Market Participants and their roles

Question 1

❓ What are the three main types of investors?

Answer 1

✅ - Retail Investors – Individual investors buying for personal accounts.

✅ Institutional Investors – Large entities (e.g., pension funds, hedge funds).

✅ Accredited Investors – High-net-worth individuals or entities with access to private investments.

Question 2

❓ What are the main types of broker-dealers?

Answer 2

✅ - Introducing BD – Sends customer orders to a clearing firm.

✅ Clearing BD – Processes and settles trades.

✅ Prime Broker – Serves hedge funds & large investors, offering multiple brokerage services.

Question 3

❓ What is an investment adviser?

Answer 3

✅ A firm or individual that provides paid investment advice and is regulated under the Investment Advisers Act of 1940.

Question 4

❓ What is a municipal advisor?

Answer 4

✅ Advises state/local governments on municipal bond issuance and financial strategies.

Question 5

❓ What is an issuer?

Answer 5

✅ A company or government that sells securities to raise capital.

Question 6

❓ What is an underwriter?

Answer 6

✅ An investment bank that helps issuers sell securities in public offerings.

Question 7

❓ How do traders differ from investors?

Answer 7

✅ Traders focus on short-term price movements, while investors hold assets long-term.

Question 8

❓ What is a market maker’s role?

Answer 8

✅ Provides liquidity by always buying and selling securities, profiting from the bid-ask spread.

Question 9

❓ What is a custodian?

Answer 9

✅ A financial institution that safeguards assets for investors (e.g., banks, brokerage firms).

Question 10

❓ What is a trustee?

Answer 10

✅ A person or institution appointed to manage the assets in a trust on behalf of the beneficiaries.

Question 11

❓ What does a transfer agent do?

Answer 11

✅ - Maintains records of stock ownership.

✅ Handles dividend payments.

✅ Processes stock splits & transfers.

Question 12

❓ What is the Depository Trust & Clearing Corporation (DTCC)?

Answer 12

✅ A clearinghouse that settles most securities transactions in the U.S.

Question 13

❓ What is the Options Clearing Corporation (OCC)?

Answer 13

✅ Clears and settles options contracts.