Vocabulary

Question 1

May Day

Answer 1

1. May 1, 1975
2. the day on which brokerage commission rates were fully deregulated
3. now established by competition among firms

Question 2

Initial public offering (IPO)

Answer 2

public offering of securities which were previously privately held (a.k.a. going public)

Question 3

firm-commitment basis

Answer 3

a public offering in which the underwriter purchases the securities from the issuer and then sells them to the public

Question 4

best-effort basis

Answer 4

1. the underwriter acts as an agent for the issuer

2. promises to use its best effort to sell the securities

Question 5

lettered stock

Answer 5

1. newly issued stock sold in large lots at a discount to investors
2. sold in a private placement prior to a public offering of the same issue

Question 6

registered representative

Answer 6

an employee of a registered brokerage firm who is qualified to serve as an account executive for the firm’s customers

Question 7

Series 7

Answer 7

1. a general securities registered representative license

2. qualifies the broker to solicit, purchase, and/or sell all securities products

Question 8

Series 6

Answer 8

a license that qualifies the broker to sell:

• open-end mutual funds
• initial offerings of closed-end investment companies
• variable products such as variable annuities (must have appropriate insurance license)

Question 9

Gramm-Leach-Biley Act

Answer 9

1. passed in 1999

2. repealed the Glass-Steagall Act (the Bank Act of 1933)

Question 10

floor trader

Answer 10

1. one holding a seat on an exchange who trades for his or her own account.
2. Also known as a registered competitive market maker (RCMM).

Question 11

seat

Answer 11

a membership in the New York Stock Exchange

Question 12

dual listing

Answer 12

a security listed for trading on more than one exchange

Question 13

over-the-counter (OTC)

Answer 13

the market in:

1. unlisted securities
2. off-board trading in listed securities

Question 14

electronic communications network (ECN)

Answer 14

1. organizations that provide networks in which customers trade securities directly with each other.
2. ECNs make up the forth market.p

Question 15

market order

Answer 15

immediate execution to buy or sell at the best price available

Question 16

limit order

Answer 16

an order to buy or sell at a prespecified price

Question 17

bear raid

Answer 17

an attempt to drive prices down by massive short sales

Question 18

self-regulatory organization

Answer 18

1. Regulated by the SEC under the authority of the Securities Act of 1934.
2. SROs include the NYSE, the AMEX, and NASDAQ.

Question 19

Securities Investor Protection Corporation (SIPC)

Answer 19

1. a federal agency

2. guarantees the safety of brokerage accounts up to $500,000, no more than $100,000 of which may be in cash

Question 20

introducing firm

Answer 20

the firm that employs the individual broker who takes the customer’s order and sees that the order gets executed

Question 21

clearing firm

Answer 21

1. the firm that holds the customer’s cash and securities

2. sends out statements describing the assets it holds as “on deposit” for the customer

Question 22

street name

Answer 22

1. held in a customer account at a brokerage house

2. registered in the firm’s name

Question 23

discretionary account

Answer 23

broker is authorized to exercise discretion with regard to purchases and sales

Question 24

wrap account

Answer 24

1. a single annual fee known as a wrap fee is paid
2. allows a customer access to an independent money manager without requiring the client to enter into a direct contract with the money manager

Question 25

churning

Answer 25

trades that are made for the primary purpose of generating commission income for the broker

Question 26

cash account

Answer 26

1. the most basic account for an investor 2, sometimes referred to as a Type 1 account 3. An investor must have sufficient cash already in the account to complete any purchases.

Question 27

margin account

Answer 27

1. partially funded with money borrowed from the brokerage firm 2. regulated by the Fed

Question 28

paying for order flow

Answer 28

the practice in which a dealer pays a firm or a particular broker for the number of orders that are sent to him or her (ethical issue)