Flashcards in Ch 11 Deck (46):
The primary market is a market in which securities are traded among investors
The issuer has almost no price risk in a firm commitment offering once the offer price is set
All public offerings are regulated by the Securities and Exchange Commission (SEC).
Under a best-effort agreement, investment bankers try to sell the securities of the issuing corporation, but
they assume no risk for a possible failure of the flotation.
Shelf registration allows firms to register only debt issues with the SEC, and have them available to sell for
All firms can use shelf registration which saves issuers both time and money
Private placement can avoid SEC registration and all SEC regulations.
Rights offerings among public corporations became infrequent in the United States during the 1980s and
The flotation costs of an initial public offering are comprised solely of direct costs and the spread.
IPO underpricing occurs only in the United States
Firm commitment flotation costs, relative to the amount raised, are typically lower than those of best efforts
An important function of the Securities and Exchange Commission is to pass judgment on the investment
merit of a security
A dealer is a person who assists in the trading process by buying or selling securities in the market for an
The Glass-Steagall Act of 1933 ended the ability of commercial banks to act as underwriters of newly
The secondary markets provide pricing information and liquidity to investors
Floor brokers act as agents to execute customers’ orders for securities purchases and sales.
Designated Market Makers are dealers who have the responsibility of making a market in an assigned
All securities must be listed before they may be traded on the New York Stock Exchange
A limit order is an order to sell stock at the market price when the price of the stock falls to a specified level
The maintenance margin is the minimum margin to which an investment may fall before a margin call is
The fourth market is a market for large blocks of listed stocks that operate outside the confines of the
American depository receipts are receipts which represent foreign shares to U.S. investors
Insider trading regulation is provided for under the Securities Exchange Act of 1934.
A global depository receipt is traded on the American Stock Exchange.
The Dow-Jones Industrial Average is made up of 30 large blue-chip stocks
Commissions on stock trades are set by the stock exchanges
Existing securities are traded in the primary market.
The prospectus is a contract outlining the duties, responsibilities and fees between the issuing firm and its
Underpricing represents the difference between the aftermarket price and the offering price
If there were no secondary markets for trading between investors, there would be no primary market for the
initial sale of securities.
The term “Big Board” is another name for the NASDAQ market
A market order is an order for immediate purchase or sale at the best possible price
An odd lot is a trade involving 100 shares or multiples of 100 shares.
Over the counter markets are organized exchanges for trading securities such as the New York Stock
ADRs are created and traded in dollars on U.S. exchanges. They represent a given number of shares of a
foreign firm’s stock .
Churning happens when a broker constantly buys and sells securities from a client’s portfolio in an effort to
In a financial context, due diligence refers to the detailed study of a corporation
An underwriting agreement is a contract in which the investment banker agrees to buy securities at a
predetermined price and then resell them to investors
An underwriting agreement is a contract in which the investment banker agrees to do its best to sell
securities to investors at the highest price it can; the investment banker assumes no risk for the possibility that it
may fail to issue all authorized shares.
A pre-emptive right refers to the right of existing shareholders to sue management in order to head off
potential actions by management that would adversely affect the price of the stock.
A Dutch auction is an offering process in which investors bid on the price and quantity of securities they
wish to purchase
A syndicate is a group of several investment banking firms that participate in underwriting and distributing a
The aftermarket is a period of time after an IPO.
Federal regulation of investment banking is administered primarily under the provisions of the Investment
Banking Monitoring and Control Act of 1999
Organized securities exchanges include the New York Stock Exchange, the American Stock Exchange, and