Securities Markets Flashcards
Floor Broker
These individuals act as agents in executing buy or sell orders on behalf of their firms’ customers.
Initial Public Offering
An IPO is the first time a corporation ever sells stock to the public to raise money.
Primary Offering
When a corporation initially offers securities, it usually holds some back for future use; it later pulls those securities out of storage and sells them in a primary offering.
Second Market (OTC)
This market is the trading of unlisted securities over the counter (by phone or computer).
First Market (Auction Market)
The first market is the trading of exchange-listed securities on the exchange floor, such as the New York Stock Exchange (NYSE).
Third Market
The third market is comprised of exchange-listed securities trading OTC; traders are calling in their orders or ordering online.
Fourth Market
The fourth market is the trading of securities between institutions without the use of a brokerage firm. Fourth-market trades are typically executed through electronic communication networks such as Instinet
Two Dollar Broker (Independent)
These brokers assist other floor brokers in getting their orders executed on busy days. (By the way, they’re called two-dollar brokers because many, many years ago, they used to receive $2 per trade.
Designated Market Makers (DMM)
These market professionals manage the auction market trading for a particular security (or for a few securities, if not actively traded). Their purpose is to maintain a “fair and orderly market” in one or more securities. A DMM can act as a broker or a dealer (trading out of his or her own account) to help keep trading as active as possible.
Over Counter Bulletin Board
which is a quotation service operated by FINRA for unlisted (non-Nasdaq) securities. OTCBB shows bid and ask prices of securities unable to meet the listing requirements for Nasdaq.
Pink Market
Corporations on the Pink Market are not required to meet the listing requirements or file with the SEC.
Broker-Dealer
a broker–dealer, it must buy and sell securities from its own account and act as a middleman for securities not in inventory.
Capacity
Capacity refers to whether a firm is acting as a broker or dealer, and it must always be disclosed on the confirmation (receipt of trade). If a firm is acting as a broker, the commission always needs to be disclosed on the confirmation. However, if a firm is acting as a dealer, the markup or markdown doesn’t always have to be disclosed.
Introducing Broker
introducing brokers (IBs) are more commonly referred to in commodities and futures trading, an IB is a person or business that does not actually handle the transactions but just provides investment advice or counsel to investors.
Clearing Brokers
Clearing brokers (clearing firms) handle orders to buy and sell securities. In addition, clearing brokers maintain custody of clients’ assets (securities and cash). Clearing firms are responsible for segregating (separating) clients’ cash and securities held in their custody.
Prime Broker
Prime brokers are used mainly by institutional accounts or large retail clients. Prime brokerage accounts are ones set up for individuals or entities with more-complex financial needs.
Selling Short
Selling short occurs when an investor sells securities she doesn’t own. The investor is actually borrowing securities from a lender to sell. Expecting the price to decrease
Buy Stop Order
A buy stop tells you to buy a security if the market price touches a particular price or higher. Investors who are short the stock make money when the price of the stock decreases; however, if the price increases, they lose money. An investor who’s short ABC stock currently trading at $25 could enter a buy stop order on ABC at $30
Sell Stop Orders
These orders protect a long position (when an investor purchases stock); they tell you to sell a security if the market price touches a particular price or lower. Investors who are long stock make money when the price of the stock increases; if the price decreases, they lose money.
Buy Limit Orders
Investors who want to purchase a security place these orders. A buy limit order is a directive to buy a particular security at the limit price or lower
Sell Limit Orders
Investors who want to sell a security place sell limit orders. A sell limit order is a directive to sell a particular security at the limit price or higher.
Immediate, or Cancel
These limit orders are similar to FOK orders except that the order may be partially filled. Any portion of the order that’s not completed is canceled.
At the Open
These orders are to be executed at the security’s opening price. At-the-open orders can be market or limit orders, but if they aren’t executed at the opening price, they’re canceled. These orders allow for partial execution.
