Chapter 10 Part 1

Question 1

The proceeds from the sales of securities in the secondary market go to

Answer 1

investors and dealers, not the companies that issued the securities.

Question 2

The two marketplaces where securities trade are the

Answer 2

exchanges and the over-the-counter (OTC) market

Question 3

An efficient secondary market for securities would exist if

Answer 3

a large number of buyers and sellers would all be willing to pay similar prices. This would help to keep the difference between the quoted prices (the spread) small and would attract a large number of transactions

Question 4

An exchange market represents an

Answer 4

auction market consisting of competing buyers and sellers

Question 5

Traditionally, exchanges were structured as

Answer 5

membership associations designed to facilitate trading among members. Today, most exchanges have gone through the process of denmtualization (changing their legal form) and have adopted a public ownership structure

Question 6

Trading on an exchange is typically limited to

Answer 6

listed securities. A company must apply to have its securities listed and must meet the financial and operational standards set by the exchange

Question 7

NYSE Euronext is the

Answer 7

largest of the exchange markets, with the most stringent listing requirements

Question 8

The other national exchanges are the:

Answer 8

American Stock Exchange (AMEX) [acquired by NYSE Euronext]; Boston Stock Exchange (BSE); Chicago Board Options Exchange (CBOE); Chicago Stock Exchange (CHX); Pacific Stock Exchange (PSE); Philadelphia Stock Exchange (PHLX) [acquired by NASDAQ OMX]

Question 9

Each of lhe exchanges is responsible for

Answer 9

policing its own members. Although every exchange has its own rules and procedures, they are all modeled after the NYSE and tend to operate similarly

Question 10

Note that NYSE Regulation and the NASD merged into the

Answer 10

Financial Industry Regulatory Authority (FINRA), and former NYSE and NASO rules are being combined into one FINRA rule book

Question 11

When a customer places an order to buy or sell a listed security, that order must first be transmitted

Answer 11

to the floor of the exchange. Only members or the employees of member firms may transact business on the floor

Question 12

Each security is assigned to a

Answer 12

trading post. The people gathered around the trading post buying and selling the stock are the trading crowd.

Question 13

In addition, in order for a security to trade on an exchange, a

Answer 13

trading price must be established

Question 14

A quotation for a securily is made up of a

Answer 14

bid and ask

Question 15

The bid price represents the

Answer 15

highest price a buyer is willing to pay for a security. Customers selling securities in the secondary market generally will receive the bid price

Question 16

The ask price, also referred to as the offering price, represents the

Answer 16

lowest price that a seller is willing to accept for a security. Customers buying securities in the secondary market generally will pay the ask price

Question 17

Stocks are quoted in

Answer 17

dollars and cents

Question 18

The difference belween the bid and ask is known as the

Answer 18

spread.

Question 19

Floor brokers mainly handle

Answer 19

large orders (usually 10,000 shares or more) placed by institutional clients such as pension plans and mutual funds

Question 20

There are two types of floor brokers

Answer 20

commission brokers, who work for a particular member firm, and independent floor brokers, who work for themselves, also referred to as two-dollar brokers