SIE Chapter 1 Flashcards
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Questions and Answers

What is an issuer?

Entities that raise capital (provide liquidity) through securities.

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?

    Equity and Debt.

    What does equity represent in finance?

    <p>Ownership in a corporation.</p> Signup and view all the answers

    What is debt in financial terms?

    <p>Notes and bonds representing an issuer's promise to pay.</p> Signup and view all the answers

    Who bridges the gap between issuers and investors?

    <p>Financial Firms: BDs &amp; IAs.</p> Signup and view all the answers

    What is a dealer?

    <p>Acts as a principal, taking the other side of trades and making a profit.</p> Signup and view all the answers

    What is a broker?

    <p>Acts as an agent and collects commission for facilitating trades.</p> Signup and view all the answers

    Markup occurs when a client is buying and a firm is selling at a ______.

    <p>higher price.</p> Signup and view all the answers

    Markdown occurs when a client is selling and a firm is buying at a ______.

    <p>lower price.</p> Signup and view all the answers

    What is the broker-dealer department known as Investment Banking?

    <p>Underwriter, assists issuers with structuring their securities.</p> Signup and view all the answers

    What is the broker-dealer department known as Research?

    <p>Provides recommendations for buy, sell, or hold.</p> Signup and view all the answers

    What do you call the broker-dealer department known as Private Client?

    <p>Retail Brokerage.</p> Signup and view all the answers

    What is a market maker?

    <p>A BD that displays quotes to buy/sell securities at specific prices.</p> Signup and view all the answers

    What is a bid price?

    <p>The price at which a client is selling to a brokerage firm.</p> Signup and view all the answers

    What is an ask price?

    <p>The price at which a brokerage firm is selling to a client.</p> Signup and view all the answers

    What is the spread?

    <p>The difference between the bid and ask price.</p> Signup and view all the answers

    What does a wider spread indicate for a market maker?

    <p>Makes more profit.</p> Signup and view all the answers

    What is an Investment Adviser?

    <p>A firm that charges a fee for managing portfolios.</p> Signup and view all the answers

    What is a Municipal Advisor (MA)?

    <p>Advises municipalities on bond offerings and must be registered with the SEC.</p> Signup and view all the answers

    What is a Qualified Institutional Buyer (QIB)?

    <p>Buyer must own and invest a minimum of $100 million.</p> Signup and view all the answers

    What is the primary market?

    <p>The new issue market where issuers hire underwriters to facilitate sales.</p> Signup and view all the answers

    What is an IPO?

    <p>Initial public offering, a corporation's first offer to sell shares to the public.</p> Signup and view all the answers

    What are OTCBB and OTC Pink Markets?

    <p>They are the two systems for real-time quotations for OTCs.</p> Signup and view all the answers

    Who monitors trading in exchanges?

    <p>Specialist or Designated Market Maker.</p> Signup and view all the answers

    What is DTCC?

    <p>Depository Trust Clearing Corporation that automates and centralizes trade clearing.</p> Signup and view all the answers

    Who are the owners of DTCC?

    <p>BDs, Investment Banks, Mutual Funds, commercial banks.</p> Signup and view all the answers

    What does the Options Clearing Corporation (OCC) guarantee?

    <p>Guarantees all options contracts.</p> Signup and view all the answers

    What is Prime Brokerage?

    <p>A service offered to large clients to centralize trade executions with multiple broker-dealers.</p> Signup and view all the answers

    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.

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