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investments > Chapter 3 - securities markets > Flashcards

Chapter 3 - securities markets Flashcards

(55 cards)

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1
Q

primary market

A

Market for new issues of securities

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2
Q

secondary market

A

Market for already-existing securities

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3
Q

private placement

A

Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors

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4
Q

how many shareholders can a private company have?

A

2,000

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5
Q

initial public offering

A

First public sale of stock by a formerly private company

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6
Q

seasoned equity offering

A

a public sale of additional shares of stock

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7
Q

underwriters

A

purchase securities from the issuing company and resell them to the public

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8
Q

underwriters

A

purchase securities from the issuing company and resell them to the public

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9
Q

firm commitment

A

the underwriters bear the risk that they won’t be able to sell the stock at the IPO price

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10
Q

book building

A

polling potential investors

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11
Q

prospectus

A

A description of the firm and the security it is issuing

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12
Q

shelf registration

A

a firm that is already publicly traded can register securities and gradually sell them to the public for three years following the initial registration

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13
Q

direct listing

A

A previously private company floats existing shares on the stock market but does not raise funds by issuing new shares to the public

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14
Q

lock-up period

A

prohibit officers, directors, founders, and other pre-IPO investors from selling their shares for several months after the IPO

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15
Q

direct search markets

A

The least organized, buyers and sellers must seek each other out directly

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16
Q

brokered markets

A

Brokers find it profitable to offer search services to buyers and sellers

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17
Q

dealer markets

A
  • Markets in which traders specializing in particular assets buy and sell for their own accounts
  • The spread between the bid (buy) and the ask (sell) prices is a source of profit
  • Most bond and ForEx trade in OTC dealer markets
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18
Q

auction markets

A

An exchange or electronic platform where all traders can convene to buy or sell an asset

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19
Q

market orders

A

buy/sell orders that are to be executed immediately at the current market price

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20
Q

bid price

A

The price at which a dealer or other trader is willing to purchase a security

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21
Q

ask price

A

The price at which a dealer or other trader will sell a security

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22
Q

bid-ask spread

A

The difference between the bid and asked prices

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23
Q

depth

Study These Flashcards
A

the total number of shares offered for trading at the best bid and ask prices

24
Q

limit buy order

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A

instructs the broker to buy some number of shares if and when they may be obtained at or below a stipulated price

25
limit sell order
instructs the broker to sell if and when the stock price rises above a specified limit
26
limit order book
a collection of limit orders waiting to be executed
27
inside quotes
the highest buy and lowest sell orders
28
effective spread
may be greater than the nominal one because they cannot execute the entire trade at the inside price quotes
29
over-the-counter market
An informal network of brokers and dealers who negotiate sales of securities
30
NASDAQ stock market
The computer-linked price quotation and trade execution system
31
electronic communication networks (ECNs)
Computer networks that allow direct trading without the need for market makers
32
designated market maker
A market maker designated by the exchange to commit its own capital to provide quotes and help maintain a “fair and orderly market” by trading from its own inventory of shares
33
latency
- The time it takes to accept, process, and deliver a trading order - BATS average latency is 100 microseconds
34
algorithmic trading
The use of computer programs to make rapid trading decisions
35
high-frequency trading
A subset of algorithmic trading that relies on computer programs to make very rapid trading decisions
36
dark pools
Electronic trading networks where participants can anonymously buy or sell large blocks of securities
37
blocks
Large transactions in which at least 10,000 shares of stock are bought or sold
38
discretionary account
allows the broker to trade securities whenever deemed fit
39
full-service brokers
- provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more - commissions at full-service brokerages are much higher than those at discount brokers
40
discount broker
- carries out buy and sell orders at reduced commission rates compared to a full-service broker - does not provide investment advice or perform analysis on a client's behalf
41
broker's call loans
- debt financing - Buying on margin
42
margin
- Describes securities purchased with money borrowed in part from a broker - The margin is the net worth of the investor’s account - The proportion of the purchase price contributed by the investor - Margin = equity in account / value of position
43
maintence margin
the level at which the broker will issue a margin call
44
margin call
requires the investor to add new cash or securities to the margin account
45
short sale
- The sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan
46
steps of a short sale
- First, borrow a share of stock from a broker and sell it - Later, purchase a share of the same stock in order to replace the share that was borrowed - Called to cover the short position - Profit = initial price - (ending price + dividend)
47
securities act of 1933
Requires full disclosure of relevant information relating to the issue of new securities
48
securities act of 1934
- Established the SEC to regulate and register securities exchanges, OTC trading, brokers, and dealers - Requires periodic disclosure of relevant financing information by firms with already-issued securities on secondary exchanges
49
commodity futures trading commission (CFTC)
Regulates trading in futures markets
50
federal reserve
-Broad responsibility for the health of the US financial system -Sets margin requirements on stocks and stock options and regulate bank lending to securities markets participants
51
Securities investor protection act of 1970
- Established the securities investor protection corporation (SIPC) - Protect investors from losses if their brokerage firms fail - $500,000 per customer
52
Financial industry regulatory authority (FINRA)
Largest nongovernmental regulator of securities firms in the US
53
Sarbanes-Oxley act (2002)
- Created the Public Company Accounting Oversight Board to oversee the auditing of public companies - Require independent financial experts to serve on audit committees of a firm's board of directors - CEOs and CFOs must personally certify their firm’s financial reports - Auditors may no longer provide several other services to their clients - Boards must be composed of independent directors
54
2012 JOBS act
Relieved many smaller forms of some of their obligations under SOX
55
insider information
Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm

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