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FIN 3244 Exam 2 > CH 7A (2) > Flashcards

CH 7A (2) Flashcards

1
Q

What is secondary markets and 3 facts about it

A
  • Transactions of already traded securities
    • Trading between investors
    • Issuing firm: not involved
    • Issuing form earns nothing
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2
Q

What does the issuing firm cares about and why?

A
  • They care about market capitalization

- Because the easier for the company to raise capital and expand

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3
Q

What are the roles of the secondary market?

A
  • Provides liquidity so stocks can be traded

- Continuous pricing mechanism

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4
Q

What are Brokers? what are they also known as?

A
  • Individuals or firms who provide a service

- Facilitators

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5
Q

What are dealers? and what are some facts?

A
  • They are active participants in transactions

- They hold inventories from which they buy/sell

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6
Q

what is Security Exchanges?

A
  • Forums where security buyers and sellers are brought together to trade
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7
Q

What is delisting?

A
  • Is when a security is no longer allowed to trade in an exchange
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8
Q

What are the three mayor trading mechanisms in the US

A
  • Over the counter (OTC) dealer markets
  • Exchange Trading with Designated Market Makers (DMM)
  • Electronic Communication Networks (ECNs)
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9
Q

What is an example of the OTC and a fact about it

A
  • Nasdaq exchange, bulletin boards, Pink sheets

- It is the oldest trading mechanism

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10
Q

What is an example of the DMM

A
  • NYSE
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11
Q

What is an example of the ENCs

A
  • Alternative Markets
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12
Q

What is the order execution for the OTC? it went from what to what

A
  • Investor -> Broker -> dealer (order execution)

- Quotes went from recorded to computerized

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13
Q

What was created in 1971? and what did it evolve? and what happened in 2006?

A
  • The NASDAQ system is born
  • It evolved from quote display to automatic order execution
  • The SEC designated NASDAQ an exchange
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14
Q

NASDAQ is divided into 3 tiers. explain a little about each

A
  • top tier is where the largest ana the most traded securities reside
  • middle tier and bottom tier are smaller firms less frequently traded
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15
Q

What is a feature of OTC market? and some facts about dealers

A
  • Dealers are market makers: they create the market for firms
  • They buy/sell offers, they keep trading going
  • buyers and sellers font come together
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16
Q

How does a dealer make money?

A
  • Bid/Ask spread (buy price vs sell price)
17
Q

What is a negative aspect of a bid-ask spread for the investor? and what keeps the bid-ask spread small?

A
  • It is a transaction cost

- Dealer competition keep bid-ask spread small

18
Q

What are some advantages of the NYSE?

A
  • Negotiation: all parties/representatives present
  • Better pricing than fragmented markets
  • Centralized trading: fastest and most info
19
Q

To what name did specialist change in the NYSE?

A
  • DMM designated market makers
20
Q

What is the purpose of a DMM?

A
  • They are design to trade individual stocks on behalf of their customers
21
Q

What is a difference between OTC vs DMM?

A
  • OTC have multiple dealers and the DMM has a single market maker
22
Q

What are DMM’s obligated to maintain? and what are they required to have? Do they negotiate large or small trades?

A
  • A fair and orderly market
  • Stock inventory
  • Large trades
23
Q

What are some alternative trading Systems? some facts about ENC’s?

A
  • They use ENC’s (electronic communication network)

- ENC’s Trade electronically and require subscription

24
Q

What are Crossed orders? and what is eliminated through the ECN’s? and how do they make profit?

A
  • They are orders that can be directed without a dealer and a broker
  • It eliminates the bid-ask spread
  • a very small fee per stock share traded
25
Q

Why don’t all investors trade through ECN’s?

A
  • they don’t allow individual investors to join

- It is normally used by institutions for large trades

26
Q

What are some advantages of ECN’s?

A
  • Lower Costs (large amounts)
  • Speed
  • Anonymity (avoids free-riding)
  • 24 hr access
27
Q

What is a block trade?

A
  • A trade greater than 10,000 shares

- in reality is around 100,000 shares

FIN 3244 Exam 2 (7 decks)

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