget decisions enacted bu our President and Congress including increases and decreases in: 1. federal spending 2. money raised through taxes 3. federal budget deficits or surpluses (NOT considered the most efficient means to solve short-term economic problems due to length of time it may take)

SROS: Municipal Securities Rulemaking Board (MSRB)

regulates all matters related to the underwriting and trading of state and municipal securities. Regulates but does NOT have enforcement powers--it depends on other SROS (finra) to enforce its rules.

SROS: Chicago Board Options Exchange (CBOE)

regulates all matters related to trading in standardized options and related contracts listed on that exchange

2. Mini-Max

setting a floor or minimum which is the least amount the issuer needs to raise in order to move forward with the UWing and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell

Investors

someone who provides money or resources for an enterprise, such as a corp, with the expectation of financial or other gain.

4. Special Situation stocks

stocks of a company with unusual profit potential resulting from nonrecurring circumstances. Theses situations might include new management, the discovery of a valuable natural resource, patents pending or the intro of a new product

What UW's CAN do during the cooling off period?

take indications or interest distribute preliminary prospectuses publish tombstone ads

Stagflation

term used to describe the unusual combo of inflation and high unemployment. occurs when the economy isn't growing and there is a lack of consumer demand and business activity, but prices for goods are still rising

2. Peak

the economy can expand for only so long, when it reaches its upper limit, it has reached its peak

Balance of trade?

the export and import of goods and services the LARGEST component of the balance of payments

Broker Loan Rate:

the interest rate banks charge broker-dealers on money that they borrow to lend to margin account customers; Margin accounts allow customers to purchase securities without paying in full. The amount not paid is essentially loaned to the customer by banks and broker-dealers.

Prime Rate:

the interest rate that large US money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans.

2 ways to register securities in a state: 1. Coordination-

the issuer files with the state at the same time it files with the SEC. Can only be used for IPOs (sec's that have not been previously registered with the SEC)

Discount Rate:

the rate the Federal Reserve charges for short term loans to member banks indicates direction of FRB monetary policy A decreasing rate indicates an easing of FRB policy and vice versa.

Federal Funds Rate:

the rate the commercial money center banks charge each other for overnight loans of 1 million or more. It is considered the a barometer of the direction of short term interest rates

tombstone advertisement

this type of ad relating to new issue is allowed to be run prior to the effective date. Bare Bones aka minimum info offered on them Only AD allowed in the cooling off period DO NOT need to be filed with the SEC

3. contraction

when business activity declines from its peak, the economy is contracting. Economists call short-term contractions Recessions Longer more severe contractions are depressions

When debits exceed credits, a deficit in the balance of payments occurs:

when credits exceed debits, a surplus exists

Secondary Market

where securities trade between investors; have one investor selling securities to another and the issuer is not involved in the transaction