SIE key terms

The market where an issuer, such as a corporation or government, sells newly created securities to investors and keeps the proceeds. Examples include initial public offerings and new bond issues.

The market where investors trade securities they already own, such as on a stock exchange or in the over-the-counter market. The issuing company receives no money from these trades.

A company's first sale of stock to the general public, which moves it from private to public ownership. The issuer registers the offering with the SEC and distributes a prospectus.

A disclosure document delivered to investors in a new securities offering. It describes the issuer's business, finances, management, risks, and the terms of the securities being sold.

How quickly and easily an investor can buy or sell a security at a fair price without significantly changing its market price. Actively traded large-cap stocks are liquid; thinly traded bonds often are not.

The gap between the highest price a buyer is willing to pay (the bid) and the lowest price a seller will accept (the ask). Narrower spreads usually mean the security is more liquid and cheaper to trade.

A graph plotting the yields of bonds with the same credit quality across different maturities. Its shape reflects expectations for interest rates and the economy, and an inverted curve often precedes recessions.

Actions by a central bank, such as the Federal Reserve, to influence interest rates and the money supply in pursuit of stable prices and full employment. Tools include open market operations and the discount rate.

An ownership share in a corporation that usually carries voting rights and a claim on earnings and assets that ranks behind creditors and preferred shareholders. Dividends are paid at the board's discretion.

An equity security that pays a fixed dividend and ranks ahead of common stock for dividends and in liquidation, but typically has no voting rights and behaves more like a bond.

A debt security in which an investor lends money to an issuer in exchange for periodic interest payments and repayment of the face value at maturity. Bondholders rank ahead of stockholders.

A bond whose holder may exchange it for a set number of shares of the issuer's common stock. Because of that upside feature, convertibles usually pay lower interest than similar non-convertible bonds.

A measure of how sensitive a bond's price is to changes in interest rates, stated in years. Higher duration means the bond's price will swing more when rates move.

A contract giving its owner the right, but not the obligation, to buy an underlying security at a set strike price before the expiration date. The buyer pays a premium for that right.

A contract giving its owner the right, but not the obligation, to sell an underlying security at a set strike price before expiration. Investors use puts to hedge or to profit when prices fall.

A pooled investment company that gathers money from many investors, invests it according to a stated objective, and issues redeemable shares priced once a day at net asset value.

A pooled portfolio that trades on an exchange like a stock, with prices updating throughout the day. Most track an index and typically cost less than actively managed mutual funds.

A bond issued by a state, city, or other local government or authority. Interest is generally exempt from federal income tax, and sometimes from state tax for in-state residents.

A short-term U.S. government debt security maturing in one year or less. It is sold at a discount to face value and backed by the full faith and credit of the United States.

A brokerage account that allows an investor to borrow money from the firm to buy securities, using existing holdings as collateral. Regulation T sets the initial margin requirement, typically 50 percent.

The standard timing for completing most U.S. stock, corporate bond, and municipal bond trades: the buyer pays and the seller delivers one business day after the trade is executed.

An instruction to buy or sell a security immediately at the best price currently available. Execution is very likely, but the investor does not control the price received.

An instruction to buy or sell only at a specified price or better. A buy limit is set below the current market and a sell limit above it; the order may never execute.

An order that turns into a market order once a designated trigger price trades. Stop-loss orders are used to cap losses; stop-buy orders are used to follow upward momentum.

Selling borrowed securities that the investor does not own, hoping to buy them back later at a lower price. If the price rises instead, the loss can be unlimited.

Trading a company's securities while in possession of material information the public does not know, or passing that information to someone who trades. Federal law prohibits it.

Excessive buying and selling in a customer's account that a broker does to generate commissions rather than to benefit the client. It is a prohibited practice and grounds for disciplinary action.

An account opened by an adult for a minor under UTMA or UGMA rules. Assets legally belong to the minor, and the custodian manages them until the minor reaches the age of majority.

The Securities Investor Protection Corporation, a nonprofit that helps customers of failed brokerage firms recover assets, up to $500,000 for securities including $250,000 for cash. It does not cover market losses.

An SEC rule requiring broker-dealers to act in the best interest of retail customers when recommending securities, with duties of care, disclosure, and conflict-of-interest management.

The Securities and Exchange Commission, the federal agency that administers U.S. securities laws and oversees exchanges, broker-dealers, investment advisers, and investment companies.

The Financial Industry Regulatory Authority, a self-regulatory organization for broker-dealers that writes and enforces rules, licenses representatives, and runs arbitration for investor disputes.

The federal law requiring that new securities offerings be registered with the SEC and accompanied by a prospectus unless an exemption applies. Its focus is disclosure in primary offerings.

The federal law that created the SEC and governs secondary trading, exchanges, broker-dealers, and public company reporting. It also bans manipulative and deceptive practices such as insider trading.

The federal law that regulates mutual funds and other investment companies, covering how they are organized, how shares are priced and redeemed, and what must be disclosed to investors.

SEC rules that exempt certain private placements from registration, allowing issuers to sell securities to limited numbers of accredited or sophisticated investors without a full prospectus.

State securities laws that require offerings to be registered or exempt in the state and that license brokers and advisers, adding a state layer of investor protection on top of federal rules.

A required brokerage program that verifies each new customer's identity using information such as name, date of birth, address, and a government identification number, to deter money laundering.

A legal obligation to put another party's interests ahead of your own. Investment advisers owe it to clients; brokers meet a similar best-interest standard under Regulation Best Interest.