Chapter 3 Flashcards
What is the difference between the primary and secondary markets?
The primary market is where new securities are issued and sold to investors, while the secondary market is where investors trade previously issued securities among themselves.
A _________ ____________ is the sale of securities directly to a small group of select investors, typically without public offering and with fewer regulatory requirements.
private placement
What is an Initial Public Offering (IPO)?
An IPO is the first time a company offers its shares to the general public in the stock market.
What is shelf registration, and why is it beneficial?
Shelf registration allows a company to register securities and sell them gradually over a two-year period, reducing costs and allowing for flexibility in the timing of sales.
The ___-____ _______ is the difference between the price at which a dealer is willing to buy (____ _____) and the price at which they are willing to sell (___ _____).
bid-ask spread; bid price; ask price
What is the role of an underwriter in public offerings?
An underwriter helps market and sell securities to the public in IPOs or seasoned equity offerings, often assuming the risk of buying unsold shares.
In ______ _______, an investor borrows part of the purchase price of securities from a broker, using the purchased securities as collateral.
margin trading
What are short sales?
Short sales involve borrowing stock from a broker to sell it, with the intention of repurchasing it later at a lower price to profit from a price decline.
What are the four types of markets for trading securities?
- direct search markets
- brokered markets
- dealer markets
- auction markets
What is the benefit of electronic trading?
Electronic trading allows for faster, more efficient trades with lower costs and reduced bid-ask spreads.
How do privately held firms raise funds, and what is equity crowdfunding?
Privately held firms raise funds through private placements, often with fewer regulatory obligations. Equity crowdfunding allows these firms to raise capital from a large number of investors without heavy regulation.
What is an SEO?
A seasoned equity offering (SEO) is the sale of additional shares by a company that is already publicly traded, after its initial public offering (IPO).
What is the key difference between auction markets and dealer markets?
In auction markets, traders gather to buy and sell securities, while in dealer markets, dealers buy and sell from their own inventories of securities.
A ______ order is executed immediately at the current price, while a ______ order is executed only when the security reaches a specific price.
market; limit
What is algorithmic trading, and how does it differ from high-frequency trading?
Algorithmic trading uses computer programs to make trading decisions, while high-frequency trading is a subset of algorithmic trading that focuses on executing trades at extremely high speeds.
