Chapter 3 Markets Flashcards
What is the definition of the primary market?
The primary market, or the new
issues market, facilitates new issues
of securities. The primary markets
exist to enable issuers of securities,
particularly companies, to raise capital,
and to enable the surplus funds held
by potential investors to be matched
with investment opportunities the
issuers offer.
What is the definition of the secondary market?
The secondary market is where existing securities are traded between investors. Stock exchanges and
other trading venues, such as multilateral trading facilities (MTFs), provide systems to assist in this.
Where might secondary trading take place?
Stock exchanges and
other trading venues, such as multilateral trading facilities (MTFs)
Who are the main investors in newly issued securities?
The main purchasers of newly issued securities are large institutional investors, such as pension funds,
insurance companies and collective investment vehicles, such as exchange-traded funds (ETFs) and
mutual funds, who buy the securities being offered on behalf of their clients, who are primarily members
of the general public. Individual investors can also buy shares directly through a brokerage at IPO.
What will asset allocation changes result in?
The constant shifting of priorities in portfolio
allocation constitutes a large part of the transactional volume which arises each day, for example, in the
activities of the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE).
Why would an investor in the secondary market employ HFT?
When the objective
is to exploit transitory price discrepancies, such strategies are referred to as high-frequency trading
(HFT).
What is the benefit of the secondary market?
The principal use and benefit of secondary markets is that they provide a liquid environment within
which owners of securities can sell a current holding and where willing buyers can purchase existing
securities.
One characteristic of a liquid market is that spreads are narrow. Another feature
which provides for more liquidity is the activity of speculators – including HFT activities – where the
continuous buying and selling of securities with very short-term holding period horizons provides a
depth to the secondary market, which would not be available if the secondary market only existed for
institutions seeking longer-term investment reallocations.
Who is the governing authority for listing in the UK?
The UK has the Financial
Conduct Authority (FCA) that is the competent authority for listing – making the decisions
as to which companies’ shares and bonds (including UK government bonds or gilts) can be
admitted to be traded on the LSE. The rules are contained in a rule book called the Listing Rules
(www.handbook.fca.org.uk/handbook/LR.pdf).
Who is the governing authority for listing in the US?
The US Securities and Exchange
Commission (SEC) requires companies seeking a listing on the US exchanges, such as the NYSE and
Nasdaq, to register certain details with the SEC first. Once listed, companies are then required to file
regular reports with the SEC, particularly in relation to their trading performance and financial situation.
Who is the governing authority for listing in China?
In China, the relevant regulator for new listings is the China Securities Regulatory Commission (CSRC),
although the exchanges themselves (the Shanghai and Shenzhen stock exchanges) also have significant
authority over new issues.
