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97 Cards in this Set
- Front
- Back
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Security Exchange Act of 1934
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gave authority to regulate broker/dealers the securities exchanges Over the Counter (OTC) Markets to maintain a fair and orderly markets for the investing public |
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Security Act of 1934
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Provide for The creation of the SEC The regulation of the exchanges The regulation of the OTC markets The regulation of the credit by the Federal Reserve Board(FRB) The registration of broker/dealers The net capital rules The regulation of insider transaction, short sales, and proxies The regulation of client accounts The customer protection rule The filing of 10-qs, 10-k and the financial statement by companies that are required to report The regulation of officers, directors and principal shareholders |
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The Securities and Exchange Commission (SEC)
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Five commissioners appointed by the President of the United States Approve by Congress enforces the 1934 act by regulating the securities market and the behavior of market participants |
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Registration of exchanges and firms
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1934 act requires national securities exchange to file registration statement with the SEC Each exchange give the SEC copies of its bylaws, constitution and articles of incorporation exchange must disclose to the SEC any amendment to exchanges rules as soon as it is adopted requires companies that listed securities on the exchange and certain firms traded OTC to register with the SEC Send quarterly and annual reports (Forms 10-Q and 10K) informing the SEC of its financial status and providing information |
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Exchange Market ( Auction Market)
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Composed of the NYSE and other exchanges on which listed securities are traded |
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Over the counter (OTC) Market Second Market |
inter-dealer market in which unlisted securities not listed on any exchange trade Trade the following Stock Bonds All municipal and U.S Government Securities OTC market divided into Nasdaq and non -Nasdaq |
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OTC Market id divided into
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Nasaq three markets Global Select Market, Global market Capital Market Non- Nasdaq PTC Pink OTC Bulletin Board |
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Third market ( OTC Listed) aka nasdaq Intermarket |
trading market in which exchanges listed securities are traded in the OTC market B/D are registered as market makers can do transaction in the third market securities listed on the NYSE and most securities listed on the regional exchanges are eligible for OTC trading trades are reported to the consolidated Tape with 90 seconds of execution |
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Fourth Market
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trade in transaction unassisted by broker/dealers Transaction take place through electronic communication network ( ECN) open 24 hours act solely as agents |
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Listed Market
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Location. Listed markets for example NYSE other exchanges have a central marketplace and trading floor facilities Price System Listed Markets use double auction floor participants compete with among themselves to execute trades at prices most favorable to the public |
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OTC Markets
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No central market place facilitates OTC trading take place over the phone, computer networks Trading rooms across the country Pricing System OTC market works through interdealer network Registered market markers compete among themselves to post the best bid and ask price negotiated market |
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ask price
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the price at which dealers are willing to sell |
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bid
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the price at which dealers are willing to buy |
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Spread
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difference between the bid and spread price |
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Dark Pools of Liquidity
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trading volume that occurs or Liquidity that is not openly available to the public |
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trade Reporting Facility ( TRF)
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an automated trade reporting and reconciliation services that is operated on the Automated Confirmation Transaction (ACT) service platform Electronically facilities all trading data reporting such as price and volume |
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role of the broker/dealer |
firms that engage in buying and selling must register Most firm act as both but not in the same transaction |
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Brokers
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agents that arrange trades for the client and charge a commission do not effect trades as principal but arrange trades between buyers and seller |
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dealers |
buy and sell securities for their own account called position trading charge the client a markup when selling from the inventory instead of commission |
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Markup |
difference between the current interdealer offering price and the actual price charge to the client
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Net price
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price to a client includes a dealer markup
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Filling an Order
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firm may buy the securities from a market maker mark up the price resell them to the client if it has the securities in it own inventory the firm may sell the shares to the client from that inventory
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Broker/Dealer Role in Transaction A Broker |
Act as an agent Transaction orders on the client behalf Charges a commission is not a market marker must disclose it role to the client and the amount of its commission |
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Broker/Dealer Role in Transaction A Dealer |
dealing securities for its own account at it own risk charge a markup or markdown may make markets and take position (long or short) in securities must disclose it role to the client markup and markdown if a Nasdaq security |
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Delist
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failure to meet the minimum maintenance criteria bankruptcy abnormally low share price or share volume corporate action not deemed to be in the public interest issuer can voluntarily remove from NYSE must be approve by the board directors |
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floor personal
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Four types of traders Commission House Broker(CHB) Two- Dollar Broker Registered Trader Specialist or Designated market marker (DMM) |
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Commission House Broker (CHB)
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Two Dollar Broker
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help commission brokers out charge a commission |
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registered trader
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accept a public customer from the floor broker must give that order priority may no execute their own trades while holding an unfiled public order |
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Specialist or Designated Market Marker
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act as both brokers and dealers act as a dealer when they are execute trades for their won account act as a broker when they execute order other member leave with them Specialist as an auctioneer receive rebates on fees charge by the exchange |
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Auction market
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Exchange securities are bought and sold |
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double auction markets
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buyers and sellers call out their best bid and offer in an attempted to transact business at the best possible price |
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Priority, Precedence, Parity
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1. Priority - First order in 2. Precedence- largest order of those submitted 3. Parity - random drawing |
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Volatile market Conditions
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rules know as the market wide circuit breaker rules (MWCB) protect rapid uncontrolled drops in the market Level 1 or 2 halt cannot occur more the one time a day If level 1 occurs it would take level 2 halt to stop trading again |
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Level 1 halt = 7%
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before 3:25pm - 15 minutes At or after 3:25pm - trading shall continue, unless there is a level 3 halt |
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Level 2 halt
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Decline 13% decline in S&P 500 before 3:25pm - 15 minutes After or after 3:25pm - trading shall continue unless there is a level 3 halt |
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Level 3 halt
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at any time trading shall halt and not resume for the rest of the day |
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Arbitrage
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use to profit from temporary price difference between markets or securities
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Market Arbitrage
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creating the possibility that one security may sell for two different price at the same time arbitrageurs buy at the lower price in one market sell at the higher price in the other |
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convertible security arbitrage
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if condition are right an arbitrageur may be able to convert bond to stock and sell the stock for a profit |
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risk arbitrage
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Arbitrageurs buy the stock in the company being acquired and sell short the acquiring company stock the merger will rise the acquisition stock price and lower the acquirers stock price |
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Supplemental Liquidity Providers ( SLPs)
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multi dealer market maker structure
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Agent
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Accept certain kinds of orders from member such as limit and stop orders execute these as condition permit |
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principals
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expected to maintain continuous , fair and orderly markets with reason price variations may not buy stock for his own account at a price that would complete with the current market specialist cannot buy as principal at a price that would satisfy a customer order to buy |
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responsibilities of the designated market maker specialist (DMM) |
must be abode certain NYSE floor rules in the daily conduct of his business The specialist: must maintain a fair and orderly market expected to transact business for his own account at the opening or reopening of trading in a stock if this would be upset the public the public balance of supply and demand must file the reports and keep the book and records the exchange requires may trade for his own account in between the current bid and ask quotes in his booka |
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market
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executed immediately at the market price |
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limit
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limits the amount paid or received for securities |
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stop
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become a marker order if the stock reaches or goes through the stop ( trigger or election ) price |
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stop limit
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entered as a stop order and changed to a limit order if the stock hits or goes through the stop(trigger or election) |
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market orders
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executed immediately at current price has priority over all the other types |
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limit order
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customer limits the acceptable purchase or selling price can only be executed at a specific price or better if the order can not be executed at the market it is placed o the book and executed if and when the price meets the order limit price |
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buy limit orders
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whereas sell limit order are placed above the current market |
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risk of limit order
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order protection rule
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requires that firms holding customer limit orders not trade through or ahead of orders |
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Stop order aka stop loss order |
designed to protect a profit or prevent a loss if the stock begins to move in the wrong direction |
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trigger
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trigger transaction at or through the stop price activates the trad |
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execution
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completing the trade |
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buy stop order
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priced above average triggered at market price touches or goes through the buy stop price |
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sell stop order
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entered at a price below the current market |
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Stop limit order
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becomes a limit order instead of a market order |
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buy stop order
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protect a gain from a short stock position establish a long position when a breakout occurs above the line of resistance |
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sell stop order
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protect a gain from a long stock position establish a short position when a breakout occurs below the line of support |
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Do Not Reduce (DNR)
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not reduced by an ordinary cash dividend
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Time sensitive orders
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Day Good Til Canceled At the open and market on close Not held Fill or kill Immediate or cancel All or none Alternative, which provides two provides two alternative such as sell a stock at a limit or sell it on stop |
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day order
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Unless it is mark it is to be assume to be a day order valid only until the close of the trading on the day entered if order is not filled it is canceled at the close of the trading day |
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good till canceled (GTC)
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automatically cancelled if not executed on the last business day of April and the last business day of October |
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at the open
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order are executed at the opening of the market partial executions are allowable must reach the post by the open of trading in that security or else cancelled |
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market on close order
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order are executed at or near as possible to the closing price in OTC market must be entered before 3:40pm will execute at closing price |
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not held order (NH)
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give the floor broker the authority to decide the best time and price at which to execute the trade not placed by the (DMM) |
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Fill or kill order (FOK)
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broker that cannot fill the entire order immediately cancels it notifies the originating branch office |
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Immediate or cancel (IOC)
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portion not executed is canceled |
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all or none (AON)
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AON orders can be day or GTC orders differ from FOK in that they do not have to be filled immediately |
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do not ship (DNS)
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limit order to buy or sell that is to be quoted and |
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sell order must be identified
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SEC requires that all sales orders be identified as either long or short no sale can be marked long unless the security to be delivered is in the customer account or is owned by the customer A person is long a security if he has title to it has purchase the security or has entered into an unconditional contract to purchase the security but has not received it owns a security convertible into or exchangeable for the security has tendered such security for the conversion or exchange has an option to purchase the security and has exercised that option
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NASDAQ OMX PHLX
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offers customer unique hybrid of both electronic and floor based trading in equity, index, options and U.S dollar currency options |
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Super Display Book
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75%of the orders the NYSE receives each day are processed through a computerized trading execution system |
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Consolidated Tape System(CTS)
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receive, validates and sequences the last sale price and size of all equity transaction in listed securities from the U.S Stock Exchanges and the Financial Industry Regulatory Authority
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Network A
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reports transactions in NYSE listed securities when ever they are traded |
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Network B
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represent last sales for the securities that are listd on the NYSE AMEX, securities eligible for the NYSE AMEX listing but trading soley by Regonal Exchanges, Local Issues and Bonds |
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SLD
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indicates that the exchange did not report it is out of sequence on the Tape
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OPD
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Announces the initial transaction in a security for which he opening has been delayed |
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Halt
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Means trading in a security has been halted |
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OTC market
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Highly sophisticated telecommunication and computer network connecting broker/ dealers Securities that can be traded in the OTC market included , but not limited to American Depositary receipts (ADR) Common Stock, Especially of banks and insurance and technology companies most corporate bonds (Typically convertibles municipal bonds U.S government securities preferred stock equipment trust certificates closed end investment companies warrents |
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OTC vs NYSE Markets
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Securities prices determined through negotiation regulated by FINRA Market Makers must register with both SEC and FINRA Traded at many location across the country NYSE Securities prices determined through the auction bidding regulated by FINRA Designated market Makers must be registered with the SEC and must be exchange members traded only on the NYSE floor |
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order audit trail system (OATS)
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automated computer system created record information relating to orders, quotes, and other trade information from all equities that are traded on Nasdaq
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quote
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dealer current bid and offer on a security |
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current bid
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highest price at which the dealer will buy |
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current offer
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lowest price tat which the dealer will sell |
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spread
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many factors affect the spread including the following Issue Size Issuer financial condition amount of market activity in the issue market condidtions |
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firm quotation
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unless otherwise stated will be around 100 shares |
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subject quote
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one in which the price is tentative, subject to reconfirmation by the market marker |
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workable quote
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approximate use to provide the buyer and seller with an indication of price, not a firm quote |
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Nominal quote
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some assessment of where a stock might trade in an active market |
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5% markup policy
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was adopted to ensure that the investing public received fair treatment and pays a reasonable rates for brokerage services in both exchange and OTC markets |
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5% markup may be considered excessive reason
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Broker/dealer is a market marker in a security, it will (as principal) buy or sell to the customer, charging a mark up or down if the firm is not a market maker in the security, it can fill the order as agent, with out taking a position in the security, and charge commission for its execution services an order can be filled as a riskless and simultaneous transaction |
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riskless and simultaneous transaction
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is an order to buy or sell stock in which the firm receiving the order is not a market maker |
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The inside market
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best bid (highest) price at which stock can be sold in the interdealer market and the best ask(lowest)price |
