Ch. 1: Overview of Market Participants and Market Structure Flashcards
A _____ is any person that executes _____ transactions in securities for its own account.
Dealer; principal
Is NASDAQ a securities exchange registered with the SEC?
Yes
Which department of a broker dealer executes securities transactions?
Trading
Where can you find quotes for stocks not listed on an exchange or NASDAQ?
OTCBB / Pink Sheets
Explain the concept of holding securities in street name.
Client securities are held by and registered in the name of the broker dealer
Explain a prime brokerage arrangement.
A situation in which multiple broker dealers execute a client’s trade and report them to one broker dealer for settlement
List the two main types of secondary markets.
Exchange markets (NASDAQ, NYSE); electronic, non-exchange markets (Pink Sheets or OTCBB)
Define a prime broker.
A broker dealer that clears and settles trades effected by one or more executing brokers at the direction of the customer
A registered representative’s (RR) employer is referred
to as a _____
Broker Dealer
What is a dark pool?
A place for large institutional investors and high frequency traders to trade with one another
What are the two types of arrangements that an introducing firm can have with a carrying firm?
Fully disclosed and omnibus
In an _____ arrangement, a clearing firm doesn’t have information on each individual customer of an introducing firm.
Omnibus
What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?
Clearing, settlement and information services
Define an introducing broker-dealer.
A broker dealer using another broker dealer to handle cash and securities, trade execution, reporting, clearing and confirmation
T/F: An individual with $100m in assets is a Qualified Institutional Buyer (QIB).
False (individuals are not considered QIBs)
What is a clearing firm?
A firm that is responsible for the confirmation, settlement and delivery of securities transactions
What does it mean to clear a trade?
It is the end-of-day process of matching trades executed by a BD to determine what is owed
The new issue market is also known as the _____ market.
Primary
Explain the primary market.
The market in which NEW securities are offered
What is the role of a BD’s operations department?
Process paperwork, handle funds and securities transfers and settle/confirm trades
The third market is the term used to describe _____ and ____ listed securities trading _____
NYSE and AMEX listed securities trading over-the-counter
The ______ is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market
Third Market
Who can charge a client for buying and selling securities?
Only registered BD’s; investment advisors can’t (only can charge fees for advice)
T/F: Unlike equities, bonds do not have organized exchanges
True, bonds do NOT have organized exchanges
T/F: Both stocks and bonds represent ownership in a corporation.
False, only stocks represent ownership
Define the term broker.
Effecting securities transactions for the accounts of others
What is the federal law that governs investment advisors?
Investment Advisors Act of 1940
A NASDAQ listed stock trades on the _____ market.
Secondary
Who guarantees and issues all exchange-listed options contracts?
Options Clearing Corporation
Which department of a BD handles the underwriting and issuance of securities for clients?
Investment Banking
In general, what are the two types of securities markets?
Primary and secondary
What are the Pink Sheets?
Real-time electronic quotation system for OTC equities
A _____ _____ is a type of advisor that provides advice to either a state, county or city.
Municipal advisor
What is the general definition of a Qualified Institutional Buyer (QIB)?
Entity that owns and invests on a discretionary basis at least $100m of securities of unaffiliated issuers
Who can charge a client for securities related advice?
Investment Advisors
Identify the acronym RR.
Registered Representative
List some responsibilities of a transfer agent.
Issue and cancel securities; pay dividends and interest; mail shareholder reports;
T/F: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.
True
A BD that does not hold a customer’s cash or securities is known as a _____.
Non-Carrying Firm
To be considered an investment advisor, that are the 3 parts of the ABC test?
A: Provide ADVICE
B: As a BUSINESS
C: Must be COMPENSATED for advice
What is the price at which a dealer is will to sell?
Ask / Offer price
What is an ECN?
Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes
In a ____ _____ account, information about each customer of the introducing firm is sent to the clearing firm
Fully disclosed
Where may quotes for non-NASDAQ (OTC equity) stocks be found?
Pink Sheets or OTCBB
Identify the acronym OTC
Over-the-Counter
Define the term dealer.
A person engaged in the business of buying for or selling from securities in his own account
QIB stands for:
Qualified Institutional Buyer
For what types of securities is a trustee required?
Bonds
The _____ market refers to direct institution-to-institution trading and doesn’t involve public exchanges.
Fourth Market
Which market is the decentralized, negotiated market?
Over-the-counter market
What is a market maker?
A person who enters quotes and stands ready to buy and sell securities for his own account on a regular basis
What is the OTCBB?
Over-The-Counter Bulletin Board that is an exchange where OTC equities are traded
Which department of a BD write reports about markets and securities for investors?
Research Department
T/F: A market maker publishing a firm quote is obligated to honor the price and the number of shares quoted.
True- obligated to honor both price and size displayed
What is the price at which a dealer is willing to buy?
Bid
List of examples of issuers:
Corporations, US Treasury, Municipalities
What does it mean for a client to use a prime brokerage account?
The client trade through multiple BDs but has its trade(s) settled by one BD
BD employees who are involved in the investment banking and securities business are called _____
Registered Representatives
T/F: The offer (ask) is the price at which a broker-dealer is willing to buy shares from a customer
False- bid price is price at which a BD is willing to buy from a customer; ask/offer is what they’re willing to sell at
A _____ is any person that executes _____ transactions in securities for the account of others
Broker; agency
Explain the secondary market.
Market on which existing securities are traded
