Plain-English definitions of key terms for FINRA SIE study, in rough content-outline order. Simplified for learning; FINRA’s official materials are authoritative.
| Term | Definition |
|---|---|
| Securities Industry Essentials (SIE) exam | FINRA’s entry-level exam on basic securities-industry knowledge; open to anyone 18 or older, no sponsorship needed, results valid for four years. |
| FINRA | Financial Industry Regulatory Authority: the self-regulatory organization that oversees broker-dealers under SEC supervision and administers the SIE. |
| SEC | Securities and Exchange Commission: the federal government agency that administers US securities laws and oversees the markets. |
| Self-regulatory organization (SRO) | An industry body, such as FINRA or an exchange, with rulemaking and enforcement power over its members, supervised by the SEC. |
| SIPC | Securities Investor Protection Corporation: protects brokerage customers if a broker-dealer fails; never covers market losses. |
| FDIC | Federal Deposit Insurance Corporation: insures bank deposits up to set limits; does not cover securities or investment losses. |
| Primary market | The market in which an issuer sells new securities to investors and receives the proceeds. |
| Secondary market | The market in which investors trade existing securities with each other; the issuer receives nothing. |
| Initial public offering (IPO) | A company’s first public sale of stock, made in the primary market and sold with a prospectus. |
| Prospectus | The disclosure document giving buyers of a registered new issue the material facts, required under the Securities Act of 1933. |
| Firm-commitment underwriting | An offering in which the underwriter buys the whole issue from the issuer and resells it, bearing the risk of unsold securities. |
| Best-efforts underwriting | An offering in which the underwriter sells what it can as the issuer’s agent; unsold securities remain the issuer’s risk. |
| Broker-dealer | A firm that executes securities trades for customers as agent (broker) or for its own account as principal (dealer). |
| Market maker | A dealer that stands ready to buy and sell a security by quoting two-sided bid and ask prices. |
| Transfer agent | The party that maintains the issuer’s official record of security ownership and handles transfers of certificates. |
| Common stock | Ownership in a corporation, typically with voting rights and a residual claim: common holders are paid last in a liquidation. |
| Preferred stock | Equity with a stated dividend and priority over common stock for dividends and liquidation; usually no vote, and rate-sensitive pricing. |
| Preemptive right | A short-term privilege letting existing shareholders buy new shares, typically below the market price, to avoid dilution. |
| Warrant | A long-term security giving the holder the 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 that lets US investors hold foreign shares conveniently in US markets; it adds currency risk. |
| Coupon | The stated annual interest rate a bond pays, expressed as a percentage of its par value. |
| Zero-coupon bond | A bond issued at a deep discount that 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 conversion 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 its liabilities, divided by shares outstanding; the pricing basis for open-end funds. |
| Open-end (mutual) fund | A fund that continuously issues and redeems its shares at the next NAV calculated after an order arrives. |
| Closed-end fund | A fund with a fixed number of shares that trade 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 investments held in a separate account; a security sold by prospectus, with no guaranteed return. |
| REIT | Real estate investment trust: a pooled real-estate vehicle that trades like a stock and distributes most of its income to investors. |
| Call option | A contract giving the buyer the right to buy the underlying stock at the strike price before expiration; the seller takes the matching obligation. |
| Put option | A contract giving the buyer the right to sell the underlying stock at the strike price before expiration. |
| Systematic risk | Market-wide risk, such as recessions or interest-rate moves, that diversification cannot eliminate. |
| Unsystematic risk | Company- or industry-specific risk that diversification can reduce. |
| Market order | An order to trade immediately at the best available price: execution is certain, the price is not. |
| Limit order | An order setting the worst price the customer will accept; it executes at that price or better, or not at all. |
| Stop order | An order that lies dormant until the market touches the stop price, then becomes a market order. |
| Short sale | Selling borrowed shares in the hope of buying them back cheaper; the potential loss is unlimited. |
| Margin account | An account in which the customer borrows part of the purchase price from the firm; leverage magnifies both gains and losses. |
| Regulation T | The Federal Reserve rule setting initial margin requirements for securities purchases in margin accounts. |
| Regular-way settlement | The standard settlement cycle for most US stock trades: one business day after the trade date (T+1). |
| Anti-money laundering (AML) | Duties under the Bank Secrecy Act to monitor for suspicious activity, file Suspicious Activity Reports and deter money laundering. |
| Churning | Excessive trading in a customer’s account, measured against the customer’s objectives, 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 that information to others; prohibited. |
| Form U4 | The uniform application an individual files through a member firm to register with FINRA; it discloses employment and disciplinary history. |