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2-14. CFMP - Certified Financial Markets Professional > Chapter 2: Intro to Markets and Market Structure > Flashcards

Chapter 2: Intro to Markets and Market Structure Flashcards

1
Q

Four Types of Markets

A
  1. Direct search markets
  2. Brokered Markets
  3. Dealer Markets
  4. Auction Markets
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2
Q

The least organized market. Here, buyers and sellers must seek each other out directly

A

Direct Search Market

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3
Q

Such markets are characterized by sporadic participation and low-priced and non-standard goods.

It does not pay for most people or firms to seek profits by specializing in such an environment.

A

Direct Search Market

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4
Q

In markets where trading in a good is sufficiently active, brokers can find it profitable to offer search services to buyers and sellers.

A

Brokered Market

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5
Q

Brokers in given markets develop specialized knowledge on valuing assets traded in that given market.

A

Brokered Market

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6
Q

An important brokered investment market is the so-called __________, where new issues of securities are offered to the public (IPOs)

A

Primary Market

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7
Q

In the primary market _____________ act as brokers; they seek out investors to purchase
securities directly from the issuing corporation.

A

investment bankers

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8
Q

Very large blocks of stock are bought or sold. These blocks are so large (technically more than 10,000 shares but usually much larger) that brokers or “block houses” often are engaged to search directly for other large traders, rather than bringing the trade directly to the stock exchange where relatively smaller
investors trade.

A

Large block transactions

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9
Q

Where trading activity is of a particular type of asset. Here, dealers specialize in various assets, purchasing them for their own inventory and selling them
for a profit from their inventory.

A

Dealer Markets

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10
Q

The dealer’s profit margin is the —

A

“bid–asked” spread

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11
Q

the difference between the price at which the dealer buys for and sells from inventory.

A

“bid–asked” spread

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12
Q

save traders on search costs because market participants can easily look up prices at which they can buy from or sell to dealers.

A

Dealer market

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13
Q

The most integrated market, in which all transactors in a good converge at one place to bid on or offer a good.

A

Auction Market

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14
Q

True or False

Continuous auction markets (as opposed to periodic auctions such as in the art world) require very heavy and frequent trading to cover the expense of maintaining the market.

A

True

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15
Q

ONGOING TRENDS

A
  1. Globalization
  2. Securitization
  3. Financial Engineering
  4. Revolution in information and communication networks
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16
Q

Efficient communication technology and the dismantling of regulatory constraints have encouraged international investing in worldwide investment environments.

A

Globalization

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17
Q

allows borrowers to enter capital markets directly where pools of loans typically are aggregated into pass-through securities (e.g., mortgage pool pass-throughs). Investors then invest in securities backed by those pools.

A

Securitization

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18
Q

the process of bundling primitive and derivative securities into one hybrid security, and unbundling an asset when a security appears to be attractive.

A

Financial Engineering

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19
Q

the Internet and other advances in computer networking are transforming many sectors of the economy, and few more so than the financial sector.

A

Revolution in information and communication networks

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20
Q

These advances and innovations spawned online trading, online information dissemination, automated trade crossing, and the beginnings of Internet investment banking.

A

Revolution in information and communication networks

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21
Q

is the process of issuing and selling shares to public investors.

A

Floatation

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22
Q

New issues of stocks, bonds, or other securities are marketed to the public by investment bankers in the ___________.

A

primary market.

23
Q

Buying and selling of already issued securities among private investors takes place in the ______________.

A

Secondary market

24
Q

Two types of primary market issues of shares:

A
  1. Initial public offerings (IPOs)
  2. Follow-on public offerings (FPOs)
25
Q

Two types of primary market offerings:

A
  1. Public offering
  2. Private placement
26
Q

stocks issued by a formerly privately owned company selling stock to the public for the first time

A

Initial public offerings (IPOs)

27
Q

seasoned new issues are offered by companies that already have floated equity.

A

Follow-on public offerings (FPOs)

28
Q

an issue sold to a few wealthy or institutional investors; bonds are
generally held to maturity.

A

Private placement

29
Q

stocks or bonds issue sold to the general investing public that can then be traded on the secondary market.

A

Public offering

30
Q

are investment bankers who market public offerings of both stocks and bonds.

A

Underwriters

31
Q

consists of investment bankers formed by a lead firm that take the responsibility of marketing the stock issue and advise the firm regarding the terms on which it should attempt to sell the securities.

A

Underwriting Syndicate

32
Q

Steps in the Flotation Process:

  • The preliminary registration statement is filed with the SEC called the preliminary prospectus. This preliminary prospectus describes the issue and prospects of the company and is known as red herring because of a red bold disclaimer printed on the left side of the cover indicating that the registration isn’t effective until approved.
  • When the statement is finalized and approved by the SEC, it is called the prospectus.
  • The investment bankers advise the firm on the terms in selling the securities.
  • At this time the public offering price of the securities will be announced.
A
  1. The investment bankers advise the firm on the terms in selling the securities.
  2. The preliminary registration statement is filed with the SEC called the preliminary prospectus. This preliminary prospectus describes the issue and prospects of the company and is known as red herring because of a red bold disclaimer printed on the left side of the cover indicating that the registration isn’t effective until approved.
  3. When the statement is finalized and approved by the SEC, it is called the prospectus.
  4. At this time the public offering price of the securities will be announced.
33
Q

is the process through which an individual or institution takes on financial risk for a fee.

A

Underwriting

34
Q

the issuing firm sells the securities to the underwriting syndicate for the public offering price less a spread that serves as compensation to the underwriters.

A

Firm Commitment

35
Q

____________, the investment banker agrees to help the firm sell the issue to the public but does not actually purchase the securities.

A

best-efforts agreement

36
Q

Corporations engage investment bankers either by ________ or by ___________.

A

negotiation or by competitive bidding.

37
Q

Introduced in 1982, US SEC Rule 415, allows firms to register securities and gradually sell them to the public for two to three (2-3) years after the initial registration.

A

SHELF REGISTRATION

38
Q

Other than IPOs, primary market offerings can also be sold in a ________________ where through an investment banker, a firm sells shares directly to a small group of institutional or wealthy investors.

A

PRIVATE PLACEMENTS

39
Q

It comes out cheaper than a public offering because US SEC Rule 144A allows corporations to make these placements without preparing the extensive and costly registration statements required of a public offering.

A

PRIVATE PLACEMENTS

40
Q

enable large investors to communicate their interest in purchasing shares of
the IPO to the underwriters.

A

Road shows

41
Q

is the expressed interest of investors or indication of their purchase.

A

book

42
Q

is the process of polling potential investors.

A

book-building

43
Q

The Secondary Markets

A

(1) National and Local Securities Exchanges
(2) Over-the-Counter Market
(3) Direct trading between two parties

44
Q

is the process of trading securities via a broker-dealer network as opposed to on a formal centralized exchange like the New York Stock Exchange.

It is for companies that don’t meet the list requirement on a standard market exchange
e.g., the NYSE.

A

Over-the-counter (OTC)

45
Q

consists of trading conducted by non-exchange member broker-dealers and institutional investors of exchange-listed stocks.

A

Third Market

46
Q

In other words, ______________
involves exchange-listed securities that are being traded over-the-counter between broker-
dealers and large institutional investors.

A

the third market

47
Q

refers to a market where securities trade directly between institutions on a private, over-the-counter (OTC) computer network, rather than over a recognized exchange such as the New York Stock Exchange (NYSE) or Nasdaq.

A

Fourth Market

48
Q

It is like the third market, which involves exchange-listed securities that are being traded over-the-counter between broker-dealers and large institutional investors.

A

Fourth Market

49
Q

promotes free market transparency by regulating how all major exchanges disclose and execute trades.

A

National Market System

50
Q

It is the system for equity trading and order fulfillment in the U.S. that consists of trading, clearing, depository, and quote distribution functions.

A

National Market System (NMS)

51
Q

is an electronic order matching system that connects brokers to the PSE. Trading is carried out through an “auto-match” system.

A

PSEtrade XTS

52
Q

is the electronic system that the government uses to sell securities to primary dealers (government securities eligible dealers) and ADAPS is linked to Bureau of the
Treasury (BTr) terminals.

A

Automated Debt Auction Processing Systems (ADAPS)

53
Q

The Bureau currently uses two systems for the issuance of Government Systems

A
  1. Automated Debt Auction Processing Systems (ADAPS)
  2. Registry of Scripless Securities (RoSS)

2-14. CFMP - Certified Financial Markets Professional (15 decks)

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