Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SIE Exam Prep 2 -- SANDBOX > Secondary Market & Equity Trading > Flashcards

Secondary Market & Equity Trading Flashcards

This deck focuses on the secondary market, including the role of market-makers and equity trading.

You may prefer our related Brainscape-certified flashcards:
SIE Exam flashcards
1
Q

The capacity shown on a confirmation when the shares are sold from the inventory of the broker-dealer

A

Principal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The capacity shown on a confirmation when the broker has arranged a trade between a buyer and seller

A

Agent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Compensation charged when a dealer sells shares from inventory

A

Mark-up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Compensation charged when a dealer purchases shares for inventory

A

Mark-down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Compensation charged when a broker transacts an order on a client’s behalf

A

Commission

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Standard trading unit of equity securities

A

Round lot (100 shares)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Securities that have met the minimum requirements to trade on an exchange

A

Listed securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Responsible for maintaining an orderly market in the stocks for which he is responsible on the NYSE floor.

A

Designated Market Maker

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Order that is executed immediately at the current price, and has priority over all other orders

A

Market order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

An order that is entered to protect a profit or prevent a loss

A

Stop order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Can be executed only at the specified price or better

A

Limit order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Prohibited practice of not doing business at the quoted price

A

Backing away

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

The FINRA policy that serves as a guideline for fair markups, markdowns and commissions

A

5% Markup Policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The best bid and best asked price in Nasdaq

A

The inside market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

A market that matches buyers and sellers, as on the floor of the NYSE

A

Auction market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

The process of acting as dealer by standing ready to buy or sell securities from inventory and making money from the spread, as on NASDAQ

A

Market making

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Over-the-counter, negotiated-price trading of exchange-traded securities

A

Third market trade

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

A type of alternative trading system (ATS) that trades listed stocks and other exchange-traded products, generally between broker dealers and institutions

A

ECN (Electronic Communications Network)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Quoting service for securities that do not meet listing requirements of other exchanges, but requires quoted companies to file financial reports with the SEC

A

Over-the-Counter Bulletin Board

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Occurs when a company no longer meets the listing standards of an exchange

A

De-listing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Order that protects a profit or limits a loss in a short stock position

A

Buy stop order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Order that protects a profit or limits a loss in a long stock position

A

Sell stop order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Orders that are entered below the current market price

A

Buy limits, sell stops and sell stop limit orders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Orders that are entered above the current market price

A

Sell limits, buy stops and buy stop limit orders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Becomes a market order when triggered

A

Stop order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Orders that are not to be reduced by a cash dividend

A

DNR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Order ticket must be filled out prior to

A

order execution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

An OTC equity quotation facility that does not require quoted companies to file financial statements with the SEC

A

OTC Pink Sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

A transaction in securities that is executed for a commission

A

Agency transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

The dealer charge when securities are sold as principal

A

Markup

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

The dealer charge when securities are purchased as principal

A

Markdown

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Regulates secondary market activity; requires registration of broker-dealers

A

Securities Exchange Act of 1934

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Authorizes the regulation of credit to the Federal Reserve Board

A

Securities Act of 1934

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Prohibited the use of inside information in trading activity

A

Securities Act of 1934

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Regulates the exchanges and over-the-counter market

A

Securities Act of 1934

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

anti-fraud provisions of the 1934 Act

A

Prohibits fraud and manipulation in the securities markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

ask

A

The price that a market maker is willing to sell shares for.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

auction marketplace

A

The method of trading on the New York Stock Exchange in which buyers compete to buy low and sellers compete to sell high.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

backing away

A

A violation in which a market maker fails to honor a firm quote.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

best ask

A

The lowest ask for a particular security, meaning the market maker willing to sell for the lowest price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

best bid

A

The highest bid for a particular security, meaning the market maker willing to pay the most.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

best execution

A

The requirement for firms to route customer orders to the exchange or trading venue that will provide their clients with the most favorable terms, including best price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

bid

A

The price that a market maker is willing to pay to buy shares from an investor.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

bid-ask spread

A

The difference between a market maker’s quoted bid and ask prices. A tight spread indicates high trading activity and liquidity, while a wide spread indicates less liquidity and therefore increased price volatility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

BLiSS

A

An acronym that can be used to remember the customer orders that are placed at or below the current market value - Buy Limit and Sell Stop orders.

46
Q

broker

A

A firm that matches up a buyer and seller to effect a securities transaction. The firm is not a party to the trade and therefore takes on no risk. The fee it charges customers is called a commission.

47
Q

broker-dealer

A

A firm that is in the business of selling securities to customers. It can act as a broker, matching up buyers and sellers to effect a transaction, or it can act as a dealer, trading from its own inventory with a customer.

48
Q

buy limit

A

An order to buy a specified number of shares at a specific price or better (meaning lower price). These orders are placed below the current market value of the stock and used to buy shares at a price below where they are currently trading.

49
Q

buy order

A

An order that indicates the customer wishes to purchase securities.

50
Q

buy stop order

A

An order to buy shares once the stock trades at or above the stop price. These orders are placed above the current market price of the stock in order to protect a short stock position.

51
Q

commission

A

The fee a firm charges a customer when acting as an agent, matching up a buyer and seller.

52
Q

day order

A

The default for most customer orders, where the order is in effect for the duration of the trading day on which it is entered. If the order cannot be executed that day, it is cancelled.

53
Q

dealer

A

A firm that acts as a counterparty, trading its own inventory with customers. The fee that is charged to a customer is a mark-up (when the firm is selling, or acting as principal) or a mark-down (when the firm is buying, or acting as dealer).

54
Q

designated market maker (DMM)

A

Previously called a specialist, this is a firm assigned to oversee the trading and liquidity of a particular stock on the NYSE.

55
Q

do not reduce (DNR)

A

An instruction that a customer might place on her order, stipulating that her buy limit or sell stop orders should not be reduced on the ex-dividend date.

56
Q

electronic communication networks (ECNs)

A

Sometimes referred to as the fourth market, these are passive computer systems that act as agents, automatically matching customer buy orders in a security with customer sell orders in a security.

57
Q

firm quote

A

A Nasdaq requirement that market makers must be willing to trade at their quoted bid-ask prices.

58
Q

FINRA’s 5% policy

A

A guideline, not a rule, that states that the maximum amount of mark-up, or commission, that should be applied to a trade is 5%. Because it is not a hard-and-fast rule, a firm can charge more than 5% as long as it has good reason based on the specific circumstances of the trade.

59
Q

good ‘til cancelled (GTC)

A

A customer order that remains in effect until it is executed or cancelled (i.e., for longer than a day).

60
Q

gap risk

A

The risk of there being a large gap between the activation and execution of a customer’s stop order. An investor can mitigate this risk by placing stop limit orders, which provide gap protection, as the limit order component guarantees a price.

61
Q

front-running

A

A prohibited practice in which, after receiving but prior to executing a customer’s large order, firms or firm representatives purchase shares for their own account in order to benefit from the expected price increase resulting from client orders.

62
Q

inside market

A

The highest bid and lowest ask price for a particular security.

63
Q

limit order

A

An order to buy or sell at a specified price or better (meaning buy for less or sell for more). This order type is used by customers to guarantee a price. However, it does not guarantee execution.

64
Q

matched orders

A

A prohibited practice in which two investors collude on opposite sides of the market by entering matching buy and sell orders with the exact same price and number of shares. This is considered manipulative, as it creates the impression that there is more liquidity and demand for the security than there actually is.

65
Q

marking the open

A

A prohibited practice in which a trader attempts to manipulate the opening price of a security by entering a number of buy or sell orders just prior to the open of trading to drive the price up or down.

66
Q

marking the close

A

A prohibited practice in which a trader attempts to manipulate the closing price of a security by entering a number of buy or sell orders just prior to the end of trading to drive the price up or down.

67
Q

market order

A

An order that must be executed immediately at the best available price. It assures that the trade happens, but not the price at which it happens.

68
Q

market maker

A

A broker-dealer that ‘makes a market’ in a stock, meaning the broker-dealer is ready and willing to buy and sell a particular security at its quoted price during normal market hours.

69
Q

mark-up

A

The fee a firm charges a customer when acting as a principal, selling a security out of its inventory.

70
Q

mark-down

A

The fee a firm charges a customer when acting as a principal, purchasing a security for the firm’s own inventory.

71
Q

Nasdaq

A

An electronic stock exchange that facilitates the buying and selling of equity securities. It is a negotiated market, where many market makers compete against one another, posting bid-ask quotations in order to trade.

72
Q

New York Stock Exchange (NYSE)

A

The largest stock exchange in the world, which facilitates the buying and selling of equity securities. The NYSE is an auction market place, where buyers compete to buy low and sellers compete to sell high. Each NYSE stock has one designated market maker, which is a firm that provides liquidity on the exchange

73
Q

negotiated marketplace

A

A term used to describe Nasdaq, where many market makers post bid-ask quotations in order to trade a particular security.

74
Q

OTC Pink

A

A non-exchange equity quotation facility that displays pricing and volume information for unlisted equity securities. The OTC Pink has no formal listing requirements and ongoing SEC financial disclosures are not required.

75
Q

OTC security

A

A security that trades on the over-the-counter market rather than on a national exchange.

76
Q

OTC Bulletin Board (OTCBB

A

A non-exchange equity quotation facility that displays pricing and volume information for unlisted equity securities. The OTCBB has no formal listing requirements. However, in order for a company to be quoted on the facility, the issuer is required to file ongoing financial disclosures with the SEC.

77
Q

order ticket

A

Also referred to as an order memorandum, a form that must be completed by a registered representative when a customer places an order to buy, sell, or sell short. It includes the customer’s instructions and conditions for the order.

78
Q

order-splitting

A

The practice of splitting a customer’s large order into multiple small orders for execution. This is prohibited if the sole purpose is to charge customers higher fees, but allowed if there is a legitimate and well-intentioned reason for doing so, such as providing quicker execution times.

79
Q

pump and dump

A

A prohibited form of manipulation in which an investor attempts to falsely hype up the value of his investment by providing exaggerated and misleading information. The goal is that this will create more interest in the shares, allowing the investor to sell his position for a greater profit.

80
Q

Real-Time Transaction Reporting System (RTRS)

A

The MSRB’s trade-reporting system. All transac-tions in municipal securities must be reported to the RTRS within 15 minutes of execution.

81
Q

round lot

A

The normal trading unit for a security, which is generally 100 shares.

82
Q

secondary market

A

The market where investor-to-investor trading of previously issued securities occurs. It might take place on registered exchanges or on the OTC market.

83
Q

Securities Exchange Act of 1934

A

A federal legislation that governs the secondary market, with an eye toward prohibiting fraud and manipulation.

84
Q

sell limit

A

An order to sell a specified number of shares at a specific price or better (meaning higher price). These orders are placed above the current market value of the stock and used to sell shares at a price above where they are currently trading.

85
Q

sell order

A

An order that indicates the customer wishes to sell securities.

86
Q

sell stop order

A

An order to sell shares once the stock trades at or below the stop price. These orders are placed below the current market price of the stock in order to protect a long stock position.

87
Q

SLoBS

A

An acronym that can be used to remember the customer orders that are placed at or above the current market value - Sell Limit and Buy Stop orders.

88
Q

stock exchange

A

A physical or electronic venue, such as the New York Stock Exchange or Nasdaq, that acts as a marketplace where securities can easily be bought and sold by investors.

89
Q

stop limit order

A

Stop orders that, once activated, become a limit order rather than a market order. By using a limit, the customer guarantees a price, but cannot guarantee execution.

90
Q

stop order

A

A customer order that becomes a market order once a security’s price reaches a specified point. This order type is typically used to protect profits or prevent losses in long and short stock positions.

91
Q

stop price

A

The market value that will activate a stop order into a market order once a security’s price trades at or through it.

92
Q

third market

A

The over-the-counter trading of exchange-listed securities.

93
Q

two-sided obligation

A

The requirement for Nasdaq market makers’ quotes to display both a bid and an ask during normal market hours.

94
Q

wash sales

A

A price manipulation activity that involves the purchase and sale of securities by an investor without beneficial change in ownership, for the sole purpose of creating the impression that there is more liquidity and demand for the security than there actually is.

95
Q

When a market maker fails to honor a firm quote, it is a violation referred to as

A

Backing away

96
Q

When a firm acts as a broker, what fee do they charge the client?

A

Commission

97
Q

When a firm acts as a dealer, what fee do they charge the client

A

Mark-up or mark-down

98
Q

When quoting a stock price, where will a dealer buy or sell a security from the public?

A

The dealer will buy on the bid side of the market and sell to customers on the offered side.

The difference between the two is the amount that would be earned by the market maker. If acting in the capacity of a broker, only a commission would be earned, not the bid/ask spread.

99
Q

Orders can be placed with several modifiers. However, most orders typically remain good for how long?

A

A day

100
Q

What type of order will be held until executed?

A

Good Until Canceled

A GTC order is good until the order is executed or cancelled.

101
Q

What type of order modifier will specify a particular price?

A

Limit Orders

These place a price limitation on the execution of the order. There can be a buy limit order to establish a new purchase, which will be below the current market price, and sell limit to close a long position. A sell limit would be placed above the current market price.

102
Q

Where are buy and sell stop orders placed relative to the current market?

A

Buy stop orders are placed above the market in order to protect a short position in case of a price increase. Sell stop orders are placed below the market to protect a long position in case of a price decrease.

103
Q

What term best describes an order to buy or sell a stock immediately at the best available price

A

market order

104
Q

An investor has just placed a “market order” to buy Intel stock. His broker will:

A

buy Intel stock immediately at the best price currently available

105
Q

If an investor is concerned that their stock might decline in value, which order can they place to protect their position.

A

Sell Stop Order

With a sell stop order, if the price of the shares decline to or below the stop price, the order will be activated and the stock will then be sold immediately allowing the investor to cut their losses.

106
Q

Stocks that are not listed on a national exchange are referred to as

A

OTC Securities

107
Q

A market where outstanding securities are bought and sold is known as:

A

a secondary market

New issue securities are sold in the primary market, but then trade between investors in the secondary market.

108
Q

Market makers on the NYSE are referred to as

A

Designated market makers (DMM)

The DMM is the one firm who makes a market for that stock on the floor of the NYSE. It matches buy and sell orders for the stock and also adds liquidity, when necessary, by purchasing or selling stocks for its own account.

109
Q

Why are secondary markets important?

A

They provide liquidity to individuals who acquire securities in the primary market.

110
Q

The OTC market is an example of a

A

negotiated market

111
Q

What kind of markets are the NYSE and Nasdaq?

A

Auction and Negotiated respectively

SIE Exam Prep 2 -- SANDBOX (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions