Ch 5: Stock Market Flashcards
The primary market is …
the market where firms issue new securities to finance their business. Stocks can be offered in several ways
IPO:
Initial public offering (IPO) occurs when a company sells its equity to the public for the first time
Seasoned new issues
are offered by firms that already have shares issued to the public
Private placement is …
involves selling shares directly to investors by the company.
Venture capital firms…
obtain funds from investors (individuals, pension funds , insurance firms or corporations) and invest in new ideas of entrepreneurs (with high failure rate). Successful startup firms offer IPO on a stock exchange after investments from venture capital firms.
The secondary market
is the market where investors trade previously issued securities. Examples of secondary markets include the NYSE, NASDAQ and TMX
IPO Process:
- The company appoints an investment banking firm
- The company prepares a preliminary prospectus
- The Investment banker circulates the preliminary prospectus
- Upon obtaining SEC approval, the company finalizes the prospectus
investment banking firm XXX for an IPO
acts as the lead manager. The investment banker designs the stock issue such as size, timing and price.
They form a syndicate to spread risk, and arranges underwriting with bought deal (guaranteed purchase at fixed price) or best effort (issuer assumes risk of unsold stocks).
List requirements for NYSE
most restrictive listing requirements:
min $100 million market cap,
$2 million dollar pre-tax earnings in previous two years and
min 1 million shares held by the public.
List requirements for TMX (Toronto Stock Exchange )
) has different listing requirements for mining, energy, medical, industrial and technology stocks.
When may stocks be de-listed from a market?
Stocks may be delisted for failing to meet criteria such as total market value
A Broker is …
an agent for his clients to buy or sell stocks and earns a commission for his service.
A dealer …
acts as principle to trade for his own (or company) account by providing stock quotations and buying or selling stocks for his own inventory
- Bid price
2. Ask Price
- the price dealers are willing to buy from investors
2. the price dealers are willing to sell to investors
- Transaction Price:
2. Bid - Ask Spread:
may differ from the bid or the ask
is the difference between the bid price and the ask price
- A market order
2. A limit order
- order for immediate execution at the current market price
2. an order to buy or sell a stock at the specified price or better
- A stop order
2. A stop-limit order
- an order to buy or sell a stock when the stock pricesurpasses atrigger price, at which the stop order is converted into a market order and executed immediately
- an order to buy or sell a stock when its pricesurpasses atrigger price, at which the stop order is converted into a limit order.
National stock exchanges vs. Regional Exchanges
National: Includes (NYSE), American Stock Exchange (NYSE Amex) and Nasdaq Stock Market
Regional: Chicago, Cincinnati, Philadelphia and Boston
Name 4 features of an organized Exchange
- Trading is done in a physical location
- Securities are bought and sold on the exchange trading floor or by electronic trading
- Brokers act as agents for buyers and sellers
- Consolidated tape allows brokers to see prices of transactions on other exchanges. Composite price data increases market efficiency and keeps prices competitive
Designated Market Makers are
They provide competitive price execution, quoting, and liquidity to NYSE stocks.
With the development of electronic trading technology, the importance of DMMs has decreased significantly over time.
DMMs must have a minimum capital of $500,000 and capacity to buy 5,000 shares of assigned stock.
Electronic Communications Networks
ECNs are websites that allow investors to trade directly with one another by matching buy and sell orders at specified prices for automatic execution - Can Bypass brokers
Third and Fourth Market
The third market refers to the market for off-exchange trading of exchange-listed securities
The fourth market refers to the market where investors trade directly with one another for exchange-listed securities
Which of the following will usually be listed in a propectus?
A. Names of the underwriters
B. Name of the issuer
C. Offering price
D. Value of the issue
All of the above
The regulation stating that a short sale can only be executed if the last price change moved the market price of the security higher is called the ____ rule.
Uptick
With a market order:
the broker tries to obtain the best possible price at the time the order is executed.
______ orders are often placed in conjunction with short sales in order to limit potential losses.
Stop-buy
