SIE Knowledge of Capital Markets

FDIC provides coverage up to _____ for each deposit ownership ?

$250,000

The basic coverage of SIPC is no more than _____ per separate customer, not per separate Customer

-$500,000 -no more than $250,000 in cash

Four Section of the FINRA Rules and regs

-Conduct Rules - Establishes relationships with customers and firms, fair dealing, standads for communication -Uniform Practice Code (UPC) - Technical aspecst of trading and payment for securities transactions. ex. payment procedure for dividends on common stock -The Code of Procedure (COP)- enforcement of FINRA rules - punishment for violations - appealable to SEC -The Code of Arbitration (COA) - FINRA run dispute resolution process - faster and cheaper than traditional courts - decisions are final and binding.

The Federal Reserve Board (FRB) consists of_____? -Main function of this Board?

-Consists of 12 regional Federal Reserve Banks and hundreds of national and state banks -Determining monetary policy and takes action to implement its policies ****Determines how much money is available for businesses and consumers to spend.

Who is the worlds largest securities depository?

-DTCC (Depository Trust & Clearing Corporation)

Examples of Broker Dealers

-Fidelity Investments -Charles Schwab -Wells Fargo Advisors -TD Ameritrade -Edward Jones -Northwestern Mutual Inv Services

U.S Treasury Department/IRS duties?

-Oversee the collection of taxes -Enforcement of tax laws is duty of IRS which is a bureau of the U.S treasury department -Federal

FINRAs purpose and objectives

-Promote the investment banking and securities business -Provide a medium for communication between members, firms, customers -Adapt, administer and enforce designed to prevent fraud and manipulative activities -Investigate and resolve grievances between the public and its members and also between members

What Does the SEC stand for and what was it created under?

-Securities and Exchange Commission -Created under the Securities Exchange Act of 1934

Capital Markets are also known as...? -What happens in the Capital Markets

-Stock and bond markets -Public and private sectors sell securities to raise funds -Companies raise capital through sale of security such as stocks and bonds issued in the company's name

3 examples of SROs

-The Financial Industry Regulatory Authority (FINRA) -The Chicago Board Options Exchange (CBOE) -The Municipal Securities Rulemaking Board (MSRB)

What does SIPC Stand for? And what act created it ?

-The Securities Investor Protection Corporation -The Securities Investor Protection Act of 1970

North American Securities Administration Associations (NASSA) -state regulation

-Voluntary association -Members provide input to SEC and SROs -Advocates pro investor policies, investor education

Possible penalties for a BD that does not comply with the rules and regs of the SEC when conducting business.

-censure -limits on activities, functions, or operations -supervision of its registration -revocation of registration -fine

What are transfer agents responsible for?

-ensuring that its securities are issued in the correct owners name -Cancelling old and issuing new certificates -maintaining records of ownership -handling problems relating to lost, stolen or destroyed certificates

Define Third Market

A.K.A (Nasdaq Intermarket) Exchange listed securities are traded in the OTC Market.

The Municipal Securities Rulemaking Board (MSRB) regulates what?

All matters related to the underwriting and trading of state and municipal securities. -Regulates but does not have enforcement powers, relies on other SROs for that such as FINRA

The Chicago Board of Options Exchange (CBOE) regulates what?

All matters related to trading standardized options and related contracts listed on that exchange.

How does the FDIC raise funds?

All participating institutions must pay a premium.

Define a trustee

An institution or a person responsible for making all investment, management and distribution decisions in an account maintained in the best in the best interest of another who has been legally appointed to do so.

Define a custodian

An institution or a person responsible for making all investment, management and distribution decisions in an account maintained in the best in the best interest of another.

Define a market.

Any physical place or electronic venue where buyers and sellers can come together for the purpose of trading assets.

Transfer agents are typically.......?

Commercial banks and trust companies

FDIC provides coverage to traditional types of bank deposits including....? Does not include coverage to.....?

Covered -Checking and Saving accounts -money market deposit -self directed IRA accounts NOT covered -mutual funds -annuities -life insurance policies -stock and bonds

Define Fiscal Policy

Governmental decisions enacted by our president and Congress -federal spending -money raised through taxes -federal budget deficits and surpluses

M3 (Money Supply)

In addition to M1 and M2, M3 includes some time deposits of more than $100,000 and repurchase agreements with terms longer than one day.

What is the cost of money called?

Interest

Define Fourth Market

Market for institutional investors in which large block of stock, both listed and unlisted trade in transactions unassisted by BDs.

What needs to happen for the interest rates to fall?

Money available for loans exceeds demand

What does the FDIC do ?

Preserved public confidence in the banking system by insuring deposits.

RR- Registered Representative

Provides advice but not charging separately for it -does not require registration

Who is the securities industry primary regulatory body?

SEC

Define Secondary Markets

Securities sold by one investor to another investor, the issuer is not involved.

What does SRO stand for?

Self Regulatory Organizations

Define an Investor

Someone who provides money or resources for an enterprise.

What determines the rate of interest that must be paid to borrow it?

Supply and demand of money

T/F All BDs that transacts securities business with customers or with other BDs must apply and be approved for registration with the S.E.C

TRUE

T/F BDs must include their SIPC membership on all advertising?

TRUE

T/F Member firms of the SIPC must post a sign on its premises that indicates membership ?

TRUE

T/F SROs function under the oversight of the SEC

TRUE

T/F All BDs registered with the SEC must be SIPC members

TRUE With 3 exceptions -banks that deal exclusively with municipal securities -Firms that deal exclusively in U.S government securities -Firm that deal exclusively with reddemable investment company securities

M1 (Money Supply)

The most readily available. Money that consumers use for ordinary purchases of goods and services. Largest and most liquid component of the money supply.

What is proprietary trading?

Trading the firms own capital

What does the FDIC stand for? When was it created?

_The Federal Deposit Insurance Corporation -Created during the Great Depression of the 1930s

Define a prime broker.

a firm that is chosen by the customer (usually an institution) that provides custody and other services, while other firms called executing brokers handle all trades placed by the customer.

Define a full service BD.

a full service BD offers all types of investment products such as stocks, bonds, mutual funds, options and many others.

What is the SIPC?

a non profit membership organization that pays assessments into a general insurance fund that is used to meet customer claims in an event of a BD Bankruptcy

Define an institutional investor

an entity that pools money to purchase to purchase securities and other investment assets.

Define an issuer

an entity that sells securities to raise capital

Define a retail investor

an individual who makes investments for his/her own personal account rather than for an organization.

Define an investment adviser

anyone as part of his business, gives investment advice for compensation must register as one -Investment Advisers Act of 1940 -Pass tests --> registered

Define a carrying firm

carry customer accounts and accepts funds and securities from customers. -typically among the larger BDs -trade executions, clear and settle transactions, take custody of customer funds and securities and handle all back office tasks. -is required to maintain levels of net capital that is higher than most BDs due to the risk they inherit

Define a market maker

firms that publish quotes to buy and sell securities

Define an underwriter

groups of BDs or investment bankers that work with an issuer to bring its securities to the market and sell them to the investing public.

M2 (Money Supply)

in addition to M1- M2 includes some time deposits (less than $100,000)

define a fully disclosed firm (aka introducing BD)

introduces its customers to a clearing firm -reduces risk as the clearing firm acts as the back office and holds the customers funds -fully disclosed does not need to maintain the level of net capital/essentially less risky

Define Monetary Policy

is what the FRB (Federal Reserve Board) engages in when it attempts to influence the money supply

What is the key advantage of a primer brokerage account?

provides a client with the ability to trade with multiple brokerage houses while maintaining a centralized master account with all of the clients cash and securities.

Define Primary Market

securities are sold to the investing public (issuer transactions), issuer receives proceeds that are generated by the sale.

Define arbitrage

simultaneously buy and sell a security that trades in multiple locations, generating a quick profit

Define an accredited investor

someone who has a net worth of over $1 million and has had an annual income of over $200,000 in each of the past two years (or $300,000 jointly with a spouse) and has a reasonable expectation of reaching the same income level during the current year.

Define a municipal adviser

someone who provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities

What needs to happen for the interest rates rise ?

the demand of money exceeds the supply