SIE Exam study guide 2023/24 with complete solutions

Do common stock holders have to right to inspect all books of a company? No, only certain items suchs as the income statement and balance sheet Order of asset distribution Taxes Secured debt Unsecured debt Preferred stock holders Common stock holders What type of corporate security is considered the riskiest? Common stock Of all securities, common stock has historically Provided the best hedge against inflation, best capital appreciation potential Classifications of marginals securities Registered securities, OTC securities, Regulation T Regarding extension of credit to customers...requires that payment for purchases of securities be received by the 4th business day after the trade (T+4) On what IRS form are gains and losses from securities reported on? 1099b Who must approve stock splits Common share holders must vote to approve a stock split. The split must also be approved by the board Warrants Long-term option to buy stock. Typically issued with an IPO to make investors more interested. Gives IPO investors the right to buy more shares of the company at a set price for x number of years. Can be traded Premium = s-x Preemptive rights Short-term Rights granted to existing shareholders that entitle shareholders to purchase newly issued shares of a corporation's stock, equal in percentage to shares already held, before the stock is offered to outside buyers. Rights can be sold and expire. Max maturity = 90 days If rights are exercised, proportion of ownership remains the same. Outstanding shares/new shares = # of rights to buy 1 share DERP Declaration Ex-date Record date Payable date Serial bonds Series of bonds with one issue date and varying/staggered maturities Balloon maturity A type of maturity schedule for an issue of bonds that shows a relatively small number of bonds maturing serially (each year) and a large number maturing in a later year Current yiels Annual coupon$/current mkt price$ YTM > coupon Bond trades at discount YTM < coupon Bond trades at a premium YTM = Coupon Bond trades at par 1 Point (bonds) $10 - corporate bonds Basis point 1/100 of 1% or .01% Duration Measure of the sensitivity of a bond's market price to changes in interest rates. Ex. Duration of 5 = 5% price move for 1% interest rate move. Trust Indenture Act of 1939 Federal law requiring all corporate bonds to be issued under an INDENTURE agreement approved by the SEC and providing for the appointment of a qualified trustee free of conflict of interest with the issuer. The Act provides that indentures contain protective clauses for bondholders. Regular way settlement for T-notes, bills, and TIPs T+1 in secondary market T+3 in primary auction market Series EE savings bond Non-marketable federal savings bonds. Denominations of $25-$10,000. Insured, cannot be used as collateral for a loan. Redeemable prior to maturity (after 1 year) Max maturity for commercial paper 270 days Series bonds Different issue dates, same maturity date Serial bonds One issue date, staggered maturity dates Interest costs go down over the life of the bonds Funded debt Corporate debt that is due more than one year from the issue date. Includes corporate bonds, notes, and bank loans A bullish options investor would Buy calls or sell puts A bearish options investor would Buys puts or sell calls Securities act of 1933 Investment company regulations Delivery of prospectus to new purchases is required Investment Company Act of 1940 Primary objective: ensure that investors are provided with full and fair disclosure of all information needed to make an informed decision. Negotiated Bidding Determines the managing underwriter for equity securities Competitive Bidding Determines the managing underwriter for bonds Selling syndicate members Other Brokerage Firms involved in the underwriting of a new issue - have financial liability - get underwriters compensation Selling Group A large number of brokerage firms that join the originating investment banker(s); - have no financial liability - get selling concession Securities Act of 1933 Regulates primary market and distribution of new issues of securities Securities Exchange Act of 1934 Protects against unfair and inequitable practices in the Secondary Market Reg D Private placements, new issues primarily offered to Accredited investors accredited investors under Reg D Institutional investors VC firms Tax exempt organizations Directors, execs, partners of issuing firm net worth > $1,000,000 income > $200,000 ($300,000 joint) trust with assets > $5,000,000 Any entity made up of accredited investors 506 (b) Traditional private placement, without general solicitation, to up to 35 non-accredited investors & unlimited accredited investors Restricted Can't sell security for 6 months 506 (c) private placement, with general solicitation, all purchasers must be accredited investors Rule 144 A regulation that provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock. The number of shares that may be sold is limited Rule 144-A allows sale of restricted (unregistered) securities to QIBs during 6 month restricted period Qualified Institutional Buyer (QIB) include insurance companies, banks, trust funds...not individuals Rule 145 requires the registration of transactions sales offers are made as part of a merger, consolidation, or stock reclassification. does not apply to stock splits or changes in par value Rule 147 Intrastate offerings: sales can only be made to full time residents of the state for 6 months from the time of the last issue Blue sky laws State laws that regulate the offering and sale of securities for the protection of the public. RRs must be registered in the individual state and with FINRA Tender offer offer made directly to shareholders to buy all of their shares. price is typically higher than the market price Record keeping requirements Can be in electronic form OR hard copy with firm OR with external service (must notify SEC) Records kept for 3 years: *in readily accessible location for first 2 years Employment applications with B/D Fingerprints of all persons associated with B/D or firm Customer confirmations Copies of orders Names & addresses of beneficial owners of all accounts