Introduction

The series 99 exam is administered by FINRA and qualifies a person as a registered operations professional, licensed to perform a variety of covered operational functions for a broker dealer. The Series 99 exam will be presented in a 100-question multiple-choice format. Each candidate will have two hours and 30 minutes to complete the exam. A score of 68% or higher is required to pass  It is recommended that candidates spend at least 70 hours preparing for the exam . The series 99 material has been provided by The Securities Institute to help Investopedia visitors prepare for the exam.  In order to successfully complete the exam it is recommended that you read the following material in addition to reading a full textbook and doing as many practice exams as you can. This first chapter will build the foundation upon which the rest of this text is built.

 

What Is a Security?

A security is any investment product that can be exchanged for value and involves risk.  In order for an investment to be considered a security it must be readily transferable between two parties and the owner must be subject to the loss of some or all of their invested principal.  If the product is not transferable or does not contain risk it is not a security.

Types of Securities Types of Non-Securities
Common & Preferred stock Whole life insurance
Bonds   Term life insurance
Mutual funds   Retirement plans
Variable annuities        Fixed annuities
Variable life insurance Prospectus

Securities are broken up into two major categories for the Series 99: equity and debt. Let’s begin by comparing the two different types of securities:

Equity = Stock

The term equity is synonymous with the term stock.  Throughout your preparation for this exam and on the exam itself, you will find many terms that are used interchangeably.  Equity or stock creates an ownership relationship with the issuing company. Once an investor has purchased stock in a corporation, they become an owner of that corporation.  The corporation sells off pieces of itself to investors in the form of shares in an effort to raise working capital.  Equity is perpetual, meaning there is no maturity date for the shares and the investor may own the shares until they decide to sell them. Most corporations use the sale of equity as their main source of business capital.Debt = Bonds

A bond, or any other debt instrument, is actually a loan to the issuer.  By purchasing a bond, the investor has made a loan to the corporation and become a creditor of the issuing company.

Debt instruments, unlike their equity counterparts, have a time frame or maturity date associated with them. Whether it is one year, five years, or 30 years, at some point the issue will mature and the investor will receive their principal back and will cease to be a creditor of the corporation. We will examine how investors may purchase stocks and bonds, but first we must look at how the corporation uses the sale of these securities to meet their organizational goals.

Capitalization

The term capitalization refers to the sources and makeup of the company’s financial picture. To determine a company’s capital composition, an investor must look at the corporation’s balance sheet. The balance sheet is like a snapshot of the corporation’s finances at the time it was produced. It shows a list of the company’s assets and liabilities as well as the company’s net worth or stockholders’ equity. Most publicly traded companies have to disclose or report their performance at least quarterly.

The Balance Sheet Equation

assets – liabilities = net worth

Assets

Assets are everything that a company owns, including cash, securities, investments, inventory, property, and accounts receivable.

Liabilities

Liabilities are everything that a company owes, including accounts payable and both long- and short-term debt as well as any other obligations.

Net Worth

The company’s net worth is equal to the value of all assets after all liabilities have been paid. This corporation’s net worth is the stockholders’ equity. Remember that the stockholders own the company.

Common Stock

There are thousands of companies whose stock trades publicly and that have used the sale of equity as a source of raising business capital. All publicly traded companies must issue common stock before they may issue any other type of equity security. There are two types of equity securities, common stock and preferred stock. While all publicly traded companies must have sold or issued common stock, not all companies may want to issue or sell preferred stock. Let’s take a look at the creation of a company and how common stock is created.

B. Corporate Time Line

Related Articles
  1. Personal Finance

    Prepare For Your CFA Exams

    Find out how to get yourself ready for these lengthy and often daunting exams.
  2. Personal Finance

    How to Ace the CFA Level I Exam

    Prepare to ace the CFA Level 1 exam by studying systematically.
  3. Insights

    FINRA Files Plans to Change Series 7 and Other Exams

    New details have emerged on the Securities Industry Essentials Exam required for becoming a registered representative.
  4. Financial Advisor

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  5. Financial Advisor

    Tips on Passing the CFA Level I on Your First Attempt

    Obtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
  6. Personal Finance

    Becoming A Chartered Market Technician

    The CMT certification involves three tough exams. Find out what you need to do in order to pass.
  7. Personal Finance

    Tips for Taking the CFA Exam: Part 1

    Peter Mackey, head of exam development for the CFA Institute, shares his tips for taking the CFA level I, II and III exams.
  8. Personal Finance

    An Introduction To The CFA Designation

    The CFA designation is seen as the key certification for investment professionals. Find out what the CFA signifies for candidates and investors.
  9. Financial Advisor

    Should you add a securities license to your qualifications?

    Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it.
  10. Personal Finance

    Is the CFA Useful for Corporate Finance?

    The CFA is useful for some job functions, but an MBA may better suit younger workers.
Frequently Asked Questions
  1. What Is a Ginnie Mae Security?

    Find out how a Ginnie Mae, or Government National Mortgage Association security, functions in lending money for the purchase ...
  2. How Does Gross Profit Margin and Operating Profit Margin Differ?

    Gross profit margin and operating profit margin both measure profitability for a company, but have distinct differences that ...
  3. Why would a company buy back its own shares?

    Learn about share buybacks and the reasons a company might choose to repurchase its own stock, including ownership consolidation ...
  4. What is the difference between CAPEX and OPEX?

    In this article, we'll teach you the differences between a company's capital expenditures and its operational expenses.
Trading Center