Chapter 3 Flashcards
What makes a good market?
Access information in a timely manner
Liquidity - ability to buy/sell quickly without a huge price change
Price continuity = depth
Breadth - interest in the market?
Moderate transaction costs
How does a company raise new capital?
Primary market
Securities
How does a primary market raise new capital?
New issue
Issuer received the funds
What are 3 ways to issue securities?
Private placements
Public offerings
Shelf registration
What are private placements?
Sale to a limited number of investors not requiring the protection of registration
- dominated by institutions
- active market for debt securities
- not active for stock offerings
What is a secondary market?
Existing owner sells to another party
Issuing firm does not receive proceeds and is not involved
Provides liquidity to primary market
How can you trade in secondary markets?
Auction
Dealer
Electronic communication networks
What is the role of an auctioneer?
Bid and ask prices in a timely fashion
What is the role of an agent?
Fills limit orders
What is a catalyst?
Seeks out buyers and sellers when bids cannot be matched
What is a principal?
Trades on own account
What are types of electronic systems?
Electronic communication networks
Electronic crossing systems
Block trades
What is bond trading?
OTC market
NYSE Automated Bond System
Much less liquid
What are types of trades?
Limit orders
- triggered if conditions worsen
Stop-loss orders
- used to close a position
