CH 7A (3) Flashcards
What does the Penny Stock Reform Act of 1990 mandates? after this reform, what was created?
- Mandates the SEC to create a uniform electronic quotation system for OTC stocks
- OTCBB (OTC Bulletin Board)
What is the OTCBB? and what does it links?and who regulates it?
- Electronic quotation system only. Doesn’t execute orders
- Links market Makers trading shares of small firms
- FINRA (Financial industry regulatory Authority)
Who owns FINRA? and who regulates FINRA?
- It is a private firm that self-regulates member brokerages and exchanges
- The SEC
Why is FINRA important?
- It provides oversight in regulation with security firms doing businesses with the public
what was created in 1913? and what did it do?
- National Quotation Bureau (NQB)
- Traded small, high-risk firms often called pink sheets
What is the current name for the pink sheets?
- OTC markets group inc.
in 2007, what did the OTC market reorganize itself into 3 markets?
- OTCQX best market
- OTCQB venture market
- The Pink open Market
What is OTCQX best market?
- 370 U.S and intl firms
- Biggest and best OTC firms
- Sponsorship by accredited third party investment bank
What is OTCQB venture market?
- around 3,000 U.S and intl firms
- They are focused in entrepreneurial and growth firms
- It has no financial requirements
What is the Pink Open market?
- Around 3,000 U.S and intl
- The original companies that were in the pinks sheets
- They have no financial requirements
The pink market is divided into 3 segments based on what?
- Level of financial and accounting disclosures
- How current they are
- They are not concerned with the quality or riskiness
What are the 3 segments of Pink Open?
- OTC Pink Current info
- OTC Pink Limited info
- OTC Pink No info
What is OTC Pink Current info? They are likely to be…
- Firms provide regular quarterly and annual reports
- They are more likely to be:
- Developing firms
- Shell firms: few or nor operations
- Firms may be legitimate or illegitimate
What is OTC Pink Limited info?
- Firms filing quarterly or annual report within last 6 months (aren’t current)
- May have financial or insolvency problems
- May simply be unwilling to make disclosures
What is OTC Pink No info?
- Firms haven’t submitted any info within last 6 months
- May have questionable dealings
- very risky
What is Caveat Emptor and what kind of firms are they?
- It means let the buyer beware
- They are firms that have questionable business practices
What did the OTC Market acquire? and what were some positives of this?
- the OTC market group acquired and Alternative trading system (ATS)
- Adds electronic trading ability
- Huge advantage over the OTCBB
Who trades on OTC markets?
- Firms that don’t trade on NASDAQ or NYSE
What are some characteristics of OTC markets (penny stocks)
- Low stock price
- Small firm stocks
- Few shares
- Minimal liquidity
- Low volume (possible manipulation)
- Little transparency
What is a bull market?
- Involve rising prices in the stock market
What is a bear market?
- Involve decreasing prices in the stock market
Directional changes often due to assorted changes in:
- Economic activity
- Investor confidence
- Whats happening in the world
What is routine decline?
- A drop of 5% or more in one of the major market indexes
What is Correction?
- A drop of 10% or more in one of the major indexes
What is a bear market?
- A drop of 20% or more in one of the major indexes
What are the benefits of going global?
- New opportunities and diversification
What is the name of firms that are listed on US exchanges?
- American Depositary Receipts (ADR’s)
Is globalization good or bad?
- It depends is always the answer
What is currency exchange risk?
- The risk that currency exchange fluctuations will reduce investment returns
