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45 Cards in this Set

  • Front
  • Back
What is preferred stock?
owners are entitled to a fixed dividend, paid out before it is paid to owners of common stock
What are the two types of secondary market trading in common stocks?
1. exchanges- trading floors, auction system; central auction specialist systems
2. over-the-counter (OTC) trading- negotiated system; linked by telecommunication systems; multiple market-maker systems
What are electronic communications networks (ECNs)?
privately owned broker/dealers that operate as market participants in the Nasdaq system; alternative to exchanges and OTC; offer transparency to limit order book; reduced prices; good for small orders;
What is the Big Board?
the New York Stock Exchange
What is Nasdaq?
National Association of Securities Dealers Automated Quotation System; run by NASD, an SRO controlled by SEC
What are the 4 major types of markets on which sotck are traded?
1. first market- trading on exhcanges of listed exchange stocks
2. second market- trading in OTC market of stock not listed on an exchange
3. third market- trading in OTC market of stock listed on an exchange
4. fourth market- private transactions; no broker-dealer intermediary
What are listed stocks?
individually approved stocks traded on an exchange; stocks traded on in the OTC market are considered unlisted
What is a seat on the exchange?
become a member of the exchange; right to trade securities and make markets on the exchange floor; 2001- 1,366 seats costing $2million per
What is a post?
where centralized continuous auction markets occurs; designated location on the floor
What is a specialist?
single market maker for each stock; conduct auction process; can be broker or agent
What is a limit order book?
list on which the specialist keeps the limit and stop orders that are given to them; only specialist can see it
What are discount brokers?
arisen after introduction of negotiated commissions; offer no advice and charge lower commissions
What are the two non-Nasdaq OTC markets?
1. the OTC Bulletin Board (OTCBB)- includes stocks not traded on the NYSE, Amex, or Nasdaq
2. Pink Sheets- often called pejoratively penny stocks; dealer quotations once disseminated by paper copy only; operated by National Quotation Bureau
What are Consolidated Quotations Service (CQS)?
electronic display system providing data on trades of listed stocks in different market centers
What are alternative trading systems (ATSs)?
divided in electronic communications networks and crossing networks; comprise the fourth market; direct trading of stocks
What are crossing networks?
allow institutional investors to cross trades- match buyers and sellers directly- typically via computer; excecute aggregate orders; lower trading costs; anonymity
What is Rule 144A?
permits the issue of nonregistered securites and their purchase by qualified institutions
What is a market order?
an order to be executed at the best price available in the market; simplest type of order
What are priority rules?
1. buyers bidding a higher price are given a high priority
2. first orders are first orders executed
3. public orders have priority
What are public orders?
orders made by the public not specialists or nonspecialists
What is a stop order?
order is not to be executed until the market moves to a designated price, at which time the order will become a market order; good for investor who cannot watch market constantly; danger is stock price shifts are only temporary- could result in premature trading
What is a market if touched order?
order becomes a market order if a designated price is reached; a market if touched order to buy becomes a market order if the market falls to a given price, a stop order to buy becomes a market order if the market rises to a given price
What is a fill or kill order?
order that must be immediately executed or it is dead
What is an open order?
order that is good until the investor specifically terminates the order
What is a round lot?
typically order of 100 shares of a stock
What is an odd lot?
order of less than 100 shares, less than round lot; or 350 shares would be 50 odd lost
What are tick-test rules?
restrictions as to when a short sale may be executed;
1. uptick trade- sale price of stock is higher than last trade price
2. zero uptick- if no change in last trade of stock, the previous trade price must be higher than the trade price that preceded it
What is buying on margin?
a transaction in which an investor borrows to buy shares using the shares themselves as collateral
What is the call money rate?
the interest rate that banks charge brokers for funds to allow clients to buy on margin
What is the initial margin requirement?
proportion of the total market value of the securities that the investor must pay as an equity share, and the remainder is borrowed from the broker
What is a maintenance margin requirement?
minimum proportion of the equity in the investor's margin account to the total market value
What is an impact cost?
change in market price due to supply/demand imbalances caused by the presence of the trade
What are timing costs?
price change between the time the order his the trading desk and when the trade is completed
What are block trades?
orders requiring the execution of a trade of a large number of shares of a given stock; orders of at least 10,000 shares or market value of at least $200k
What are program trades?
orders requiring the execution of trades in a large number of different stocks at as near the same time as possible
What is the upstairs market?
network of trading desks of major securities firms and other institutional investors to communicate with each other; provides liquidity and arbitrage activities
What are basket trades/program trades?
trades involving a "basket" of stocks; large number of names simultaneously; at least 15 stocks with a total value of $1 million or more
What does frontrun the transaction mean?
take foreknowledge of a program trade and benefit by buying a stock for their own account before filling the customer buy order
What are stock market indicators (indexes)?
benchmarks for evaluating the performance of professional money managers and answer question of how market did today; Dow Jones Industrial Average
What are the three main approaches to weighting stocks?
1. market capitalization- value of the number of shares times price per share
2. weighting by the price of the stock; e.g. DJIA
3. equal weighting for each stock
What are the three different forms of pricing efficiency?
1. weak form- prices reflect past prices
2. semistrong form- pricing reflects all public information
3. strong form- public information and inside information
What are positive abnormal returns?
whether or not historical price movements can be used to project future price movements in a way to produce above normal returns
What are technical analysts or chartists?
investors who follow a strategy of selecting stocks solely on the basis of price and volume patterns
What is fundamental security analysis?
analyzing financial statements, quality of management, economic environment of the company
What are anomalies in the market?
patterns of pricing inefficiency over long periods of time