Exam 1 - Chapter 3 - [Slides] Flashcards
Primary market
Primary market is where the new issues are traded
Seasoned offering
New shares with having new shares
What is a file called if its approved by the SEC
Prospectus
What is a file called when it’s not approved by the SEC
Red herring
Standby underwriting
Issues are shared to the stockholders first since they have preemptive rights and then to the investment bankers
Shelf Registration
SEC Rule 415: Allows firms to register securities and gradually sell them to the public for two years
Private placements
Firm uses underwriter to sell securities to a small group of institutional or wealth investors
- cheaper than public offerings
- private placements not traded in secondary markets
What is flotation cost?
- look up he didnt talk about it
Specialist
Created a market by buying the highest bid and ask price
(Look up)
( more in the book notecards regarding this definition)
Do you buy at bid or ask price?
Ask price
What are the 2 ways to place an order
- Market order
2. Price-contingent order
What is a market order
Executed immediately at the current market price
What is a price-contingent order?
Limit, stop loss order
Stop loss order
The buyer has to buy
What is the largest over the counter
NASDAQ
‘What is the largest exchange in the world
New York stock exchange
Can large orders be negotiated through brokers and dealers
Yes
______: Electronic order-routing system: Skip Broker
SuperDot
______: fully automated execution for small orders: Skip specialist
≈
DirectPlus
_______: Handle large orders and maintain orderly trading
Specialist
What did the New York Stock Exchange used to be?
Auction
What did the NASDAQ used to be?
Dealer market with a price quotation system
What does ECN stand for
Electronic Communication Network
What is ECN
Private computer networks that directly link buyers with sellers for automated order execution
Over the counter
There is no physical location.
It is online
Is ECN over the counter or an exchange?
Over-the-counter
What are the 2 secondary market
- Exchange
2. Over the counter
Bond trading
Where is it taking place?
Most bond trading takes place in the OTC market among bond dealers
Market for many bond issues is “___”
Thin
What is expanding its bond-trading system
NYSE
Which is the largest centralized bond market of any U.S exchange
NYSE
What are the two trading cost
- Brokerage commission
2. Spread
What is Brokerage Commission
Fee paid to broker for making the transaction
Brokerage Commission
What type cost is it?
Explicit cost of trading
What is Spread:
Difference between the bid and asked price
What type of cost is Spread
Implicit cost
What are the 2 types of Brokerage Commission
- Full Service
- all types of information - Discount brokerage
- they will do what you ask
Which one is cheaper
A. Full Service
B. Discount Brokerage
B. Discount brokerage
Buying on margin means what?
Borrowing money and buying stock
Buying on Margin
- Who do you buy borrow a loan to buy a stock?
A broker
Buying on Margin
- What does the margin refer to
Margin refers to the percentage or amount contributed by the investor
What is the initial margin %
50%
Buying on Margin
- Maintenance margin
Less than 50%
Short Sales
- Borrow stock through a dealer
- Sell it and deposit proceeds and margin in an account
- Closing out the position: buyer the stock and return to the party fro me which it was borrowed
Insider trading
Office, directors, major stockholders must report all transaction in firm’s stock
Jaffa study:
Inside buyers>inside sellers = Stock does well
Inside sellers>inside buyers = stock does poorly
True or false: Insiders do exploit their knowledge
True
