Achievable SIE Exam with 100% correct answers

issuer an organization that distributes and sells securities to investors security legal term for investment (stocks, bonds, mutual funds, options, ETFs) equity formal term for ownership two ways to make money on common stock 1. capital appreciation/gains 2. cash dividends retained earnings profits retained by a company that are often used to expand and reinforce business operations, NOT paid by dividend growth companies direct profits back into operations and do not pay dividends, grow faster than the general economy rights of common stockholders - right to pro-rate share of dividends - right to vote - right to inspect books and records - right to maintain proportionate ownership - right to vote for stock splits - right to assets upon liquidation - right to transfer ownership types of dividends - cash: paid on a per share basis on common stock - stock: payment of extra shares, same value of position overall - product: in form of inventory or another company's stock, not common bc taxable regardless of investor's desire for product board of directors (BOD) group of individuals voted in by stockholders (one vote per share), large influence over direction and success of company statutory vote stockholder applies only the amount of votes they have to each BOD position being voted on, better for large stockholders cumulative vote stockholder applies total amount of votes they have to any BOD position being voted on, better for small stockholders proxies voting materials used by investors unable to attend the annual meeting two dilutive effects on ownership issuance of new shares, issuance of convertible securities forward stock split increase numbers of shares, lowers price; same overall value, require stockholder approval reverse stock split decrease number of shares, raise price; same overall value, require stockholder approval order of rights to assets upon liquidation 1. unpaid wages 2. unpaid taxes 3. secured creditors (lien) 4. unsecured creditors (no lien) 5. junior unsecured creditors 6. preferred stockholders 7. common stockholders *lien: right to property if a loan can't be repaid transfer agent maintains book of stockholders, issues and redeems shares when a transaction occurs, distributes proxies and dividends to stockholders types of shares authorized, issued, outstanding, treasury rights pre-emptive right: right to purchase new shares at a fixed price before they're publicly offered (to maintain percent ownership without dilution) - have intrinsic value at issuance -little time value, short term (90 days or less) -outcomes: exercise, trade, expire warrants issued at a fixed exercise price at a premium to the market price, as a "sweetener" directly from the company during the sale of another security - no intrinsic value at issuance - have time value, long-term (typically 5 years +) - outcomes: exercise, trade, expire negotiable securities trade in the secondary market between investors redeemable securities purchased directly from the issuer, not another investor primary distribution sale of securities occurs and proceeds go to the issuer secondary distribution stock is sold to the public for the first time, but shares were previously owned by a party other than the issuer (officers or directors) types of market within secondary market -first market: listed stocks trade on stock exchanges -second market: unlisted stocks trade OTC -third market: listed stocks trade OTC -fourth market: institutions trade through ECNs broker-dealers financial companies that primarily help their customers buy and sell securities introducing brokers smaller broker-dealers that primarily maintain relationships with customers and facilitate their trades clearing brokers large broker-dealers that maintain custody, process orders, and provide clearing services in addition to facilitating trades for their customers; acts as intermediary between investors and clearinghouses clearinghouse an organization responsible for ensuring a trade is properly finalized, ensures buyers deliver cash and sellers deliver securities settlement types regular-way: two business days after trade cash: same day if executed by 2:30 pm selling short selling borrowed securities, bearish, unlimited risk *only for sophisticated investors with high risk tolerance cash dividend dates declaration date, record date, ex-dividend date, payable date declaration date the day the BOD publicly declares the dividend record date stockholder must be on the books by this date, controlled by BOD ex-dividend date investors buying the stock don't receive the dividend, investors selling the stock keep the dividend stock: one business day prior to record date cash: day after payable date controlled by NYSE for NYSE trades, controlled by FINRA for OTC market payable date when dividend is paid to shareholders, controlled by BOD, reportable to IRS on this date Financial Industry Regulatory Authority (FINRA) a self-regulatory organization (SRO) that is empowered to enforce laws and regulations in finance American depositary receipts (ADRs) US-registered receipts for foreign investments created by domestic financial firms with foreign branches, traded in US dollars in US markets -subject to currency exchange risk -no voting or preemptive rights - dividends paid in USD -foreign gov't tax withholding creates a US tax credit holder of ADR benefits from weak US dollar or strong foreign currency buyer of ADR benefits from strong US dollar or weak foreign currency Securities Exchange Act of 1933 requires most issuers to register securities with the SEC, divulge any "material" information tender offers proposal to purchase a security from current investors at a premium to market price, most likely as part of a hostile takeover of a company - current investors must be long in stock, can't tender if short position - offer must be at least 20 business days, and if the offer changes it must be available for at least 10 additional business days common stock suitability comes with considerable market risk which makes it generally suitable for younger investors, hedge against inflation because the stock market outpaces inflation over time buybacks issuers repurchase their own stock, raises EPS systematic risk negatively affects the entire market, cannot be diversified away - market: investment is negatively affected by a general downturn in the market - inflation: purchasing power risk, prices rise more than expected non-systematic risks affects specific investment/sector, can be reduced by diversification; smaller company = higher risk profile - financial, business, regulatory, liquidity, concentration financial risk high debt levels negatively affect company performance