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investments > Chapter 3 - securities markets > Flashcards

Chapter 3 - securities markets Flashcards

1
Q

primary market

A

Market for new issues of securities

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2
Q

secondary market

A

Market for already-existing securities

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3
Q

private placement

A

Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors

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4
Q

how many shareholders can a private company have?

A

2,000

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5
Q

initial public offering

A

First public sale of stock by a formerly private company

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6
Q

seasoned equity offering

A

a public sale of additional shares of stock

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7
Q

underwriters

A

purchase securities from the issuing company and resell them to the public

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8
Q

underwriters

A

purchase securities from the issuing company and resell them to the public

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9
Q

firm commitment

A

the underwriters bear the risk that they won’t be able to sell the stock at the IPO price

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10
Q

book building

A

polling potential investors

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11
Q

prospectus

A

A description of the firm and the security it is issuing

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12
Q

shelf registration

A

a firm that is already publicly traded can register securities and gradually sell them to the public for three years following the initial registration

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13
Q

direct listing

A

A previously private company floats existing shares on the stock market but does not raise funds by issuing new shares to the public

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14
Q

lock-up period

A

prohibit officers, directors, founders, and other pre-IPO investors from selling their shares for several months after the IPO

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15
Q

direct search markets

A

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

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16
Q

brokered markets

A

Brokers find it profitable to offer search services to buyers and sellers

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17
Q

dealer markets

A
  • Markets in which traders specializing in particular assets buy and sell for their own accounts
  • The spread between the bid (buy) and the ask (sell) prices is a source of profit
  • Most bond and ForEx trade in OTC dealer markets
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18
Q

auction markets

A

An exchange or electronic platform where all traders can convene to buy or sell an asset

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19
Q

market orders

A

buy/sell orders that are to be executed immediately at the current market price

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20
Q

bid price

A

The price at which a dealer or other trader is willing to purchase a security

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21
Q

ask price

A

The price at which a dealer or other trader will sell a security

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22
Q

bid-ask spread

A

The difference between the bid and asked prices

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23
Q

depth

A

the total number of shares offered for trading at the best bid and ask prices

24
Q

limit buy order

A

instructs the broker to buy some number of shares if and when they may be obtained at or below a stipulated price

25
Q

limit sell order

A

instructs the broker to sell if and when the stock price rises above a specified limit

26
Q

limit order book

A

a collection of limit orders waiting to be executed

27
Q

inside quotes

A

the highest buy and lowest sell orders

28
Q

effective spread

A

may be greater than the nominal one because they cannot execute the entire trade at the inside price quotes

29
Q

over-the-counter market

A

An informal network of brokers and dealers who negotiate sales of securities

30
Q

NASDAQ stock market

A

The computer-linked price quotation and trade execution system

31
Q

electronic communication networks (ECNs)

A

Computer networks that allow direct trading without the need for market makers

32
Q

designated market maker

A

A market maker designated by the exchange to commit its own capital to provide quotes and help maintain a “fair and orderly market” by trading from its own inventory of shares

33
Q

latency

A
  • The time it takes to accept, process, and deliver a trading order
  • BATS average latency is 100 microseconds
34
Q

algorithmic trading

A

The use of computer programs to make rapid trading decisions

35
Q

high-frequency trading

A

A subset of algorithmic trading that relies on computer programs to make very rapid trading decisions

36
Q

dark pools

A

Electronic trading networks where participants can anonymously buy or sell large blocks of securities

37
Q

blocks

A

Large transactions in which at least 10,000 shares of stock are bought or sold

38
Q

discretionary account

A

allows the broker to trade securities whenever deemed fit

39
Q

full-service brokers

A
  • provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more
  • commissions at full-service brokerages are much higher than those at discount brokers
40
Q

discount broker

A
  • carries out buy and sell orders at reduced commission rates compared to a full-service broker
  • does not provide investment advice or perform analysis on a client’s behalf
41
Q

broker’s call loans

A
  • debt financing
  • Buying on margin
42
Q

margin

A
  • Describes securities purchased with money borrowed in part from a broker
  • The margin is the net worth of the investor’s account
  • The proportion of the purchase price contributed by the investor
  • Margin = equity in account / value of position
43
Q

maintence margin

A

the level at which the broker will issue a margin call

44
Q

margin call

A

requires the investor to add new cash or securities to the margin account

45
Q

short sale

A
  • The sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan
46
Q

steps of a short sale

A
  • First, borrow a share of stock from a broker and sell it
  • Later, purchase a share of the same stock in order to replace the share that was borrowed
  • Called to cover the short position
  • Profit = initial price - (ending price + dividend)
47
Q

securities act of 1933

A

Requires full disclosure of relevant information relating to the issue of new securities

48
Q

securities act of 1934

A
  • Established the SEC to regulate and register securities exchanges, OTC trading, brokers, and dealers
  • Requires periodic disclosure of relevant financing information by firms with already-issued securities on secondary exchanges
49
Q

commodity futures trading commission (CFTC)

A

Regulates trading in futures markets

50
Q

federal reserve

A

-Broad responsibility for the health of the US financial system
-Sets margin requirements on stocks and stock options and regulate bank lending to securities markets participants

51
Q

Securities investor protection act of 1970

A
  • Established the securities investor protection corporation (SIPC)
  • Protect investors from losses if their brokerage firms fail
  • $500,000 per customer
52
Q

Financial industry regulatory authority (FINRA)

A

Largest nongovernmental regulator of securities firms in the US

53
Q

Sarbanes-Oxley act (2002)

A
  • Created the Public Company Accounting Oversight Board to oversee the auditing of public companies
  • Require independent financial experts to serve on audit committees of a firm’s board of directors
  • CEOs and CFOs must personally certify their firm’s financial reports
  • Auditors may no longer provide several other services to their clients
  • Boards must be composed of independent directors
54
Q

2012 JOBS act

A

Relieved many smaller forms of some of their obligations under SOX

55
Q

insider information

A

Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm

investments (14 decks)

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