SIE Flashcards

All 45 terms

SIE exam

FINRA's entry-level securities exam: open to anyone 18+, no sponsorship needed, results valid four years.

FINRA

The self-regulatory organization that oversees broker-dealers under SEC supervision and administers the SIE.

SEC

The federal government agency that administers US securities laws and oversees the markets.

Self-regulatory organization (SRO)

An industry body (FINRA, an exchange, the MSRB) with rulemaking and enforcement power over members, supervised by the SEC.

SIPC

Protects brokerage customers if a broker-dealer fails; never covers market losses.

FDIC

Insures bank deposits up to set limits; does not cover securities or investment losses.

Primary market

Where an issuer sells new securities to investors and receives the proceeds.

Secondary market

Where investors trade existing securities with each other; the issuer receives nothing.

Prospectus

The disclosure document giving buyers of a registered new issue the material facts; required under the Securities Act of 1933.

Firm-commitment underwriting

The underwriter buys the whole issue and resells it, bearing the risk of unsold securities; in a best-efforts deal the issuer keeps that risk.

Broker-dealer

A firm that executes trades for customers as agent (broker) or for its own account as principal (dealer).

Common stock

Corporate ownership with voting rights and a residual claim: paid last in a liquidation.

Preferred stock

Equity with a stated dividend and priority over common; usually no vote, and rate-sensitive pricing.

Preemptive right

A short-term privilege letting existing shareholders buy new shares, typically below market price, to avoid dilution.

Warrant

A long-term right to buy the issuer's stock at a set price, usually above the market price when issued.

American Depositary Receipt (ADR)

A negotiable receipt letting US investors hold foreign shares in US markets; adds currency risk.

Zero-coupon bond

Issued at a deep discount, pays no periodic interest, and matures at face value.

General obligation (GO) bond

A municipal bond backed by the issuer's full faith, credit and taxing power.

Revenue bond

A municipal bond repaid from the income of a specific project, such as a toll road or utility.

Debenture

A corporate bond backed only by the issuer's general creditworthiness, with no specific collateral.

Convertible bond

A corporate bond exchangeable for the issuer's common stock; the feature usually allows a lower coupon.

Commercial paper

Short-term, unsecured corporate debt sold at a discount to meet near-term funding needs.

Net asset value (NAV)

A fund's assets minus liabilities, divided by shares outstanding; the pricing basis for open-end funds.

Open-end (mutual) fund

Continuously issues and redeems shares at the next NAV calculated after an order arrives (forward pricing).

Closed-end fund

A fixed number of shares trading on exchanges at premiums or discounts to NAV.

Exchange-traded fund (ETF)

A fund, typically index-tracking, whose shares trade on an exchange throughout the day like a stock.

Unit investment trust (UIT)

A fixed, unmanaged portfolio of securities that self-liquidates on a set termination date.

Variable annuity

An insurance contract whose value depends on separate-account investments; a security sold by prospectus, with no guaranteed return.

REIT

A pooled real-estate vehicle that trades like a stock and distributes most of its income to investors.

Call option

The buyer's right to buy the underlying stock at the strike price before expiration; the writer takes the matching obligation.

Put option

The buyer's right to sell the underlying stock at the strike price before expiration.

Systematic risk

Market-wide risk, such as recessions or rate moves, that diversification cannot eliminate.

Unsystematic risk

Company- or industry-specific risk that diversification can reduce.

Market order

Trade immediately at the best available price: execution certain, price not.

Limit order

Sets the worst acceptable price; executes at that price or better, or not at all.

Stop order

Dormant until the market touches the stop price, then becomes a market order.

Short sale

Selling borrowed shares hoping to buy them back cheaper; potential loss is unlimited.

Margin account

The customer borrows part of the purchase price from the firm; leverage magnifies gains and losses.

Regulation T

The Federal Reserve rule setting initial margin requirements for securities purchases.

Regular-way settlement

The standard cycle for most US stock trades: one business day after the trade date (T+1).

Anti-money laundering (AML)

Bank Secrecy Act duties to monitor for suspicious activity, file Suspicious Activity Reports and deter laundering.

Churning

Excessive trading in a customer's account to generate commissions; prohibited.

Front running

Trading ahead of a known customer order for the firm's or representative's own benefit; prohibited.

Insider trading

Trading on material, nonpublic information, or passing it to others; prohibited.

Form U4

The uniform application filed through a member firm to register with FINRA; discloses employment and disciplinary history.