Securities Industry Essentials (SIE)

1 General Knowledge Examination Study Manual 1st Edition Securities Industry Essentials (SIE) The Final Exams are a critical part of your training. Logon to to access your Online Materials. STC Customer Service 800 782-1223 DISCLAIMER STC students are provided with both a print and online study manual. If discrepancies are discovered between these two manuals, please consider the online study manual to be the most current since it s updated in real-time. Visit for more information and supplemental online products. When reviewing the online PDF Study Manual, a keyword search can be performed by holding down the Control key and clicking on the F key (Ctrl + F) or, for Mac users, the Command key and F key (Cmd + F).

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3 D122 TABLE OF CONTENTS Copyright Securities Training Corporation. All Rights Reserved. INTRODUCTION CHAPTER 1 OVERVIEW OF MARKET PARTICIPANTS AND MARKET STRUCTURE Market Participants ..1-1 What s an Issuer? ..1-1 What s a Broker-Dealer? ..1-2 What s a Market Maker? ..1-3 What s a Trader? ..1-3 What s an Investment Adviser? ..1-3 Types of Investors ..1-4 Retail Investors ..1-4 Accredited Investors ..1-4 Institutional Investors ..1-5 Market Structure ..1-5 Primary Market ..1-5 Secondary Market ..1-6 Other Execution Methods and Venues ..1-7 Clearing and Settlement An Overview.

4 1-8 The Depository Trust & Clearing Corporation (DTCC) ..1-8 Processing the Trade Clearing and Introducing Firms ..1-8 Introducing Firms Fully Disclosed Versus Omnibus Accounts ..1-9 Other Customers of Clearing Firms ..1-10 Clearing Options Other Entities that Keep Markets Running Smoothly ..1-12 Conclusion ..1-12 TABLE OF CONTENTS Copyright Securities Training Corporation. All Rights Reserved. CHAPTER 2 OVERVIEW OF REGULATION Regulation ..2-1 Federal Regulation ..2-1 Other Federal Regulators ..2-1 SRO Regulation ..2-2 State (Blue-Sky) Regulation ..2-2 Firm (In-House) Rules.

5 2-3 Why Take the SIE Exam? ..2-3 Federal Regulation The Acts ..2-4 The Securities Act of The Securities Exchange Act of 1934 ..2-4 The Maloney Act of 1938 ..2-4 The Investment Company Act of 1940 ..2-5 The Investment Advisers Act of 1940 ..2-5 The Securities Investor Protection Act of 1970 (SIPA) ..2-5 The Employee Retirement Income Security Act of 1974 (ERISA) ..2-7 The Securities Acts Amendments of 1975 ..2-7 The Insider Trading and Securities Fraud Enforcement Act of 1988 ..2-7 The Penny Stock Reform Act of 1990 ..2-7 The Federal Telephone Consumer Protection Act of 1991.

6 2-8 The USA PATRIOT Act of 2001 ..2-8 Self-Regulatory Organizations ..2-10 FINRA ..2-10 The Municipal Securities Rulemaking Board (MSRB) ..2-10 Firm Specific Rules ..2-11 Internal Compliance ..2-11 The Importance of Understanding Regulation ..2-12 Conclusion ..2-12 TABLE OF CONTENTS Copyright Securities Training Corporation. All Rights Reserved. CHAPTER 3 EQUITY Securities The Corporation Equity Securities ..3-1 Corporate Organization ..3-1 Raising Capital Financing the Different Types of Equity Securities ..3-2 Common Stock ..3-2 Rights of Common Shareholders.

7 3-3 Rule 144 ..3-5 Classification of Stocks ..3-6 Blue-Chip Stocks ..3-6 Growth Stocks ..3-6 Defensive Stocks ..3-6 Income Stocks ..3-6 Cyclical Stocks ..3-6 American Depository Receipts (ADRs) ..3-7 Preferred Stock ..3-7 Cumulative Preferred Stock ..3-7 Non-Cumulative Preferred Stock ..3-8 Participating Preferred Stock ..3-8 Callable Preferred Stock ..3-9 Convertible Preferred Rights and Warrants Derivatives Securities ..3-10 Preemptive Rights ..3-10 Warrants ..3-10 Miscellaneous Equity Rules ..3-11 FINRA Rule 2261 Disclosure of Financial Condition ..3-11 FINRA Rule 2262 Disclosure of Control Relationship with Issuer.

8 3-11 SEC Rule 10b-18 Purchase of Certain Equity Securities by the Issuer ..3-12 Conclusion ..3-12 TABLE OF CONTENTS Copyright Securities Training Corporation. All Rights Reserved. CHAPTER 4 INTRODUCTION TO DEBT INSTRUMENTS Introduction to Debt Instruments ..4-1 Basic Bond Characteristics ..4-1 Why Bond Prices Fluctuate from Par ..4-3 Discounts and Premiums ..4-4 Bond Pricing ..4-5 Prices and Yields: An Inverse Relationship ..4-6 Calculating Bond Yields ..4-7 Redeeming Bonds Prior to Maturity ..4-7 Call Provisions ..4-7 Convertible Bonds ..4-8 Conclusion ..4-11 CHAPTER 5 TYPES OF DEBT INSTRUMENTS Types of Debt Instruments.

9 5-1 Treasury Securities ..5-1 Treasury Notes (T-Notes) and Treasury Bonds (T-Bonds) ..5-1 Treasury Inflation Protected Securities (TIPS) ..5-2 Non-Interest-Bearing Securities ..5-2 Treasury Bills (T-Bills) ..5-2 Stripped Securities ..5-3 Treasury STRIPS ..5-3 Cash Management Bills (CMBs) ..5-3 Treasury Securities Auctions The Primary Market ..5-4 Agency Securities ..5-4 Federal Agencies ..5-5 Government-Sponsored Enterprises ..5-5 Mortgage-Backed Securities ..5-5 Pass-Through Certificates ..5-5 Federal Home Loan Mortgage Corporation (FHLMC) ..5-6 Federal National Mortgage Association (FNMA).

10 5-6 Government National Mortgage Association (GNMA) ..5-6 TABLE OF CONTENTS Copyright Securities Training Corporation. All Rights Reserved. Chapter 5 (Cont.) Municipal Bonds ..5-7 Types of Municipal Bonds ..5-7 General Obligation (GO) Bonds ..5-7 Revenue Bonds ..5-8 Types of Revenue Bonds ..5-8 Municipal Notes ..5-10 Ratings for Municipal Notes ..5-11 Other Municipal Securities ..5-11 Auction Rate Securities ..5-11 Variable Rate Demand Obligations (VRDOs) ..5-12 The Primary Market for Municipal Bonds ..5-12 Issuing GO Bonds ..5-12 Issuing Revenue Bonds ..5-12 New Issue Underwritings.