Chapter 3 - Securities Markets

Question 0

____ is preliminary registration with SEC

Answer 0

Red Herring

Question 1

_____ is when private firm wants more funds, and sells direct to small group of institutional or wealthy investor.

Answer 1

Private Placement

Question 2

What is i called when IB makes a firm commitment on proceeds to issuing firm and where the underwriter assumes the risk?

Answer 2

Underwritten

Question 3

What’s it called when IB makes NO firm commitment and the issuing firm bears the risk?

Answer 3

Best Efforts

Question 4

_____ is the ability to trade an asset at a fair price on a short notice

Answer 4

Liquidity

Question 5

first sale/issue of stock to the general public?

Answer 5

Initial Public Offering (IPO)

Question 6

_____ is the sale of additional stock of a firm that’s already publicly traded

Answer 6

Seasoned Equity Offering or seasoned new issue

Question 7

_____ buys securities from issuing company and resells them to the public

Answer 7

Underwriters

Question 8

What is it called when a firm’s registration statement to the SEC is in final form and approved? It describes the firm and securities that are being issued.

Answer 8

Prospectus

Question 9

issuing stock has 4 levels in what is known a “underwriting syndicate”. what are they?

Answer 9

1. Issuing Firm (at top)
2. Lead Underwriting (next)
3. IB A, IB b, IB c, IB d,…
4. Private (or should say individual) investors

Question 10

what SEC rule allows firms to register securities and gradually sell them to the public for two years following initial registration? allows to be sold on short notice with little added paperwork, small amounts, and little flotation costs? Literally “on the shelf or ‘shelf registration’”

Answer 10

Rule 415

Question 11

what are the 4 types of secondary financial markets?

Answer 11

1. Direct Search
2. Brokered
3. Dealer
4. Auction

Question 12

Example such as Craigslist, where buyers and sellers must seek out each other directly is called?

Answer 12

Direct Search Market

Question 13

Offers search services to buyers and seller in an active market?

Answer 13

Brokered Market

Question 14

traders specializing in particular assets buy and sell for their own accounts. middle man that one can either buy or sell to the dealer (NASDAQ for example)

Answer 14

Dealer Market

Question 15

traders converge at one place to buy or sell and asset to one another. (NYSE for example)

Answer 15

Auction Market

Question 16

what are the 3 types of orders?

Answer 16

1. Market
2. Limit (price-contingent orders)
3. Stop Loss

Question 17

____ is when stock is to be sold if price falls below stipulated level

Answer 17

Stop-loss order

Question 18

_____is when stock should be bought if price rises above stipulated limit.

Answer 18

Stop-buy orders

Question 19

_____ are sales of securities one does NOT own but borrowed from a broker.

Answer 19

Short Sales

Question 20

_____ is the time it takes to accept, process, and deliver a trading order

Answer 20

Latency

Question 21

_____ are trading venues that preserve anonymity but also affect market liquidity

Answer 21

Dark Pools

Question 22

_____ in the account is the portion of the purchase price contribution by the investor; the remainder is borrowed from the broker.

Answer 22

Margin (buying on the margin)

Question 23

____ is where a short-seller must purchase a share of the same stock in order to replace the share that was borrowed from the broker.

Answer 23

Covering the Short Position

Question 24

the major governing legislation on securities trading are _____ and ______.

Answer 24

Securities Act of 1933; Securities Exchange Act of 1934