Podcast
Questions and Answers
What is an issuer?
What is an issuer?
Entities that raise capital (provide liquidity) through securities.
What are five examples of issuers? (Select all that apply)
What are five examples of issuers? (Select all that apply)
- US Treasury & Government Agencies (correct)
- Corporations (correct)
- State and Local Governments (correct)
- Foreign Governments (correct)
- Banks (correct)
What types of securities may be issued?
What types of securities may be issued?
Equity and Debt.
What does equity represent in finance?
What does equity represent in finance?
What is debt in financial terms?
What is debt in financial terms?
Who bridges the gap between issuers and investors?
Who bridges the gap between issuers and investors?
What is a dealer?
What is a dealer?
What is a broker?
What is a broker?
Markup occurs when a client is buying and a firm is selling at a ______.
Markup occurs when a client is buying and a firm is selling at a ______.
Markdown occurs when a client is selling and a firm is buying at a ______.
Markdown occurs when a client is selling and a firm is buying at a ______.
What is the broker-dealer department known as Investment Banking?
What is the broker-dealer department known as Investment Banking?
What is the broker-dealer department known as Research?
What is the broker-dealer department known as Research?
What do you call the broker-dealer department known as Private Client?
What do you call the broker-dealer department known as Private Client?
What is a market maker?
What is a market maker?
What is a bid price?
What is a bid price?
What is an ask price?
What is an ask price?
What is the spread?
What is the spread?
What does a wider spread indicate for a market maker?
What does a wider spread indicate for a market maker?
What is an Investment Adviser?
What is an Investment Adviser?
What is a Municipal Advisor (MA)?
What is a Municipal Advisor (MA)?
What is a Qualified Institutional Buyer (QIB)?
What is a Qualified Institutional Buyer (QIB)?
What is the primary market?
What is the primary market?
What is an IPO?
What is an IPO?
What are OTCBB and OTC Pink Markets?
What are OTCBB and OTC Pink Markets?
Who monitors trading in exchanges?
Who monitors trading in exchanges?
What is DTCC?
What is DTCC?
Who are the owners of DTCC?
Who are the owners of DTCC?
What does the Options Clearing Corporation (OCC) guarantee?
What does the Options Clearing Corporation (OCC) guarantee?
What is Prime Brokerage?
What is Prime Brokerage?
Study Notes
Issuers
- Entities that raise capital by providing liquidity through securities.
- Examples include corporations, US Treasury, state and local governments, banks, and foreign governments.
Types of Securities
- Equity represents ownership, primarily issued by corporations through stock.
- Debt includes notes and bonds, representing the issuer's promise to pay and a method for raising funds.
Financial Firms
- Broker-dealers (BD) and investment advisers (IA) act as intermediaries between issuers and investors.
- Brokers operate as agents, facilitating trades for clients without taking on risk, earning commissions.
- Dealers act as principals, taking on the other side of a trade, and are entitled to markups/markdowns on sales.
Market Mechanisms and Pricing
- A market maker displays quotes to indicate the readiness to buy/sell securities, maintaining an inventory.
- Bid price is the price at which a client can sell, while ask price is what a client pays to buy, with the difference known as the spread.
- Actively traded securities typically have a smaller spread, indicating lower costs for investors.
- Wider spreads increase profitability for market makers.
Broker-Dealer Departments
- Investment Banking: Arranges and structures issuances and assists in mergers and acquisitions.
- Research: Provides buy, sell, or hold recommendations.
- Private Client: Also known as retail brokerage, deals directly with individual investors.
- Sales: Markets individual and packaged securities to retail and institutional clients.
- Trading: Executes trades.
- Operations: Manages paperwork and securities transfers according to industry standards.
- Information Barriers: Prevent certain information sharing between departments to avoid insider trading risks.
Investment Advisers and Advisors
- Investment Advisers charge fees for portfolio management based on assets under management (AUM).
- Municipal Advisors serve municipalities regarding bond offerings and must register with the SEC.
Institutional Investors
- Defined as entities with large assets, including banks, insurance companies, and pension plans.
- Accredited investors have a net worth of at least $1 million or certain income thresholds.
Markets
- Primary Market: The new issue market where issuers hire underwriters to facilitate distribution.
- IPO: Initial Public Offering marks a company's first sale of stock to the public, followed by follow-on offerings.
- Secondary Market: Trading of stocks post-IPO, facilitated through exchanges like NYSE and NASDAQ or OTC markets.
Trading Venues and Market Structure
- OTC includes low-priced, thinly traded issues not listed on exchanges.
- Third Market: Listed securities traded over-the-counter.
- Fourth Market: Direct transactions between institutions.
- Dark Pools provide anonymous trading platforms for institutional investors.
Clearing and Settlement
- DTCC (Depository Trust Clearing Corporation) centralizes and automates trade clearing to reduce costs and increase speed.
- NSCC (National Securities Clearing Corporation) focuses on equities, while FICC (Fixed Income Clearing Corporation) handles debt.
- Clearing firms facilitate order execution and settlement, while introducing firms work alongside clearing firms to connect clients.
Options and Prime Brokerage
- OCC (Options Clearing Corporation) guarantees options contracts, acting as a counterparty for trades.
- Prime Brokerage offers centralized trade clearing for large clients, facilitating execution across multiple broker-dealers.
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Description
Test your knowledge with flashcards covering key concepts from Chapter 1 of the SIE exam, including definitions of issuers, types of securities, and examples of issuers. This quiz is a valuable resource for anyone preparing for the Securities Industry Essentials exam.
