SIE Exam: Knowledge of Capital Markets

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Does the SEC approve or disapprove securities?
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Does the SEC approve or disapprove securities?
No, it just clears the securities for public sale.
Prior to the registration statement filing, can there be marketing or sales of the securities?
No, there can be neither
What is permitted during the cooling-off period?
Marketing of securities is permitted, but no sales can be made
What happens during the pre-registration period?
Bake-off, mandate, preparation of filings, due diligence
What happens during the cooling-off period?
20 days of SEC reviews, road show, non-binding indications of interest (IOIs)
What happens during the post-effective date?
Bankers confirm IOIs and allocate shares to investors, securities begin trading
What are 6 exempt securities under the '33 Act (i.e. don't have to register with SEC)?
1. US government securities
2. Nonprofit securities
3. Municipal bonds
4. Commercial paper
5. Short-term corporate debt
6. Commercial bank securities
What does Rule 147 allow?
For a company to sell securities to state residents only and avoid SEC registration.
How long must state residents wait to sell their shares to outside residents?
6 months
What is an accredited investor?
1. Net worth of $1MM or more (excluding house)
2. Income of $200K+ in the 2 most recent years (joint spouse of $300K+)
3. Officers, partners, and directors of issuers
4. Institutional investors with $5MM+
How many accredited and non-accredited investors can participate in a private placement?Any number of accredited and no more than 35 non-accreditedWhat are the 2 main points of Rule 144?1. Control stock is subject to volume restriction, but not subject to 6-month holding period 2. Restricted stock is subject to no volume restriction, but subject to a 6-month holding periodWhat does Rule 144A permit qualified institutional investors to do?Freely trade private placements among themselvesHow can a purchaser in a tender offer execute the tender?If the minimum number of shares are acceptedWhat is a firm commitment?Underwriter has risk, purchases all sales and promises to resell them to the marketWhat is a best efforts?Underwriter acts as agent, no financial liability for the securitiesDoes the selling group take on any financial risk for the securities?No, only the manager and underwriting membersUnder the restricted persons rule for IPOs, who is considered immediate family?Spouse, parents, in-laws, siblings, children, those providing more than 25% of incomeCan the syndicate manager stabilize above the public offering price?No, only up to the public offering priceWhat is the priority of orders for municipal bond underwriting: designated, group, member, presale?1. Presale Orders 2. Group Orders 3. Designated Orders 4. Member OrdersWhen should an investor in a new issue of municipal bonds receive the official statement?No later than the settlement date of the transactionHow do the '33 Act and '34 Act differ?'33 Act: regulates primary market '34 Act: regulates secondary marketWhat does a firm charge when it acts as a dealer vs. agent?As dealer: charges mark-up or mark-down As agent: charges commissionOn the NYSE, how many designated market makers are there?One per securityWhat is an example of OTC stock?Penny stocksWhat is the third market?When exchange-listed securities trade OTCWhat are market orders?Trades executed immediately at best available priceWhat are limit orders?Trades executed at a specific price or better -- used by customers to achieve a more favorable priceWhat are buy limit orders entered at?Entered at price below the current market priceWhat are sell limit orders entered at?Entered at price above the current market priceWhen are limit orders filled?At the first price that satisfies the limitWhat do limit order guarantee?Limit orders guarantee a price, but not executionWhat are stop orders?Used to initiate a trade once a security reaches a specified pointOnce triggered, what does a stop order become?A stop order becomes a market orderTo protect an existing long position, what type of order would an investor place?A sell stop orderTo protect an existing short position, what type of order would an investor place?A buy order stopWhat 2 orders are entered below market value?BLiSS: buy limit and sell stopWhat 2 orders are entered above market value?SLoBS: sell limit and buy stopWhich types of orders are adjusted for dividends?Only orders entered below the marketWhat is front-running?When a registered rep becomes aware of a large customer order and trades for her personal account beforehandIs arbitrage considered market manipulation?No, it is notWhat is arbitrage?When an investor takes advantage of a temporary price disparity in a securityWhat is a recession?Decline in GDP for 2 or more consecutive quartersWhat does an increasing/widening yield spread mean?The yield difference between two bonds or sectors is increasingWhat does a decreasing/narrowing yield spread mean?The yield difference between two bonds or sectors is decreasingWhat are cyclical stocks?Those that mirror the economyWhat are defensive stocks?Those that are resistant to downturns in the economy because these companies sell basic needsWhat happens to interest rates and bond prices as inflation increases?As inflation increases, interest rates increase and bond prices decreaseWhat is Keynesian economics?Believe the economy is best controlled through taxation and government spendingWat is monetarism economics?Believe the economy is best controlled through controlling money supplyWhat is classical economics?Believe that neither monetary nor fiscal policy should be usedWho are banks audited by to ensure compliance with its rules?Federal ReserveWhen the Federal Open Market Committee (FOMC) executes open market transactions, who does it deal with?Primary dealers (i.e. investment banks)What is easy monetary policy?When Fed purchases securities = increase money supply = spur economic growth = decrease discount rateWhat is tight monetary policy?When Fed sells securities (increase reserve requirement) = decreased money supply = curb inflation = increase discount rateWhat is the fed funds rate?A market-driven interest rate and considered the most volatile in the market This is used when banks lend to each other on an overnight basisWhat is the ranking of the following from lowest to highest: discount rate, prime rate, fed funds, broker's call rate?Fed funds < discount rate < broker's call rate < prime rateWhat happens to the dollar, imports, and exports when US interest rates rise?Dollar increase = exports decrease = imports increaseWhat happens to the dollar, imports, and exports when US interest rates fall?Dollar falls = exports increase = imports decrease