Chapter 3 Flashcards
What are the items below describing?
- Owned by a relatively small number of shareholders
- Raise funds through private placement
- Fewer obligations to release information to the public
- Jumpstart Our Business Startups (JOBS) of 2012 allows up to 2,000 shareholders
Privately Held Firms
A private firm’s first issue of shares to the public
What is an Initial Public Offering?
The sale of additional shares by publicly traded firms
What is a Seasoned Equity Offering?
Advise the firm regarding the terms on which it should attempt to sell the securities
What are Underwriters?
What are the items below describing?
- Underwriter bears price risk
- Commonly underpriced compared to the price they could be marketed
Initial Public Offering
- Sponsor of the ________ raises funds in its own IPO and goes public, but with no underlying commercial operations
- Searches for an acquisition target, merging it into the publicly traded __________. (AKA: Blank Check Firms)
- After 2 years, if there is no suitable acquisition, the money must be returned to investors
Special Purpose Acquisition Company (SPAC)
- Least organized
- Buyers and seller seek each other out directly
What are Direct Search Markets?
Traders specializing in particular assets buy and sell assets for their own accounts
What are Dealer Markets?
Brokers offer search services to buyers and sellers
What are Brokered Markets?
What are the items below describing?
- Bids are offers to buy
- In dealer markets, the bid price is the price at which the dealer is willing to buy
- Investors “sell to the bid”
Bid Price
All traders in an asset meet (physically or electronically) at one place to buy and sell
What are Auction Markets?
What are the items below describing?
- Ask prices are sell offers
- In dealer markets, the ask price is the price at which the dealer is willing to sell
- Investors must pay the ask price to buy the security
Ask Price
The difference between a dealer’s bid and ask price
What is Bid-Asked Spread?
What are the items below describing?
- Over the Counter Market
- Electronic communication network
Types of Dealer Markets
Informal network of brokers and dealers where securities can be traded
What are Over the Counter Markets?
- Computer operated trading network
- Register with SEC as broker-dealer
What are Electronic Communication Networks?
Largest U.S. stock exchange, as measure by market value of listed stocks
Automatic electronic trading runs side by side with broker/specialist system
What is the New York Stock Exchange?
What are the items below describing?
- Lists about 3,000 firms
- Three levels of subscribers
NASDAQ
Refers to the time it takes to accept, process, and deliver a trading order
What is Latency?
Use of computer programs to make trading decisions
What is Algorithm Trading?
A subset of algorithmic trading that relies on programs to make extremely rapid decisions
What is High Frequency Trading?
Private trading systems where participants can buy or sell large blocks of securities anonymously
What are Dark Pools?
Practice by brokers of matching buy and sell orders internally rather than on exchanges
What is Order Internalization?
Broker commission
- Full service versus discount brokers
- Execute orders, hold securities for safe-keeping, extend margin loans, facilitate short sales, and provide information and advice about investment alternatives
What is Explicit Cost?
- Dealer’s bid-ask spread
- Price concession an investor may be forced to make for trading in quantities greater than those associated with the posted bid or ask price
What is Implicit Cost?
Allows investors to profit from a decline in a security’s price
- Investor borrows stock from a broker and sells it
- Must then purchase a share of the same stock in order to replace the one that was borrowed
- Proceeds must be kept on account with the broker
What are Short Sales?
