Ch 2 Flashcards
Stock Market
Genertic term used for the complication of public-traded stocks
Initial Public Offerings (IPOs)
When a company offers stock to the public for the first time
Seasoned Equity Offerings (SEOs)
when a company already has shares owned by the public
General Cash Offer
Securities are offered to the public on a “first-come first serve” basis
Rights Offer
Securities are initally offered only to existing owners (rare in US)
When a company wants to go public they first contact a…
Investment Bank
Underwriters form a what to share the rick
syndicate
Firm Commitment
Firm sells all stocks to underweiters (most popular)
Dealer
Maintains an inventory and stands ready to buy and sell at any time. Trading from inventory is their business.
Broker
brings together buyers and sellers but does not maintain an inventory. Facilitating trades is their business
Commission/Floor Brokers
Companies like Merrill Lynch (about 500 NYSE members)
Specialists
obligated to make and maintain a fair and orderly market for the securities assigned to them
Floor Traders
independents who trade on their own accounts (small number rich people only)
SuperDOT system
designated order turnaround - allows orders to be transmitted electronically to a specialist
Level 1 of NASDAQ
inside quotes (everyone)
Level 2 of NASDAQ
receive all quotes but can’t enter quotes – used to execute trades only (small fee – sometimes free)
Level 3 of NASDAQ
: dealers can see and post quotes (large fee)
Pros of Regulation
“Safer” markets – increased regulation makes scams and thefts more difficult
Cons of Regulations
Cost – regulations are expensive and eat into potential investment gains
Private Equity
equity financing for non-public companies. Special class of quity investment that a company can issue to a small number of private investors
Shelf Registration is also known as…
SEC Rule 415
Shelf Registration
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.
Direct Search Markets
Buyers and sellers locate one another on their own
Brokered Markets
3rd party assistance in location buyer or seller
