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49 Cards in this Set

  • Front
  • Back
Negotiated marketplace regulated by the NASD
Securitieis traded over the OTC
Corporate Stock
Corporate Bonds
Municipal Securities
U.S. Government securities
U.S. Goverment Agency Securities
Market Makers
OTC dealer who provideds continuous bids and offers for a particular security

They buy and sell for their own profity, at their own risk.
Firm quote
offer to buy or sell securities at a stated price
Backing Away
What it is called when offer a firm quotation and then fail to transact an order on the basis of the quotation. It is a violation of the NASD.
Subject Quote
a quote that is subject to confirmation and not firm
Workout Quote
comes about when a dealer receives an inquiry regarding the availability of a block of stock.
Nasdaq System - Level 1
provides subscribers with the highest bid nad the lowest offer for a security (the inside market) in which there are at least two market makers. Acutal market makers are not listed. Level I is typically used by branch offices of members firms.
Nasdaq System - Level 2
provides bids and offeres and quotations sizes for all market makers that enter quotes for each security.
Nasdaq System - Level 3
allows a market maker in the Nasdaq system to enter bids and offers for those securities for which the market maker is authorized to enter quotes. These quotations appear on the system immediately.
Inside Market
National Best Bid or Offer (NBBO)
Markup or Markdown rule
Should be based on the current market value of the security and not on the dealer's cost.

Other factors:
Type of security - stock transaction will generally justify a higher markup compared to a bond.
Availability of the security - an inactively traded stock will justify a higher markup
Price of the securitiy and total transaction amount - a low priced stock and a transaction involving a small amount of money will generally justify a higher markup due to the greater percentage of cost that is involved.
5% Policy for markup or markdown
- Riskless or simultaneous transactions, where a member firm buys or sells a security to fill an order that it already has from a customer.
- Proceeds transactions, in which the customer directs the member firm to sell a security and use the proceeds of the sale to buy another security.
- selling a securityto a customer from inventory
- Buying a security from inventory
- Agency transactions. Commission charges are subject to the same requirements as those that apply to markups
- Third market trades (listed stock trading over-the counter)
Exemptions to 5% Policy
Securities that are sold under a prospectus or an offering circular at a specified price. New issues, registered secondardies, and mutual funds, muni bonds, U.S. government securities, and listed securities.
The insertion of a third party between the customer and the best market to the detriment of the customer
The automatic execution system now used for Nasdaq Securities.

It accepts only market order or immeditely executable limit orders
The Third market
Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institutional investors.
The Fourth Market
The trading of exchange-listed securities between institutions on a private over-the-counter computer network, rather than over a recognized exchange such as the New York Stock Exchange (NYSE) or Nasdaq. Trades between institutions will often be made in large blocks and without a broker, allowing the institutions to avoid brokerage fees.
Consolidated Quotation Service (CQS)
Provides bid and asked quotations of stocks that are listed on the Exchange and are also trade over-the-counter.
Electronic Communication Networks (ECNs)
An electronic system that attempts to eliminate the role of a third party in the execution of orders entered by an exchange market maker or an over-the-counter market maker, and permits such orders to be entirely or partly executed.

An ECN connects major brokerages and individual traders so that they can trade directly between themselves without having to go through a middleman.
Non-Nasdaq OTC Securities
OTC Bullentin Board (OTCBB)
Pink Sheets
Automated Confirmation Transaction service (ACT)
An automated system designed to document and report the clearing of trades in the Nasdaq market.

All NASD members are required to participate in ACT. ACT provides faster access to trade information, it increases the efficiency of trade reconciliation and back-office transactions, and it also offers online access to the status of all trade entries.
Maloney Act
Also called the Maloney Amendment, provides for the regulation of over-the-counter securities markets through national associations registered with the Securities and Exchange Commission. The Act was passed in 1938 to add Section 15A to the Securities Exchange Act of 1934. NASD is the only association ever to register under the act.
NASD Rules and Regulation - Categories
The Uniform Practice Code
The Conduct Rules
The Code of Procedure
The Code of Arbitration
The Uniform Practice Code
relates to dealings between member firms. These rules coverall transactions in nonexempt securities and provide for the orderly completion of dealer-to-dealer transactions
The Conduct Rules
Related to a member firm's dealing with the public. These rules require a member firm to traeat the public in a fair and equitable manner.
The Code of Procedure
Is concerned with the procedures to be followed in the event of violations and complaints
The Code of Arbitration
Is concerned with settling disputes between dealer or brokers and the public
Stock Transactions
On stock transacitons, delieveries may be for multiples of 100 shares.

Multiples that are not 100 shares, such as two certificates for 250 shares each are not considered good delivery
Odd Lot
An amount of a security that is less than the normal unit of trading for that particular security.

For stocks, any transaction less than 100 shares is usually considered to be an odd lot.
any material used in newspapers, magazines, radio, television, telephone recordings, motion picutures, or other public media
Sales Literature
notices, circulars, research reports, form letters, and reprints of published articles.
Penny Stock Disclosure Rules
notices, circulars, research reports, form letters, and reprints of published articles.
Telecommunications Consumer Protection Act of 1991 - TCPA
A U.S. federal law created in response to increased consumer concern and complaints directed at the Federal Communications Commission (FCC) regarding the use of telephones for solicitation of business
Private Placement
Raising of capital via private rather than public placement. The result is the sale of securities to a relatively small number of investors. Investors involved in private placements are usually large banks, mutual funds, insurance companies, and pension funds.
Settlement for Treasuries
Regular way = 1 b. day
Skipped-day = 2 b. day
Corporate Settlement = 3 b. day
Accrued Interest on T-bills and STRIPS
trade at a discount and are non-interest bearing. Therefore they trade flat
Accrued Interest on T-bond an T-notes
Paid semiannually on the basis of 365 day year and actual days elapsed.
Bond Buyer
the newspaper of the municiapl industry
30-day visible supply
Refelects the total dollar volume of bonds expected to reach the market over the next 30 days.
The 20 Bond Index
the average yield on twenty general obligation bonds with twenty-year maturities.
The 11 Bond Index
the average yiel on 11 of the twenty bonds in the 20 bond index
The Revenue Bond Index
The average yield on twenty-feive revenue bonds with thirty-year maturities
Blue List
A daily digest of municipal and corporate bond offerings, market commentaries, fixed-income statistics and other bond information. The blue list is used by bond investors to identify investment opportunities in the bond market.
that provides information on new municipal bond issues in the primary market and secondary market.
Municipal Securities Rulemaking Board
A regulating body that creates rules and policies for investment firms and banks in the issuing and sale of municipal bonds, notes and other municipal securities by states, cities and counties. Activities regulated by the MSRB include the underwriting, trading and selling of municipal securities financing public projects.
returning securities that were previously accepted for delivery
a firm quote which is good for a period of time
recall provision
allows the dealer to notify the customer that the time period had been shortened