SIE cheat sheet

Primary market transactions direct proceeds to the issuer (IPO or new offering); secondary market transactions direct proceeds to the selling investor, not the issuer.

Money market = original maturities of one year or less (T-bills, commercial paper, negotiable CDs, banker's acceptances). Capital market = equities and debt with maturities greater than one year.

Federal Reserve tools: open market operations, the discount rate, and reserve requirements. Buying securities adds reserves and lowers short-term rates; raising the discount rate or reserve requirement tightens policy.

Yield curve shapes: normal (long rates above short), flat (little difference across maturities), inverted (short rates above long, a historical recession signal).

Fiscal policy = government taxation and spending, controlled by Congress and the Treasury. Monetary policy = money supply and interest rates, controlled by the Federal Reserve.

Firm commitment underwriting: the syndicate buys the whole issue and absorbs unsold shares. Best efforts: the syndicate acts as agent and the issuer bears unsold risk. All-or-none: the deal cancels if the minimum is not sold.

Securities Act of 1933 registers new issues (registration statement, prospectus, red herring, tombstone). Securities Exchange Act of 1934 created the SEC and governs secondary trading and broker-dealer registration.

SIPC covers up to $500,000 per customer of a failed broker-dealer, with a $250,000 cash sublimit. FDIC covers deposits up to $250,000 per depositor, per bank, per ownership category.

GDP = C + I + G + (X - M). Balance sheet identity: assets = liabilities + shareholders' equity.

Common stock: residual claim, voting rights, last in liquidation, no maturity. Preferred stock: stated dividend, priority over common, usually no vote, credit and interest-rate sensitive.

Bond prices and yields move inversely. Longer maturity and lower coupon mean greater interest rate (duration) risk; lower credit quality means greater default risk.

Rights: short-lived, subscription price below market, distributed to existing shareholders. Warrants: long-lived, exercise price typically above market when issued, often attached to bonds.

Debenture = unsecured corporate bond; mortgage bond = secured by real property. The indenture names a trustee who represents bondholders' interests.

General obligation municipal bonds are backed by the issuer's taxing power; revenue bonds by a specific project's cash flow. Municipal interest is generally exempt from federal income tax but may be subject to AMT and state tax.

T-bills: one year or less, sold at a discount. T-notes: 2 to 10 years. T-bonds: over 10 years. TIPS principal adjusts with the CPI; STRIPS are zero-coupon securities.

Options: the buyer pays a premium and holds a right; the writer receives the premium and bears an obligation. A call buyer is bullish, a put buyer is bearish, and the buyer's maximum loss is the premium.

Open-end funds price at the next-computed NAV (forward pricing, once daily at 4:00 p.m. Eastern). Closed-end funds and ETFs trade intraday at market prices.

Systematic risk (market, interest rate, inflation, political) cannot be diversified away. Non-systematic risk (business, credit, liquidity) can be reduced through diversification.

A limit buy executes at or below the limit and a limit sell at or above it. A stop order becomes a market order when the stop price trades, so the execution price is not guaranteed.

Reg T initial margin is 50% for long and short positions; FINRA maintenance is 25% long and 30% short. A pattern day trader executes 4 or more day trades in 5 business days and must maintain $25,000 equity.

Regular way settlement is T+1 for stocks, corporate bonds, municipal bonds, and options; U.S. Treasuries settle on the next business day.

Short sale mechanics: borrow shares, sell, then buy back to cover. Maximum loss is unlimited and the position requires 30% maintenance margin with shares available to borrow.

Prohibited practices include insider trading, wash trades, matched orders, painting the tape, churning, front-running, selling away, and unauthorized trading.

Reg BI imposes four obligations on broker-dealers: care, disclosure, conflict of interest, and compliance. Investment advisers owe a fiduciary duty instead.

JTWROS passes to the surviving owner; tenants in common does not. UGMA/UTMA gifts are irrevocable, with control transferring at the state age of majority.

AML: a Currency Transaction Report is filed for cash transactions over $10,000, suspicious activity goes on a SAR, and CIP requires name, date of birth, address, and identification number.

Discretionary authority requires a written power of attorney and principal approval; firms may also contact a trusted contact person for senior investors under FINRA rules.

1933 Act: new issues, registration statement, prospectus. 1934 Act: created the SEC, governs secondary trading and broker-dealer registration. 1940 Act: investment companies. 1940 Advisers Act: investment advisers. SIPC Act of 1970: customer protection.

FINRA is the SRO for broker-dealers. The MSRB writes rules for municipal securities but does not enforce them; FINRA and the SEC do. State blue sky laws are administered by each state's securities administrator.

Form U-4 registers a representative, Form U-5 terminates registration (filed within 30 days of termination), and Form BD registers the broker-dealer.

Statutory disqualification: a felony conviction within 10 years, or a misdemeanor involving securities, investments, or dishonesty, bars registration absent SEC relief.

Continuing education: the Regulatory Element is required every three years (within 120 days of the anniversary date); the Firm Element is required annually and set by the member firm.

FINRA Rule 2210 requires retail communications to be fair and balanced, with principal approval and filing of certain materials; Rule 2010 requires high standards of commercial honor.

Insider trading is prohibited by SEC Rule 10b-5, and liability extends to tippers and tippees. Section 16 covers officers, directors, and holders of more than 10% of a class.

Federal investment adviser registration generally applies at $100 million or more in assets under management; smaller advisers register with the states.

Available sanctions include censure, fine, suspension, bar, and expulsion; FINRA disciplinary decisions may be appealed to the SEC and then to a federal court.