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31 Cards in this Set
- Front
- Back
underwriting
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process of how securities are issued to the public
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secondary market
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-the aftermarket
-the resale of outstanding securities -this is what occurs every day on the exchanges and in the OTC market -provides liquidity to individuals who acquired securities in the primary market |
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Securities Exchange Act of 1934
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-SEC created
-outlines the powers of the SEC to interpret, supervise, & enforce the securities laws |
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listed exchanges
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-stock exchange
-national stock exchanges -regional stock exchanges |
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What is a stock exchange?
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-private association of brokers
-provides a central meeting place for its member - brokers called the floor |
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What comprises the national stock exchange?
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-New York Stock Exchange (NYSE)
-American Stock Exchange (AMEX) |
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What comprises the regional stock exchange?
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-Philadelphia Exchange
-Chicago Exchange -Pacific Exchange -Boston Exchange -Cincinnati Exchange |
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listed stock
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-stock of a company traded on a securities exchange and for which a listing application & registration statement have been filed with the SEC and the exchange itself
-stocks that are traded on an exchange |
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specialist
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individual employed by a member firm that conducts the auction that determines the price of stocks
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How is the price of stock determined on the stock exchange?
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-price is determined in a free & open auction type of trading
-price depends on the supply & demand relationship of that security at a particular time |
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over-the-counter market
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-handles any transaction that does not take place on the floor of an exchange
-national negotiated market without a central marketplace, without a trading floor, composed of a network of thousands of brokers & dealers who make securities transactions for themselves & their customers -professional buyers & sellers seek each other out electronically & by telephone to negotiate prices -largest market in terms of numbers of securities issues traded |
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In an over-the-counter market, how do buyers & sellers seek each other out to negotiate prices?
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Electronically & by telephone
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What are the 5 types of securities traded exclusively on the OTC?
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-government bonds
-municipal bonds -mutual funds -new issues (primary distributions) -variable annuities |
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market makers
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-an NASD broker/dealer ready to provide continuing bids & offers for a given security in the secondary market
-main player in the OTC -act as principals in a securities transaction & buy & sell securities for their own account & risk -do not receive any commission for their services |
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How do dealers make a profit on a security?
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-buy at one price & sell at a higher price making a profit from mark-up on the seucity price
-has a position in a stock when he purchases & holds a security in inventory -assumes risk that market price of the security he holds may decline in value |
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NASDAQ system (National Association of Securities Dealers Automated Quotation System)
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-NASD regulates trading in the OTC
-an electronic data terminal device furnishing subscribers with instant identification of market-makers & their current quotations, updated continuously -transactions are reported within 90 seconds of the trade -utilizes a quotation machine -scans all of the market maker bids & all of hte market maker asks (offers) & automatically displays the inside market |
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pink sheets
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-used in the 1960's
-contain a listing, alphabetically, of OTC stocks -underneath each issue is listed the name of one or more market makers, securities firms willing to trade that stock -lists bid & ask price -location of relatively inactive stock no on the Nasdaq system -prices found not firm quotes -prices are subject quotes or subject market |
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bid & ask price
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approximate price representing what the dealer is asking & bidding for the stock
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How does a quotation machine work?
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-push a few buttons & instantaneously see the best bid & best offer that exists right now on over 5,000 of the most active OTC stocks
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Nasdaq National Market List (NNM securities))
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the investor gets virtually the same detailed trading information as on a NYSE listed stock
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inside market
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-normally the highest bid and the lowest asked prices and is displayed on Level One of Nasdaq
-quote machine display shows market maker & their current bid & ask price -prices shown are firm quotes |
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firm quotes
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prices at which the market maker is ready to do business with another NASD member firm
-represents a firm bid & an offer at which an OTC dealer has committed itself to buy or sell at least one round lot (100 shares) of a particular security right now |
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inside of the spread
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highest of bid prices (best bid or inside bid) & the lowest of the ask prices (best ask or inside ask) are referred to as the inside market, that is, the bid & ask price which reflects the narrowest spread
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Nasdaq Level 1
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-available on the representative's desk top
-provides price information only on the highest bid & lowest offer (the inside market) -no market makers are identified -since inside quote, may not be used for giving firm quotes -can only give a subject quote |
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Nasdaq Level 2
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-provides a large CRT with price information & quotation sizes of all participating registered market makers
-sees who's making a market, their firm bid & ask right now, & the size of their market -can give firm quotes |
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Nasdaq Level 3
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-allows registered market makers to enter bid & ask prices (quotes) & quotation sizes into the Nasdaq system & to report their trades
-this is the level of service maintained by market makers |
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Nasdaq Intermarket
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-OTC transactions in listed stocks
-3rd market -when a trade of a listed stock occurs in the OTC |
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Fourth Market
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-one institution swapping securities in its portfolio with another large institution
-no broker/dealer is involved -no representative is involved -these trades reporte don a system called Instinct |
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broker/dealer
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-securities firm
-brokers act on behalf of others as their agent for which they earn a commission -dealers act for self as a principal for which they charge a markup -under certain conditions the firm will as a broker; and in others as a dealer -securities firm can never act as a broker & a dealer in the same transaction -only a dealer maintains an inventory |
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What is a dealer maintained inventory?
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firm has an inventory in a particular security, i.e., they own it, the firm is prepared to sell those securities to customers from their own invesntory & act in the capacity of a dealer or principal
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Why can't a broker/dealer act in both capacities for the same transaction?
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Cannot make a commission and a mark up on the same trade
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