vocab 2

Issuers
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Terms in this set (128)
Issuers
are legal entities that fund their operations by selling securities (such as common stock) to investors. If an issuer sells securities to the general investing public, through an IPO for example, then they are required to make certain filings with the SEC.
Underwriters
facilitate the sale and distribution of an issuer's securities by pricing the securities, purchasing the securities directly from the issuer, and then finally selling the securities to investors.
trustee
is an individual, broker, bank, or other similar organization charged with governing a trust. They manage and administer investments or other assets on behalf of the beneficiary of the trust and generally have a fiduciary responsibility to the trust.
custodian
is the entity (typically a bank or brokerage firm) that actually holds the assets for safekeeping
Transfer Agents
Typically a bank or a trust company, transfer agents act as intermediaries between securities issuers and securities holders. They are primarily responsible for maintaining security holder records and distributing dividends on behalf of the issuing company.
Depository Trust & Clearing Corporation (DTCC)
The DTCC manages the daily clearing and settlement processes for most securities transactions in the United States. A good way of thinking about this is that when you write a check, it is not 'good' until it 'clears.' Similarly in the stock market, your purchase isn't 'good' until it clears through the DTCC.
The largest options clearing house is the Options Clearing Corporation (OCC) which is governed by the Commodities Futures Trading Commission (CFTC) and the SEC.
The Primary Market
Companies issue new securities directly to individual and institutional investors through the primary market as a way to raise capital.
Initial Public Offering (IPO):
When a corporation offers shares of ownership (stock) to public investors for the first time.
Follow-On/Additional Public Offering (APO)
When a corporation offers additional shares to the public following their initial public offering.
IPOs and APOs would both be part of the more general category of Primary Distributions, which are shares a corporation issues in exchange for direct proceeds.
Private Placements — Regulation D
When a corporation is raising capital to a limited group of investors rather than the investing public. The group of investors must meet specific monetary and sophistication standards. A private placement is also known as a non-public (private) offering.
Intrastate Offerings — Rule 147When a corporation goes public, but the sales are confined to residents of one state. These are also known as 'single state' offerings.Small Public Offerings — Regulation A:Provides an exemption from registration for public offerings under $20 million (Tier 1) or $50M (Tier 2). Tier 1 requires filing with state regulators in the states the issuer plans to sell its securities.The Secondary MarketFacilitates transactions in securities that are not sold directly by the issuer. Investors purchase securities from other investors through trading accounts held by brokerage firms like Fidelity or Charles Schwab.Secondary DistributionsThe general term for shares sold by the present holder of the shares rather than the issuing company. If the number of shares offered is large, to the extent their sale could influence the issuing company's stock price, then the sale will need to be registered with the SEC.Insider Sales — Rule 144 LimitationsInsiders are generally defined as an Issuer's officers, directors, investors owning 10% or more of the stock of the issuer, and the immediate family members of those individuals. The securities they own are considered to be restricted and the SEC has strict rules for insiders who wish to sell restricted securities. They must satisfy certain conditions in order to be exempt from registering the sale with the SEC.The Third MarketAllows for over-the-counter (OTC) trading of exchange-listed securities between institutional investors and broker-dealers. Investors who engage in third-market trading are able to bypass broker fees and the involvement of a formal exchange like the NYSE. OTC refers to trading that is done through a broker-dealer network rather than a centralized exchange. Outside of the third market, securities that are traded OTC are typically not listed on an exchange.The Fourth MarketAllows for institutional investors to trade large blocks of securities directly between each other. These trades are processed through the Electronic Communications Network (ECN) and can include both exchange-listed and OTC securities. Fourth market trading can occur after hours and does not carry reporting requirements. Retail investors are unable to access this market.Regulation S OfferingAn offering of securities by U.S. or foreign corporations wherein the offering takes place outside of the United States and only non-U.S. investors participate. These offerings are exempt from SEC registration.The Federal Reserve (The Fed)The Fed is responsible for keeping the economy in good health by using a variety of financial techniques to maintain high employment and low inflation, and interest rates within reasonable parameters.Monetary policyrefers to actions taken by the Fed to maintain or promote the health of the U.S. economy, separate from Congress and the President.Federal Open Market Committee (FOMC)which meets eight times a year to review economic conditions and evaluate any necessary policy changes. The most typical policy change is an increase or decrease in the federal funds rate which will in turn affect interest rates on credit cards, bank loans, mortgages, and more. When the Fed wishes to stimulate the economy, they lower the federal funds rate which then encourages consumer spending.Fiscal policyon the other hand, refers to actions taken by Congress and the President in setting tax rates and policies. An example of taxation policy would be making retirement savings advantageous, which is currently supported by Congress for pre-tax 401(k) and IRA accounts and their post-tax Roth equivalents. Pre-tax retirement accounts are funded with pretax contributions, with taxation occurring after withdrawal, while Roth contributions are made post-tax. Because wealthier taxpayers will be in a higher tax bracket when they retire, the Roth versions have a lower maximum annual contribution in order to not give an unfair advantage to wealthier taxpayers. Think government spending and taxation policy when discussing fiscal policy. Both of these items have significant impacts on the U.S. economy.Prime Rate:Base interest rate offered by commercial banks for consumer loans, including credit cards. It has a direct relationship with the discount rate - if the discount rate goes up then so does the prime rate, and vice versa.Discount Rate:Rate offered to member banks who borrow money from the Fed in order to keep their reserves up.Federal Funds Rate:Target rate set by the Fed in order to control inflation.Shareholder Equity Statement:Details the changes in a company's equity accounts over a specific period of time, which might include purchasing shares back from investors (treasury stock) or issuing new common shares. Accounts typically found on the statement are preferred stock, common stock, treasury stock, additional paid-in capital, retained earnings, and noncontrolling (minority) interests.The Business CycleThe stages of the business cycle include expansion, peak, contraction, trough, and recovery:Expansion:The economy is growing. Gross Domestic Product (GDP) shows healthy growth in the 2% to 3% range.Peak:The economy can be said to be "overheated." Prices hit their highest level and economic indicators stop growing.Contraction (Recession):Economic growth weakens and GDP growth falls below 2 percent. When GDP declines for two or more consecutive quarters, then the economy has entered a recession. Layoffs make headline news and unemployment rate begins to rise. Consumers and businesses find it hard to secure credit.Trough:The economy reaches its lowest point before transitioning from the contraction phase to the recovery phase.Recovery:Low prices help foster demand. Employment and production begin to rise, and lenders are more willing to lend.Leading:Indicate where the economy is headed in the short term. These can be useful when trying to predict the next phase of the business cycle. Examples include stock market returns, index of consumer expectations, building permits, and the money supply.Lagging:Reveals trends in the economy after major economic, financial, or business events have occurred. The unemployment rate is the most prominent lagging indicator, since employment tends to increase for two or three quarters following an upswing in the economy. Other examples include corporate profits and consumer price index (CPI)Coincident:Statistics that tell analysts how the economy is currently. Examples include gross domestic product, industrial production, personal income, and retail sales.Inflation:Occurs when the purchasing power of money declines. For example, if the prices of goods and services increase but earnings remain the same, then those earnings can no longer purchase as much as they used to. They have lower purchasing power. During periods of inflation, stock prices are generally volatileCyclical:Businesses that follow the standard business cycle, thus the name 'cyclical.' Think of the leisure, luxury, and cruises/travel industries, which do well in a good economy but poor in a down economy.Defensive:Businesses that make goods we use as a part of our daily lives and are not impacted in a material way by how the economy is doing. Examples would be public utilities, basic food and clothing, consumer goods such as soap, shampoo, cosmetics, etc. You don't use more electricity when you get a raise at work, and you don't use less if your hours get cut. That's what defensive refers to.Growth:Industries expected to grow faster than the economy in general. Examples include technology, health care, and biomedical.Keynesian:Theorizes that an increase in government expenditures and a decrease in taxes can prevent or repair an economic recession. The government's role is significant.MonetaristTheorizes that controlling the money supply and letting the market work itself out can curb inflation and is essential for a healthy economy. The government's role is minimal.Regulation D — non-public offerings (private)SEC Regulation D contains the rules providing exemptions from registration requirements, allowing some companies to offer and sell their securities without having to register them with the SEC. A Reg D offering provides access to the capital markets for smaller companies which otherwise couldn't afford the costs of a normal SEC registration.IPO vs. APO (follow-on offering):Initial public offering (IPO) is the initial, or first time, a company is offering its shares to the investing public. Additional Public Offering (APO) is a subsequent offering of shares to the investing public. Both of these need to meet strict SEC registration requirements under the Securities Act of 1933.InterstateThe shares are being offered to residents of multiple states.Intrastate (Rule 147)A public offering to residents of only one state. State registration is required: SEC registration is not required.Large vs. Small (Reg. A)Large public offerings are those exceeding $50 million; small offerings enjoy certain relaxed SEC paperwork/filing requirements.Exempt Securities — Municipal and US Government:These are the two most well-known 'exempt securities' in the Securities Act of 1933.ProspectusFor SEC registered securities, a prospectus is the name of the document making full disclosure of relevant issuer information.PPMPrivate placement memorandum is the name of the document making full disclosure of relevant issuer information in an unregistered/ exempt offeringOffering CircularThis is the full disclosure document for a Regulation A or a Rule 147 offering.Official StatementThis is the full disclosure document for a Municipal Bond offering.Firm CommitmentThe investment banker buys the securities from the issuer with a view to re-selling them to the public at a public offering price which includes a retail commission.Best Efforts:The investment banker agrees only to use its best professional efforts to market and sell the issuer's securities offering, and if all the shares don't sell, the unsold shares are returned to the Issuer.All or None (All or Nothing):This is a variation on best efforts. In this instance, if 100% of the shares don't sell, the entire offering is nullified, and the shares are returned to the issuer.Minimum-Maximum (Mini-Max)This is a variation on the all or none arrangement. In this case, instead of having to sell 100% of the shares, a lesser minimum percentage is set, such as 50%. As long as that percentage is sold to the public, the deal goes through.Stand-ByThis term is used exclusively when an issuer is engaging in a pre-emptive rights offering.Distribution NetworkAn investment banker taking on a firm commitment normally will spread the risk of the deal and will invite several other brokerage firms to participate in the distribution. The distribution network is referred to as an underwriting syndicate. The broker-dealer who lined up the deal with the issuer is considered the Managing Underwriting, or Syndicate Manager.Selling Group:Sometimes, the Syndicate Manager will form an 'outside' group of brokerage firms to assist the syndicate in its distribution efforts. These firms are not in the syndicate and are called members of the selling group.Member Firms Not in the Syndicate or Group:If a brokerage firm has a client who wants the new shares, but the broker is neither in the syndicate nor in the group, they can still contact the Manager and ask if there are shares available for purchase.Shelf OfferingsWhen an Issuer registers a substantial number of shares with SEC, but does not sell all the shares at once, rather it sells them in stages over a period of months or a few years, doing so only when additional monies are needed. The registered shares that aren't sold right away are said to be 'sitting on the shelf.'Common Stock Equivalents:Securities that can be converted into common stock, typically once the market price of the security is trading above the exercise price. Types of common stock equivalents include convertible bonds, convertible preferred stock, options, warrants, and some bonds. Employee stock option plans (ESOPs) often introduce common stock equivalents by offering discounted options or warrants which can be converted to common stock once vested.Pre-emptive Rights:When a corporation plans to raise additional capital by issuing a new round of common stock, they will often offer these shares to their existing shareholders first before the general public (right of first refusal). Though not required, these rights are intended to permit existing shareholders to maintain the share ratio they hold among all total shareholdersWarrantsCertificate that gives the holder the right to buy common shares directly from a corporation at a fixed exercise price until the warrant expires, typically several years in the future. Unlike call options, when a stock warrant is exercised, the shares are issued directly by the corporation and the proceeds become a source of capital for the corporation.Repurchase Agreement (Repo):An agreement between two parties where securities are purchased from a seller for a certain amount of time, sometimes overnight, and the seller agrees to repurchase the securities at a slightly higher price than the purchase price. These agreements take the form of short-term loans for tax and accounting purposes. Normally, the instrument traded is of very high quality, like a U.S. Treasury Bond, which enables it to serve as collateral. The Fed may sometimes enter into Repurchase Agreements as part of regulating the money supply.restricted securitiesUnregistered securities acquired through a private sale, which are thereby designated as restricted securities.Control securitiesare those held by an affiliate of the issuer and, because of resale limitations, are also considered restricted securities.Order of Payment in LiquidationWhen a business is being liquidated in bankruptcy, any applicable domestic support obligations and certain allowable administrative claims are paid first. Next, assets are used to pay off debt. If there is any money remaining after all debts have been paid, then equity gets paid off next, with preferred shareholders getting paid before common shareholdersTreasury Bills (T-Bills):Short-term borrowings (1 year or less). Interest is paid at maturity and it is determined as the excess of the face amount over the discounted-by-interest purchase price.Treasury Notes:Intermediate-term borrowings (2 to 10 years). Interest is paid semi-annually and is exempt from state tax.Treasury BondsLong-term borrowings (up to 30 years). Interest is paid semi-annually and is exempt from state tax.General Obligation BondsThe traditional financing method for capital asset projects related to infrastructure, buildings, utility lines, and others. These bonds are not backet by collateral; rather, they are backed by the municipality's total tax and operating revenue.Revenue Bonds:Like general obligation bonds, revenue bonds are issued to fund public projects. However, purchasers of these bonds are repaid from the income generated by the specific project the bond was funding rather than by the issuer's total revenue.Special Tax Bonds:Combination of general obligation bonds and revenue bonds. Municipalities issue these in order to fund public projects and will increase a specific tax, either an excise or a special assessment tax, to repay the bondholders. For example, a municipality might decide to implement an excise tax on fuel or tobacco.Authority Bonds:These bonds are issued to enable the construction of an income-producing facility, such as a toll bridge or an airport, where the revenue from business operations pays the interest and repays the principal at maturity.Taxable Bonds:Fixed-income municipal securities issued to fund projects not subsidized by the federal government because they do not provide a meaningful benefit to the general public. Projects might include sports facilities, public pension funding, or refinancing of existing debt. These bonds are not tax-exempt like others.Municipal Notes:Short-term debt securities that typically mature in one year or less. Interest and principal are paid in one payment at the time of maturity and are exempt from federal income tax.Corporate BondsIn addition to stock offerings, corporations can raise money by issuing bonds to investors. The company pays interest on the bonds, typically semi-annually, and then repays the principal to the bondholders at maturity.Money Market InstrumentsMoney market securities are short-term fixed-income debt instruments that mature in up to 270 days. These investments are typically considered to be safe and liquid.Certificates of Deposit (CD)CDs are essentially savings accounts issued by a bank or credit union that generate fixed interest on a fixed amount of money for a fixed length of time. The length of time can vary but is typically six months, one year, or five years. Though most will penalize investors for withdrawing funds early, CDs are considered to be one of the safest investments and those held at federally insured banks are insured up to $250,000. CDs purchased from brokerage firms or independent salespersons are known as brokered CDs and carry more risk than traditional CDs.Banker's Acceptances:Banker's acceptances are financial instruments that trade on the secondary money market prior to maturity. They represent future guaranteed payments from banks with maturities of between 30 and 180 days and are most commonly used in international transactions. When traded on the secondary market, banker's acceptances are sold at a discount to face value dependent upon their length to maturity.Commercial Papers:Commercial papers are unsecured interest-paying securities, often referred to as promissory notes, issued by large corporations with high credit ratings as a way to cover short-term obligations. They are essentially written promises to pay back a certain amount of money within a certain amount of time and are typically sold at a discount to face value.Length to MaturityAlso known as term to maturity. For treasuries and corporate bonds, length to maturity is simply the length of time between the issue date and the maturity date, when interest payments are made. The bonds are traded on such basis. However, asset-backed securities and mortgage-backed securities are traded based on average life, also known as weighted average life. This is the average length of time that each dollar of principal is expected to be outstanding. Therefore, because periodic payments include partial repayment of principal as well as interest, the average life will be considerably shorter than the length to maturity.Accrued InterestAccrued interest is interest earned that has not yet been paid. It is calculated as the number of days since the last coupon payment plus the assumed number of business settlement days, divided by the number of days in the year, then multiplied by the coupon interest rate. For corporate and municipal bonds, the number of business settlement days is three and the number of days in the year is 360. For U.S. Government bonds, the number of business settlement days is one and the number of days in the year is 365.Callable:Gives the issuer to right to pay off the bonds at a date earlier than the maturity date. Callable bonds tend to offer higher interest rates due to higher risk.Puttable:Allows a bondholder to redeem the principal amount of their bond on or after a specific date(s), well before the maturity date. Puttable bonds tend to offer lower interest rates due to lower riskZero-Coupon:These bonds don't pay any interest. Rather, the investor pays below the face value of the bond and then receives the full value at maturity. For example, let's say you purchase a 10-year zero-coupon bond for $600, and at maturity you receive $1,000. Your yield in this case is based on the $400 of appreciation in value over the 10-year holding period rather than regular interest payments.Convertible:Gives the issuer the option to repay the loan with common stock rather than cash.CompetitiveIssuers advertise that their bonds are for sale by releasing a notice of sale to the public. This advertisement contains terms of both the sale and the bond issue. From there, broker-dealers and/or banks (underwriters) place bids on the bonds at a specified time on a specified date and the bidder offering the lowest interest rate wins.Negotiated:Issuers are allowed to select the underwriter(s), with whom they directly negotiate the terms of the bonds and the terms of the sale in a "two-party" process. Additionally, investors are able to submit indications of interest (IOIs) in negotiated sales which then help the underwriter(s) finalize the offering price and sell the bonds.OptionOptions are contracts between two investors. These contracts trade on a specific securities exchange, the largest of which is the Chicago Board Options Exchange (CBOE). Types of options include:Call OptionsGives the owner of the call option the right (but not the obligation) to buy a certain underlying asset or security on or before the expiration date of the contract.Put Options:Gives the owner of the put option the right (but not the obligation) to sell a certain underlying asset or security on or before the expiration date of the contract. In every option contract there is a buyer and a seller:Selling vs. BuyingThe seller, also known as the writer, receives a premium (fee) in exchange for giving the buyer the right to buy or sell an underlying asset at a specific price on or before the contract's expiration date. The writer has a legal obligation to deliver or purchase the underlying asset if the option is exercised. "The right but not the obligation" means the owner can decide whether to exercise their right. There are no requirements to do so.In the Money:A call option is said to be in the money if the current price of the underlying stock is trading at a higher price than the strike price. If the holder were to exercise their right to purchase the underlying stock, then they would get to pay less than its current value, giving the call intrinsic value. A put option is said to be in the money if the current price of the underlying stock is trading at a lower price than the strike price. If the holder were to exercise their right to sell the underlying stock, then they would receive more than what they paid for, giving the put intrinsic value.Out of the MoneyOption contracts that are out of the money do not have any intrinsic value. A call option is said to be out of the money if current price of the underlying stock is trading at a lower price than the strike price. A put option is said to be out of the money if the current price of the underlying stock is trading at a higher price than the strike price. The holders in these scenarios would not exercise their rights to buy or sell.At the MoneyAn option is at the money whenever the current price of the underlying stock equals the strike price. There is no intrinsic value.Covered Call WritingAn investor who owns 100 shares of stock decides to write a call option on those 100 shares, contractually offering it for sale at a fixed (strike) price for a fixed period of time (expiration) in exchange for a premium. The dollar amount of the premium received provides downside protection in the event the stock they own declines in value, though a loss would occur if the decline in value is greater than the premium received. Conversely, the gain is capped at the amount by which the strike price exceeds the stock's current market price. This strategy of writing a call on stock the investor already owns is known as covered call writing.Protective Put BuyingAn investor who owns 100 shares of stock decides to purchase a put option on those 100 shares, contractually locking in a fixed (strike) price at which they may sell their stock in the event it declines in value. They have to pay a premium for this contractual right to fix the price at which they may sell their shares, but if the stock declines dramatically then the premium cost will have been worth it. The protection against loss is the reason an investor may decide to use this strategy known as protective put buying.Buy to CoverAn investor who believes a stock price will decline might decide to borrow shares from a broker, immediately sell them at the current market price, and then, after the market price has declined, return the borrowed shares by buying them back on the open market.Options Clearing Corporation (OCC)Located in Chicago, the OCC clears put and call option transactions, among other transactions, under the supervision of the Commodities Futures Trading Commission (CFTC) and the SEC.Options Disclosure Document (ODD):When an investor wants to open an options account at a brokerage firm, the firm is first required to provide them with a full disclosure document at or prior to account approval. This document, known as the Options Disclosure Document (ODD), educates clients about how options work, their potential risks, and the rules of the CBOE and the OCC.American vs. European:Some options contracts are only allowed to be exercised on the expiration date, which is referred to as European-style. The premiums on these contracts are typically lower. American-style options, on the other hand, allow for the contract to be exercised at any time, up to and including the expiration date.Mutual FundsMost mutual funds are open-ended, meaning any investor can invest as much as they would like into shares of the portfolio/the fund. The price of the fund (the net asset value or NAV) is calculated as the total value of the fund's securities divided by its number of outstanding shares and can fluctuate on a daily basis. Note that investors own shares of the fund itself rather than the actual underlying securities.Money market fundsare required by law to invest only in specific high-quality, short-term debt investments issued by governments, banks, or corporations, and as such are considered one of the safest investments.Bond fundsare considered riskier than money market funds but safer than stock funds. They invest in a portfolio of government and/or corporate debt securities with the goal of generating monthly income (returns) for investors through interest payments.Stock funds(also known as equity funds) invest in corporate stocks and, while they have a greater potential for growth, they are also riskier by nature. There are several different types of stock funds that have different goals. Growth funds, for example, aim to invest in stocks believed to bring greater returns. Industry funds focus on corporate stocks in a specific industry such as agriculture or energy.Target date fundsare designed for investors who are saving for retirement with a certain date in mind. They invest in a mix of equity, debt, and other investments that rebalances to become much more conservative as the target date approaches.Index FundsIndex funds are similar to mutual funds in that they both invest in a portfolio of securities and then offer shares of those portfolios for sale to investors. Mutual funds, however, are actively managed whereas index funds are passively managed and thus typically have lower expenses. For this reason, index funds may be popular with newer investors looking to diversify. The objective of an index fund is to replicate the performance of a particular stock market index (which is referred to as the benchmark), such as the S&P 500 or Dow Jones, by purchasing all the securities that the index tracks. Advantages of index funds include passive management, lower costs, and lower taxes compared to traditional mutual funds since fewer trades lead to fewer capital distributions. Index funds have grown significantly in popularity, but they don't come without risks which may include low investment flexibility, inaccurate index tracking, and volatility.Unit Investment Trusts (UITs)UITs maintain long-term fixed portfolios of securities in order to meet a particular investment objective. The trust sponsor will typically raise capital from investors through a one-time public offering of a fixed portfolio of securities, like a closed-end fund, and can buy back their units from investors at the estimated NAV, like a mutual fund. Many UITs will also allow for their units to be traded between investors in the secondary market.Closed-End Funds (CEFs)CEFs issue a finite—or limited—number of available fund shares. Closed-end funds are actively managed and they often concentrate on a single sector or industry. They are different in that a CEF raises capital through an IPO and then trades on a stock exchange. Following the IPO, the fund will not issue any new shares nor buy back any existing shares from investorsCEF shares trade between investors on the secondary market throughout regular trading hours, just like any other stock, and their price is set by the market. Because of this, the price will fluctuate and will normally be higher or lower than the shares' NAV. Selling at a price higher than the NAV indicates a premium and selling at a price lower than the NAV indicates a discount.Municipal Fund Securities — 529 College Savings PlansMany families take advantage of 529 college savings plans to save up for qualified postsecondary educational expenses like college tuition, textbooks, and more. These plans are technically referred to as municipal securities by the SEC since they are created and sponsored by each state.Letter of Intent (LOI):Mutual fund investors can sign a letter of intent stating their commitment to purchase a number of the fund's shares over a period of time, typically 13 months, thereby granting them breakpoint discounts on the smaller payments. By splitting the lumpsum into these smaller payments, investors with fewer assets than institutional investors - retail investors for example - are able to take advantage of immediate breakpoint discounts.Rights of Accumulation:Under rights of accumulation, mutual fund investors are entitled to bulk sales charge discounts once their accumulated investments in the fund reach or exceed certain breakpoint thresholds, which can sometimes take a number of years. Common breakpoint thresholds are $25,000, $50,000, and $100,000.Tenants in Common (TIC)Investors can obtain fractional ownership interests in real estate through TIC investments. Fractional ownership interests, also referred to as co-ownership interests, allow investors to pool their money together to acquire a larger real property asset than any of them could acquire on their own. These investments are illiquid, tax-deferred securities and are typically structured as DPPs. Similar to other DPPs, TIC investments carry due diligence and suitability requirements for brokers, specifically "reasonable-basis" and "customer-specific" suitability.Exchange-traded Funds (ETFs)ETFs are packaged portfolios with a finite or limited number of available shares, which operate similarly to closed-end funds with minor technical differences. While they allow for portfolio diversification the same as mutual funds, they are different in that they come with real-time (intraday) pricing and require lower (sometimes zero) investment minimums and brokerage commissions. They are tradeable all day long on stock exchanges at bid and ask prices—the same way regular corporate stocks are traded each day—and they typically track an index.Exchage-traded Notes (ETNs)Exchange-traded notes are separate and distinct from ETFs and are also much less common. They are senior, unsecured debt obligations issued directly by a financial institution—such as a bank—that generally track a benchmark index and do not actually hold a portfolio of assets or securities. Instead, the issuer promises to pay the holder of the ETN, at maturity, a return based upon the underlying benchmark or index's performance minus applicable fees. Maturity dates are typically 15 to 30 years from the original issuance date.Market Risk - systematic risk:A stock market 'crash' will tend to drive down the market price of nearly all stocks, even the best ones.Business Risk — Non-SystematicPutting all your eggs in one basket is not a wise investment strategy. If that one business you've invested in goes bad, you suffer substantial loss.Inflation/Purchasing PowerInflation eats away at the value of a dollar every year. Fixed income investments lose purchasing power each year due to inflation. By comparison, investments whose cashflows tend to increase when general price levels increase, such as investments in commodities or real estate, may mitigate the effect of inflation, despite their other risks. Inflation also tends to exert upward pressure on equity prices, all other things being equal.Pre-payment Risk:There are investments in the debt space known as mortgage-backed securities (these are a packaged product in which the portfolio is a pool or collection of mortgages providing interest income to the investor). One of the risks is that property owners often do two things that can impact the mortgage income: they sell the property and they refinance the mortgage when interest rates go down. Both of these events are referred to as pre-payment risk.Bid and Ask PricingA dealer will sell to a customer at the dealer's asking price. A dealer will buy from a customer at the dealer's bid price. All publicly traded stocks have a bid price and an ask price. All purchase and sale transactions settle according to FINRA's Regular Way rules, with rare exceptions: T + 2 =: Two business days AFTER the date of the transaction. Note that, under Federal Reserve Board Regulation T, two days is the maximum amount of time allowed to pay for stock after it has been purchased. T + 1 =: For US Government Bonds and Government Agencies, one business day AFTER the date of the transaction. T + 0 =: When a buyer and a seller come to an agreement that their transaction shall settle on the same day as the transaction, this is referred to as a 'Cash' Transaction.Suspicious Activity Report (SAR)When unusual trading or money-transfers or other unusual behaviors take place in a client's account, RR's are trained to identify these behaviors as 'suspicious activities' and a report will be filed with the authorities (SAR).Currency Transaction Report (CTR)Banking regulations from decades ago have identified $10,000 or more in cash currency as the point at which a formal report is required to be filed with Government Authorities (CTR).Marking the OpenJim and a few colleagues place several trade orders for Company XYZ's stock prior to market open, leading to an increase in the demand for the shares and a subsequent increase in price. Once the price is increased, they sell their shares for a profit, which is an illegal practice known as marking the open. If they did the same thing prior to market close to influence the closing price of the stock, then it would be known as marking the close.Purchasing Initial Public OfferingsRegistered reps are prohibited from purchasing a new issue of an equity security (initial public offering or IPO). They are also prohibited from selling a new issue of an equity security to other broker-dealers and their affiliatesBorrowing from customersMember firms and associated persons are prohibited from lending money to or borrowing money from their customers unless the member firm has written policies in place that authorize their associated persons and customers to engage in borrowing or lending. Any agreement between an associated person and a customer must satisfy at least one of the following conditions: The customer is an immediate family member of the associated person; The customer is a financial institution that's in the business of borrowing and lending; The customer and the associated person are both employed by the member firm; The customer and the associated person have a personal relationship that exists outside of the member firm; or The customer and the associated person have a business relationship that exists outside of the member firm;Sharing in customer accounts:Generally, member firms and associated persons are prohibited from sharing directly or indirectly in a customer's gains or losses. However, they are able to do so if three conditions are met: The associated person receives prior written authorization from their member firm; The associated person receives prior written authorization from the customer; and The associated person or member firm's share in the customer's gains or losses is directly proportional to their own financial contributions.Continuing EducationFINRA requires all RRs to undergo periodic FINRA-required (regulatory) continuing education examinations. The first such CE test is to be taken after the RR's 2nd anniversary of becoming registered. The CE test is then required every 3 years thereafter. Each member firm will also have its own in-house CE training program to keep its RRs current with laws and regulations.