Ch 2

Question 1

Stock Market

Answer 1

Genertic term used for the complication of public-traded stocks

Question 2

Initial Public Offerings (IPOs)

Answer 2

When a company offers stock to the public for the first time

Question 3

Seasoned Equity Offerings (SEOs)

Answer 3

when a company already has shares owned by the public

Question 4

General Cash Offer

Answer 4

Securities are offered to the public on a “first-come first serve” basis

Question 5

Rights Offer

Answer 5

Securities are initally offered only to existing owners (rare in US)

Question 6

When a company wants to go public they first contact a…

Answer 6

Investment Bank

Question 7

Underwriters form a what to share the rick

Answer 7

syndicate

Question 8

Firm Commitment

Answer 8

Firm sells all stocks to underweiters (most popular)

Question 9

Dealer

Answer 9

Maintains an inventory and stands ready to buy and sell at any time. Trading from inventory is their business.

Question 10

Broker

Answer 10

brings together buyers and sellers but does not maintain an inventory. Facilitating trades is their business

Question 11

Commission/Floor Brokers

Answer 11

Companies like Merrill Lynch (about 500 NYSE members)

Question 12

Specialists

Answer 12

obligated to make and maintain a fair and orderly market for the securities assigned to them

Question 13

Floor Traders

Answer 13

independents who trade on their own accounts (small number rich people only)

Question 14

SuperDOT system

Answer 14

designated order turnaround - allows orders to be transmitted electronically to a specialist

Question 15

Level 1 of NASDAQ

Answer 15

inside quotes (everyone)

Question 16

Level 2 of NASDAQ

Answer 16

receive all quotes but can’t enter quotes – used to execute trades only (small fee – sometimes free)

Question 17

Level 3 of NASDAQ

Answer 17

: dealers can see and post quotes (large fee)

Question 18

Pros of Regulation

Answer 18

“Safer” markets – increased regulation makes scams and thefts more difficult

Question 19

Cons of Regulations

Answer 19

Cost – regulations are expensive and eat into potential investment gains

Question 20

Private Equity

Answer 20

equity financing for non-public companies. Special class of quity investment that a company can issue to a small number of private investors

Question 21

Shelf Registration is also known as…

Answer 21

SEC Rule 415

Question 22

Shelf Registration

Answer 22

allow firms to register securities to be issued at a later date

Perhaps the market is down and the firm wishes to wait until the economy improves before listing its stock; or perhaps the company wants to gradually sell their stock to the public over several years.

Question 23

Direct Search Markets

Answer 23

Buyers and sellers locate one another on their own

Question 24

Brokered Markets

Answer 24

3rd party assistance in location buyer or seller

Question 25

Dealer Markets

Answer 25

3rd party acts as intermediate buyer/seller

Question 26

Auction Markets

Answer 26

Brokers & dealers trade in one location, trading is more or less continuous

Brings everyone together