Securities Markets

Question 1

Floor Broker

Answer 1

These individuals act as agents in executing buy or sell orders on behalf of their firms’ customers.

Question 2

Initial Public Offering

Answer 2

An IPO is the first time a corporation ever sells stock to the public to raise money.

Question 3

Primary Offering

Answer 3

When a corporation initially offers securities, it usually holds some back for future use; it later pulls those securities out of storage and sells them in a primary offering.

Question 4

Second Market (OTC)

Answer 4

This market is the trading of unlisted securities over the counter (by phone or computer).

Question 5

First Market (Auction Market)

Answer 5

The first market is the trading of exchange-listed securities on the exchange floor, such as the New York Stock Exchange (NYSE).

Question 6

Third Market

Answer 6

The third market is comprised of exchange-listed securities trading OTC; traders are calling in their orders or ordering online.

Question 7

Fourth Market

Answer 7

The fourth market is the trading of securities between institutions without the use of a brokerage firm. Fourth-market trades are typically executed through electronic communication networks such as Instinet

Question 8

Two Dollar Broker (Independent)

Answer 8

These brokers assist other floor brokers in getting their orders executed on busy days. (By the way, they’re called two-dollar brokers because many, many years ago, they used to receive $2 per trade.

Question 9

Designated Market Makers (DMM)

Answer 9

These market professionals manage the auction market trading for a particular security (or for a few securities, if not actively traded). Their purpose is to maintain a “fair and orderly market” in one or more securities. A DMM can act as a broker or a dealer (trading out of his or her own account) to help keep trading as active as possible.

Question 10

Over Counter Bulletin Board

Answer 10

which is a quotation service operated by FINRA for unlisted (non-Nasdaq) securities. OTCBB shows bid and ask prices of securities unable to meet the listing requirements for Nasdaq.

Question 11

Pink Market

Answer 11

Corporations on the Pink Market are not required to meet the listing requirements or file with the SEC.

Question 12

Broker-Dealer

Answer 12

a broker–dealer, it must buy and sell securities from its own account and act as a middleman for securities not in inventory.

Question 13

Capacity

Answer 13

Capacity refers to whether a firm is acting as a broker or dealer, and it must always be disclosed on the confirmation (receipt of trade). If a firm is acting as a broker, the commission always needs to be disclosed on the confirmation. However, if a firm is acting as a dealer, the markup or markdown doesn’t always have to be disclosed.

Question 14

Introducing Broker

Answer 14

introducing brokers (IBs) are more commonly referred to in commodities and futures trading, an IB is a person or business that does not actually handle the transactions but just provides investment advice or counsel to investors.

Question 15

Clearing Brokers

Answer 15

Clearing brokers (clearing firms) handle orders to buy and sell securities. In addition, clearing brokers maintain custody of clients’ assets (securities and cash). Clearing firms are responsible for segregating (separating) clients’ cash and securities held in their custody.

Question 16

Prime Broker

Answer 16

Prime brokers are used mainly by institutional accounts or large retail clients. Prime brokerage accounts are ones set up for individuals or entities with more-complex financial needs.

Question 17

Selling Short

Answer 17

Selling short occurs when an investor sells securities she doesn’t own. The investor is actually borrowing securities from a lender to sell. Expecting the price to decrease

Question 18

Buy Stop Order

Answer 18

A buy stop tells you to buy a security if the market price touches a particular price or higher. Investors who are short the stock make money when the price of the stock decreases; however, if the price increases, they lose money. An investor who’s short ABC stock currently trading at $25 could enter a buy stop order on ABC at $30

Question 19

Sell Stop Orders

Answer 19

These orders protect a long position (when an investor purchases stock); they tell you to sell a security if the market price touches a particular price or lower. Investors who are long stock make money when the price of the stock increases; if the price decreases, they lose money.

Question 20

Buy Limit Orders

Answer 20

Investors who want to purchase a security place these orders. A buy limit order is a directive to buy a particular security at the limit price or lower

Question 21

Sell Limit Orders

Answer 21

Investors who want to sell a security place sell limit orders. A sell limit order is a directive to sell a particular security at the limit price or higher.

Question 22

Immediate, or Cancel

Answer 22

These limit orders are similar to FOK orders except that the order may be partially filled. Any portion of the order that’s not completed is canceled.

Question 23

At the Open

Answer 23

These orders are to be executed at the security’s opening price. At-the-open orders can be market or limit orders, but if they aren’t executed at the opening price, they’re canceled. These orders allow for partial execution.

Question 24

At The Close

Answer 24

This order is to be executed at the closing price (or as near as possible). If this order isn’t completed, it’s canceled.

Question 25

Do Not Reduce (DNR)

Answer 25

This order says not to reduce the price of a stop or limit order in response to a dividend.

Question 26

Alternative Order

Answer 26

The alternative order is also known as a one cancels the other order or an either/or order. This type of order instructs the broker to execute one of two orders and then cancel the other.

Question 27

Bid Wanted Order

Answer 27

This order is an indication or notice that an investor or broker–dealer wants to sell a security at a specific price. Bid wanted is used most often when no current buyers of a security are available.

Question 28

Offer Wanted Order

Answer 28

This order is an indication or notice that an investor or a broker–dealer wants to buy a particular security at a specific price. Offer wanted is used particularly when no current sellers of a security are available.

Question 29

Discretionary Orders

Answer 29

It is nondiscretionary because he is giving you all the components of an order: purchase or sell, how many shares or dollar amount, and what security. If the client does not provide that information, it is considered discretionary, meaning that you must use your discretion.

Question 30

Unsolicited Orders

Answer 30

Unsolicited orders are ones in which your client tells you what he wants to buy or sell.