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45 Cards in this Set
- Front
- Back
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Primary Markets
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Markets for new issues of securities
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Secondary Markets
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Markets for already issued securities
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IPO
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The first sale of stock by a formerly private firm
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Seasoned Public Offering
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An issue of stock by an already public firm
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Underwriters
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Purchase securities from the issuing company and resell them
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Prospectus
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A description of the firm and the security it is issuing
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Shelf Registration
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1982. Allow firms to register securities and sell them gradually sell them to the public up to two years after registration. The can be sold in mall amounts to reduce the float costs
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Private Placement
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Primary offering in which shares are sold directly to a small group of institutional or wealthy investors. Can issue without preparing costly registration paperwork. Reduced liquidity
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Book-building
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The price at which an underwriter determines what price to offer an IPO depending on market response.
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Firm Commitment
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The investment bank agrees to purchase al of the stock and is responsible for any un-purchased shares. Buy stocks at a discount
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Best Efforts
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Less common than Firm Commitment. The bank acts as an intermediary and does not actually buy the security
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Types of Markets: Direct Search Markets
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The least organized market. Buyer and sellers seek each other out directly.
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Types of Markets: Brokered Markets
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A broker makes profits by offering services to buyers and sellers. Good example is the real estate market. Primary market.
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Types of Markets: Dealer Markets
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Markets in which traders specializing in particular assets buy and sell for their own accounts. OTC is an example.
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Types of Markets: Auction Markets
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A market where all traders meet at one place to buy or sell an asset.
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Bid Price
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The price a dealer is willing to buy a security
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Ask Price
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The price at which a dealer is willing to sell a security
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Bid-ask spread
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The difference between the bid and ask price. The source of profit.
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Limit Orders
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An order specifying a price at which an investor is willing to buy or sell a security
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Stop Order
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The trade is not to be executed unless the price hits the stop limit. Stop loss, stop buy
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Over The Counter Markets
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An informal network of brokers and dealers who negotiate sales of securities
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ECN's: Electronic Communications Networks
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Computer networks that allow direct trading without the need for market makers. Allow participants to post market and limit orders over computer networks. True trading systems, not merely price quotation devices. Eliminates the bid-ask spread.
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Specialist Markers
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Each security is managed by a specialist, A trader who makes a market in the shares of one or more firms and who maintains a "fair and orderly market" by dealing personally in the market. Provides liquidity.
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Why are large bid-ask spreads not a viable option for specialists?
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1) Their source of income is form frequent trades. A large spread would reduce the number of trades. 2) They are obligated to provide price continuity to the market.
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What is the most important dealer market in the US?
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Nasdaq
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What is the most important equity exchange in the US?
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NYSE
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How many firms does the Nasdaq list?
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About 3200
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What are the two divisions of the Nasdaq?
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National Market System and The SmallCao Market
Pink sheets |
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Name the levels of the Nasdaq subscribers and their attributes.
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Level 3: Can enter bid and ask prices.
Level 2: Receive all bid ask prices but cannot enter their own. Level 1: Just receive inside quotes |
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Who can trade in the NYSE?
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Only members.
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When do specialist trade from their own accounts?
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When there is insufficient liquidity from public traders.
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Block Transactions
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Large transaction in which at least 10,000 shares of stock are bought or sold. 137m was the largest ever.
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Program Trade
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The coordinated sale or purchase of a portfolio of stocks
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SuperDot
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Allows NYSE members ti send orders directly to the specialists Display Book
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T + 3
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Trades must be settled within 3 working days.
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Automated Bond System (ABS)
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Allows trading firms to obtain market information, to enter and execute trades over a computer network, and to receive immediate confirmation of trades executed
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Full Service Broker
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Provide research, discretionary accounts, and all other services
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Discount Brokers
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Buy and sell services, hold them for safekeeping, margin loans, short sell.
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Margin
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Securities purchased with money borrowed in part from a broker. The margin is the net worth of the investors account.
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Short Sale
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The sale of a share not owned by the investor but borrowed through a broker and later purchased to replace the loan.
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What is covering the short position?
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When the short seller purchases shares that they have short sold
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When can you short sell?
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When the last recorded sale price was positive.
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What are circuit breakers?
Trading Halts |
Trading halt: If the DJ falls by more than 10% before 2pm, trading will be halted for one hour, between 2 and 2:30 it will be halted for 30 min, not at all if the drop occurs after 2:30. Falls by 20% 1: two hours, 1-2: 1 hour, after 2: all day. 30% All day
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What are circuit breakers?
Collars |
When the Dow moves more than 2% points in either direction from the previous trade it must pass the tick test. In falling market: Stock can only be sold on a plus tick or zero plus tick. The rule remains in effect all day or until it returns within 1% of the previous days close
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What is the main purpose of the circuit breakers?
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To mitigate informational problems
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