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CFA L1 > Equity: Market Structure > Flashcards

Equity: Market Structure Flashcards

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CFA flashcards
1
Q

Accelerated book build

A

An offering of securities by an investment bank acting as principal that is accomplished in only one or two days

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2
Q

All-or-nothing (AON) orders

A

An order that includes the instructions to trade only if the trade fills the entire quantity (size) specified.

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3
Q

Allocationally efficient

A

A characteristic of a market, a financial system, or an economy that promotes the allocation of resources to their highest value uses

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4
Q

Alternative investment markets

A

Market for investments other than traditional securities investments (traditional commons and preferred shares and traditional fixed income instruments) the term usually encompasses direct and indirect investment in real estate(include timberland and farmland) and commodities (including precious metals); hedge funds, private equity and other investments requiring specialized due diligence

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5
Q

Alternative trading system

A

Trading venues that functions like exchanges but that do not exercise regulatory authority over their subscribers except with respect to the conduct of the subscribers trading in their trading systems

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6
Q

Arbitrageurs

A

Traders who engage in arbitrage

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7
Q

Ask

A

The price at which a dealer or trader is willing to sell an asset management, typically qualified by a maximum quantity (ask size)

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8
Q

Ask size

A

The maximum quantity of an asset that pertains to a specific ask price from a trader. For example, if the ask for share issue $30 for a size of 1000 shares, the trader is offering to sell at $30 up to 1000 shares

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9
Q

Behind the market

A

Said of prices specified in orders that worse than the best current price; for a limit buy order, a limit price below the best bid

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10
Q

Best bid

A

The highest bid in the market

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11
Q

Best effort offering

A

An offering of a security using an investment bank in which the investment bank as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee that a specific amount will be sold

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12
Q

Best offer

A

The lower offer (ask price) in the market

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13
Q

Bid

A

The price at which a dealer or trader is willing to buy an asset typically qualified by a maximum quantity

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14
Q

Bid size

A

The maximum quantity of asset that pertains to a specific bid price from a trader

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15
Q

Block brokers

A

A broker agent that provide me brokerage services for large-size trades

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16
Q

Book Building

A

Investment bankers process of compiling a “book” or list of indicators of interest to buy part of an offering.

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17
Q

Broker

A

1) an agent who executed orders to buy or sell securities on behalf of a client in exchange for a commission
2) see futures commission merchants

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18
Q

Broker-Dealer

A

A financial intermediary (often a company) that may function as a principal (dealer) or as an agent (broker) depending on the type of trade

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19
Q

Brokered market

A

A market in which brokers arrange trades among their clients

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20
Q

Call market

A

A market in which trades occur only at a particular time and place

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21
Q

Call money rate

A

The interest rate that buyers pay for their margin loan

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22
Q

Call option

A

An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specified period of time

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23
Q

Capital markets

A

Financial markets that securities of linger duration, such as bonds and equities

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24
Q

Clearing instructions

A

Instructions that indicate how to arrange the final settlement (“clearing”) of a trade.

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25
Q

Clearing house

A

An entity associated with a futures market that acts as middleman between the contracting parties and guarantees to each party the performance of the other.

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26
Q

Commodity Swap

A

A swap in which the underlying is a commodity such as oil, gold, or an agricultural product

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27
Q

Complete markets

A

Informally, markets in which the variety of distinct securities traded is so broad that any desired payoff in a future state-of-the- word is achievable

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28
Q

Continous trading market

A

A market in which trades can be arranged and executed any time the market is open.

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29
Q

Counterparty risk

A

The risk that the other party to a contract will fail to honor the terms of the contract.

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30
Q

Crossing networks

A

Trading systems that match buyers and sellers who are willing to trade at prices obtained from other markets

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31
Q

Currencies

A

Monies issued by national monetary authorities

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32
Q

Currency swap

A

A swap in which each part makes interest payments to the other in different currencies.

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33
Q

Dark pools

A

Alternative trading systems that do not display the orders that their clients send to them

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34
Q

Day order

A

An order that is good for the day on which it is submitted. If it has not been filled by the close of business, the order expires infilled

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35
Q

Dealers

A

A financial intermediary that act as as principal in trades

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36
Q

Depository institutions

A

Commercial banks, savings and loan banks, credit unions, and similar institutions that raise funds from depositors and other investors and lend it to borrowers

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37
Q

Derivative pricing rule

A

A pricing rule used by crossing networks in which a price is taken (derived) from the price that is current in the assets primary market

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38
Q

Discriminatory pricing rule

A

A pricing rule used in continous markets in which the limit price of the order or quote that first arrived determines the trade price

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39
Q

Display Size

A

The size of an order displayed to public view

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40
Q

Electronic communications network

A

Trading venues that function like exchanged but that do not exercise regulatory authority over their subscribers except with respect to the conduct of the subscribers trading in their trading systems

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41
Q

Equity swap

A

A swap transaction in which at least one cash flow is tied to the return to an equity portfolio position, often an equity index

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42
Q

Exchanges

A

Places where traders can meet to arrange their trades

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43
Q

Execution instructions

A

Instruction manual that indicate how to fill an order

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44
Q

Exercise

A

The process of using an option to buy or sell the underlying

45
Q

Exercise price

A

The fixed price at which an option holder can buy or sell the underlying

46
Q

Fill or Kill

A

An order that is valid only upon receipt by the broker or exchange. If such an order cannot be filled in part or in whole upon receipt, it cancels immediately

47
Q

Forward contract

A

An agreement between two parties in which one party, the buyer, agrees to buy from the other party, the seller, an underlying asset at a later date for a price established at the start of the contract

48
Q

Futures contact

A

A variation of a forward contract that has essentially the basic definition but with some additional features, such as a clearinghouse guarantee against credit losses, daily settlement of gains and losses, and an organized electronic or floor trading facility.

49
Q

Good-on-close

A

An execution instruction specifying that an order can only be filled at the close of trading

50
Q

Good on open

A

An execution instruction specifying that an order can only be filled at the opening of trading

51
Q

Good-till-cancelled order

A

An order specifying that is valid until the entity placing the order has cancelled it (or, commonly until some specified amount time such as 60 days has elapsed, whichever comes sooner).

52
Q

Hedge funds

A

Private investment vehicles that typically use leverage, derivatives, and long and short investment strategies

53
Q

Hidden Order

A

An order that is exposed not to the public but only to the brokers or exchanged that receive it

54
Q

Iceberg order

A

An order in which the display size is less than the orders full size

55
Q

Immediate or cancel order

A

An order that is valid only upon receipt by the broker or exchange. If such an order cannot be filled in part or in whole upon receipt, it cancels immediately

56
Q

Information motivated traders

A

Traders that trade to profit from information that they believe allows me them to predict future prices

57
Q

Informationally efficient market

A

A market in which asset prices reflect new information quickly and rationally

58
Q

Initial margin

A

The amount that must be deposited in a clearinghouse account when entering into a futures contract.

59
Q

Initial margin requirement

A

The margin requirement on the first day of a transaction as well as on any day in which additional margin funds must be deposited

60
Q

Initial public offering

A

(IPO) the first issuance of common shares to the public by a formerly private corporation

61
Q

Interest rate swap

A

A swap in which the underlying is an interest rate. Can be viewed as a currency swap in which both currencies are the same and can be created as combination of currency swaps

62
Q

Investment banks

A

Financial intermediaries that provide advice to their mostly corporate clients and help them arrange transactions such as initial and seasoned securities offerings.

63
Q

Lead underwriter

A

The lead investment bank in a syndicate of investment banks and broker-dealers involves in a securities underwriting

64
Q

Limit order

A

Instructions to a broker or exchange to obtain the best price immediately available when filling an order, but in no event accept a price higher than most a specified (limit price) when buying or accept a price lower than a specified (limit) price when selling.

65
Q

Limit order book

A

The book or list of limit orders to buy and sell that pertains to a security

66
Q

Liquid market

A

Said of a market in which traders can buy or sell with low total transaction costs when they want to trade.

67
Q

Long position

A

A position in an asset or contract in which one owns the asset or has an exercisable right under the contract

68
Q

Maintenance margin

A

The minimum amount that is required by a future me clearinghouse to maintain a margin account and to protect against default m. Participants whose margin balances drop below the required maintenance margin must replenish their accounts

69
Q

Maintenance margin requirement

A

The margin requirement on any day other than the first day of a transaction

70
Q

Margin call

A

A request for short to deposit additional funds to bring their balance up to the initial margin

71
Q

Margin loan

A

Money borrower from a broker to purchase securities

72
Q

Market bid-ask spread

A

The differences between the best bid and the best offer

73
Q

Market-on-close

A

An execution instruction specifying that an order can only be filled at the close of trading

74
Q

Market order

A

Instructions to a broker or exchange to obtain the best price immediately available when filing an order

75
Q

Marketable limit order

A

A buy limit order in which the limit price is placed above the best offer, or a sell limit order in which the limit price is placed below the best bid. Such orders generally will partially or completely fill right away

76
Q

Money Marker

A

The market for short-term debt instruments (one year maturity or less)

77
Q

Multilateral trading facilities

A

Trading venues that function like exchanges but do not exercise regulatory authority over their subscribers except with respect to the conduct of the subscribers trading in their trading systems.

78
Q

Offer

A

The price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quantity (ask size)

79
Q

Operationally efficient

A

Said of a market, a financial system, or an economy that has relatively low transaction costs.

80
Q

Option

A

A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time.

81
Q

Option contract

A

A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specified period of time.

82
Q

Order

A

A specification of what instrument to trade, how much to trade, and whether to buy or sell.

83
Q

Order-driven markets

A

A market (generally auction driven market) that uses rules to arrange trades based on the orders that traders submit; in their pure form, such markets do not make use of dealers

84
Q

Order precedence hierarchy

A

With respect to the execution of orders to trade, a set of rules that determines which orders execute before other orders

85
Q

Position

A

The quantity of an asset that owns or owes

86
Q

Price priority

A

The principle that the highest priced buy order ms and the lowest priced sell orders execute first

87
Q

Primary capital markets (primary markets)

A

The market where securities are first sold and the issues receive the proceeds.

88
Q

Primary market

A

The market where securities are first sold and the issuers receive the proceeeds

89
Q

Private placement

A

Typically, a non-written, unregistered offering of securities that are sold only to an investor or a small group of investors. It can be accomplished directly between the issuer and the investor(s) or through an investment bank.

90
Q

Put

A

An option that gives the holder the right to sell an underlying asset to another party at a fixed price over a specific period of time.

91
Q

Quote-driven market

A

A market in which dealers acting as principals facilitate trading

92
Q

Seasoned offering

A

An offering in which an issuer sells additional units of a previously issued security.

93
Q

Secondary market

A

The market where securities are trades among investors

94
Q

Secondary precedence rules

A

Rules that determine how to rank orders placed at the same time.

95
Q

Shelf registration

A

Type of public offering that allows the issuer to rule a single, all encompassing offering circular that covers a series of bond issues

96
Q

Short position

A

A position in an asset or contract in which one has an asset one does not own, or in which a right under a contract can be exercised against oneself

97
Q

Special purpose entity

A

An non-operating entity created to carry out a specified purpose, such as leasing assets or securitizing receivables, can be a corporation, partnership, trust, llc, formed to to facilitate a specific type of business activity

98
Q

Special purpose vehicle

A

A special purpose entity

99
Q

Spot markets

A

Markets in which assets are traded for immediate delivery

100
Q

Standing limit orders

A

A limit order at a price below market and which therefore is waiting to trade

101
Q

Stop-loss order

A

An order in which a trader has specified a stop price condition.

102
Q

Stop order

A

An order in which a trader has a specified a stop price condition

103
Q

Swap contract

A

An agreement between two parties to exchange a series of future cash flows

104
Q

Traditional investment markets

A

Markets for traditional investments, which include all publicly traded debts and equities and shares in pooled investment vehicles that hold publicly traded debts and/or equities.

105
Q

Underlying

A

An asset that trades in a market in which buyers and sellers meet, decide on a price, and the seller then delivers the asset to the buyer and receives payment. The underlying is the asset or other derivative on which a particular derivative is based.

106
Q

Underwritten offering

A

A type of securities issue mechanism in which the investment bank guarantees the sale of the securities at an offering price that is negotiated with the issuer.

107
Q

Validity instructions

A

Instructions which indicate when the order may be filled

108
Q

Variation margin

A

Additional margin that must be deposited in an amount sufficient to bring the balance up to the initial margin requirement

CFA L1 (50 decks)

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