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49 Cards in this Set

  • Front
  • Back
Secondary Market
Includes exchanges and over-the-counter (OTC) market
Exchange market
Represents an auction market consiting of competing buyers and competing sellers
Over-the-Counter (OTC) market
Represents a negotiated market where one buyer negotiates with one seller.
The difference between the bid and ask price
Settlement Date
The date upon which a transaction must be cleared. This is accomplished when a buyer pays for securities or a seller delivers securities and receiveds the proceeds of the sale.
A type of trade that is settled through the regular settlement cycle required for the particular investment being traded. The settlement cycle is the time that the regulations of the securities market allows for the buyer to complete payment and for the seller to deliver the goods being purchased. The settlement cycle differs for different assets. Most trades are regular-way trades.

Options and government-issued securities are regularly settled on the next business day. Forex spot trades are regularly settled in two business days, and corporate securities are regularly settled in three business days. The regular settlement cycle length varies also by country, exchange and debt instrument and issuer.
Seller's Option Contract
The seller is given the right to deliver the securities in a time period other than regular-way, or three business days.

NYSE rule - the seller may specify a delivery date anywhere from 2 business days to 180 calendar days after the trade date. However the contract cannot coincide with a regular-way settlement.

NASD - cannot settle earlier than the fourth business day following the trade with no maximum time period specified for settlement
synonomous with the term "dealer". The dealer buys and seals for its own account and risk. The firm earns a profit by marking up the price of the security over the market price.
synomous with the term "broker" A broker purchases and sells securities for a customer and charges a commission.
Securities Exchange Act of 1934
- Regulation of transactions in the secondary markert, including antimanipulation rules and regulation of the extension of credit in securities transactions.
- Registration and regulation of broker-dealers
- Oversight of industry self-regulatory organization (SROs)
- Registration and regulation of companies with securities trading in the secondary market, including regular financial disclosures, proxy rules, and insider reporting.
Regulation T
The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities.

According to the regulation, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.
SEC Rule 15c3-3
Customer Protection Rule

sets forth rules for broker-dealer reserve requirements and custody of securities. Under the custody of securities section, a brokerage firm must buy-in securities within 10 business days from settlement when a customer has failed to deliver securities that were previously sold.
The illegal activity of buying a stock and selling it before paying for the purchase
Regulation SHO
One of the primary goals of Regulation SHO is to address potential abuses in the practice of naked short selling, which is the act of short selling without actually confirming that shares have been borrowed. The regulation addresses this issue by including two main short sale requirements: the "locate" and "close-out" requirements. The locate requirement is placed on broker-dealers to reasonably assure that there are in fact shares to borrow to be short sold. The close-out requirement is also placed on broker-dealers to close out positions in securities if the position has failed to be delivered or returned for an extended period.

A regulatory addition by the Securities & Exchange Commission, expanding and updating the restrictions placed on short sale transactions. The updated regulations came into effect on Jan 3, 2005 and help to address several key issues in the short sale market.
Forms of Market Manipulation
Tips, rumors, the distribution of information that misrepresent facts, matched orders and pooled activities
Matched Orders (Painting the Tape)
involve two person acting in concert to generate the false impression of increased trading volume.
Capping or Pegging (pooling activities)
Pools or syndicates are formed for the purpose of raising or lowering the price of a security
Rule 10b-5
A regulation formally known as the Employment of Manipulative and Deceptive Practices that was created under the Securities Exchange Act of 1934. This rule deems it to be illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information or otherwise conduct operations of business that would deceive another person; in relation to conducting transactions involving stock and other securities.
ITSFEA (Insider Trading and Securities Fraud Enforcement Act) of 1988
require broker-dealers to establish, maintain, and enforce written polices and procedures reasonable designed, taking into consideration the nature of the broker-dealer's business, to prevent the misuese of material, non-public informaiton by the broker-dealer or any associated person
Information Barrier
a set of procedures for preventing the transmission of confidential information form one department to another within a broker-dealer.
SEC Regulation FD (Fair Disclosure)
A rule passed by the Securities and Exchange Commission in an effort to prevent selective disclosure by public companies to market professionals and certain shareholders.

The Reg FD rule reads as follows: "Whenever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to [certain enumerated persons], the issuer shall make public disclosure of that information... simultaneously, in the case of an intentional disclosure; and... promptly, in the case of a non-intentional disclosure."
Trading Post
Where the security is bid for and offered
Trading Crowd
Members who are bidding or offering the security
Types of Members
Commission House Brokers
Two-Dollar Brokers
Registered Traders
Commission House Brokers (floor brokers)
They execute orders for clients of their firms and may also execute order for their firm's proprietary account
Two-Dollar Brokers
Execute orders for commission house brokers when they are too busy to execute all the orders received from their firms. They may execute for any firm, in any security, for which they charge a commission.
Registered Traders
Execute orders for their own accounts, at their own risk, and rarely execute for clients
Maintain a fair and orderly market in specific securities. They may act in a principal capacity when trading for their own accounts or in an agent capacity when executing orders for commission house brokers.
Stopping Stock
Procedure where the specialist gurantees that an order placed by a floor broker will be executed at a specified price, unless a better price can be obtained.
Processing a transaction
1. Order Department (wire room)
2. Purchase and Sales Department
3. Margin Department
4. Cashiering Department
Order Department (wire room)
This department transmits buy and sell orders by allocating orders to a specific exchange or product area
Purchase and Sales Department
After an order is completed, the P&S department records the transaction and compares the trade details with the broker-dealer on the other side of the trade (contra-broker) for the purpose of reconcilling any trade discrepencies
Margin Department
This department enforces customer account rules with regard to payment and delivery. It maintains account record for each customer and posts all trade activitiy.
Cashiering Department
This where funds and securities are received and disbursed
Orders adjusted on ex-dividend dates for cash dividends
Buy Limit
Sell Stop
Sell stop-limit
Order qualifiers
Day order
Good-Till-Cancelled or Open order
Not-Held (NH)
Immediate-or-Cancel (IOC)
This is an order to buy or sell at the closing price
Not-Held (NH)
A market or limit order that gives the broker or floor trader both time and price discretion to attempt to get the best possible price.
Immediate-or-Cancel (IOC)
An order requiring that all or part of the order be executed immediately after it has been brought to the market. Any portions not executed immediately are automatically cancelled.
Facts about the consolidated trade tape
- one round lot requires no volume represenation
- for trades involving 200 to 9900 shares the number of round lots is indicated (i.e. 15s for 1500 shares)
- Trades involving 10,000 or more share are not displayed based on the number of round lots (i.e. 10,000 = 10.000)
Reporting delays - a trade is reported out of its proper sequence
Prefered Stock
Fidelity Bonds
Every NYSE firm msut post a fidelity bond, which is an insurance policy providing the firm protection against improprieties such as fraud and embezzlement.
Nine Bond Rule
The NYSE requirement that all orders for nine bonds or less be sent to the floor for one hour, in which time a market is sought. The rule doesn't apply if the customer directs the broker to go to the OTC market. Also known as "Rule 396".
Rule 80b
Dow Jones - Circuit breakers:
10% decline - before 2 1hr halt, from 2-2:30 1/2 hr halt, after 2:30 no halt

20% decline - before 1 2hr halt, from 1-2 1 hr halt, after 2 market closes

30% decline - market closes
Trading Curb
a point at which a stock market will stop trading for a period of time in response to substantial drops in value.
Rule 80a
Rule 80A provides that index arbitrage orders can only be executed on plus or minus ticks depending on which way the DJIA is. In the parlance of the NYSE, the orders must be "stabilizing." This rule only effects S&P 500 stocks, and is also known as the "uptick downtick rule" because it restricts sells to upticks and buys to downticks. In other words, when the market is down (last tick was down), sell orders can't be executed at lower prices. In an up market (last tick was up), buy orders can't be executed for higher prices. This collar is removed when the DJIA retraces its gain or loss to within approximately 1% of the previous close. As of 3Q02, the collar is imposed at 180 points and removed when the DJIA retraces its position to within 90 points of the previous day's close.