Unit 1 Flashcards
An institutional customer, such as a hedge fund, utilizes the services of a broker-dealer who provides custody of securities, as well as other back-office functions, while allowing the customer to establish relationships with other broker-dealers for the purpose of executing orders. This account would be known as a
Prime Account
(A broker-dealer that provides custody of securities and other back-office functions but allows the customer to maintain relationships with other broker-dealers who will provide execution services is known as a prime broker-dealer. The account, known as a prime account, is maintained with the prime broker rather than with any executing brokers.)
What is a prime broker-dealer?
A broker-dealer that provides custody of securities and other back-office functions but allows the customer to maintain relationships with other broker-dealers who will provide execution services is known as a prime broker-dealer. The account, known as a prime account, is maintained with the prime broker rather than with any executing brokers.
What is a prime broker-dealer?
A broker-dealer that provides custody of securities and other back-office functions but allows the customer to maintain relationships with other broker-dealers who will provide execution services is known as a prime broker-dealer. The account, known as a prime account, is maintained with the prime broker rather than with any executing brokers.
What is the distinction between an introducing firm and a clearing or carrying firm?
When you open an account with a brokerage firm that is a clearing or “carrying” firm, the firm not only handles your orders to buy and sell securities, but it also maintains custody of your securities and other assets (like any cash in your account). With an introducing firm, the brokerage firm accepts your orders—but it will have an arrangement with a carrying firm to maintain custody of your securities account. Because they have custody of customer assets, carrying firms must maintain higher levels of net capital than introducing firms—and they are responsible for segregating the customer funds and securities in their custody.
What is the formula for calculating total return?
The formula for calculating total return is (income + gains or – losses) / cost basis.
income = dividends
gains = capital gains
losses = capital losses
Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a FINRA member broker-dealer based in Seattle, to run the sale. Seacoast Securities is acting as
an investment banker.
In this example, Seacoast is acting as an investment banker, assisting a person (Clarence) in a secondary offering.
What is a FOK order
*Fill or Kill (FOK) order is an order that is directed to be executed immediately at the market or a specified price or canceled if not filled.
*A FOK order combines an all-or-none (AON) specification indicating it must be filled entirely with an immediate-or-cancel (IOC) timeframe.
*Typical FOK orders last a couple of seconds to minimize disruption to the stock’s price and partial fills are not allowed.
In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as
A mini-max offering.
This is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.
In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as
A mini-max offering.
This is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.
What is a mini-max offering?
A mini-max offering is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.
What is an AON order?
An AON order is considered a contingent order because the trader gives instructions to the broker regarding how the order has to be filled, which affects how long the order remains active. AON orders that cannot be executed at the time of submission remain active during trading hours until they are filled or canceled. This prevents partial fills, which is particularly useful when transacting with thinly traded securities.
What is the difference between a AON and a FOK order?
A FOK order combines a IOC and AON. Therefore a FOK is an AON order with a very limited duration.
Suppose an investor places an AON order to purchase 200 shares of Microsoft common stock at $100 per share, which means the order is not to be filled unless all 200 shares are purchased at $100. It will remain active during trading hours until they are filled or canceled.
When would an AON order be used?
When a partial execution wants to be avoided (for example when transacting with thinly traded securities).
What is a IOC order?
An immediate or cancel order (IOC) is an order to buy or sell a security that attempts to execute all or part immediately and then cancels any unfilled portion of the order. An IOC order is one of several “duration,” or time in force orders, that investors can use to specify how long the order remains active in the market and under what conditions the order is canceled.
*Immediate-or-cancel (IOC) orders attempt to execute immediately and cancel any unfilled portion.
*IOC orders only require a partial fill, and may be designated as limit or market orders.
*Investors use IOC orders when markets are volatile to try to fill as much as possible at current market prices.
EXAMPLES
Suppose an investor places an IOC market order to buy 1,000 shares of Apple Inc. (AAPL). Let’s say the order book shows 2,000 shares bid at $170.95 and 500 shares offered at $171.00. The order would immediately fill 500 shares at the offer price ($171) and cancel the unfilled portion of 500 shares.
Let’s assume another investor places an IOC limit order to buy 1,000 shares of Apple at $169 around the market open when the stock is currently offered at $170. The S&P 500 drops slightly in the afternoon, at which time a seller offers 700 shares of AAPL at $169. The IOC order, however, would not be filled because it was cancelled immediately after not being filled earlier in the day.
What is a IOC order?
An immediate or cancel order (IOC) is an order to buy or sell a security that attempts to execute all or part immediately and then cancels any unfilled portion of the order. An IOC order is one of several “duration,” or time in force orders, that investors can use to specify how long the order remains active in the market and under what conditions the order is canceled.
*Immediate-or-cancel (IOC) orders attempt to execute immediately and cancel any unfilled portion.
*IOC orders only require a partial fill, and may be designated as limit or market orders.
*Investors use IOC orders when markets are volatile to try to fill as much as possible at current market prices.
EXAMPLES
Suppose an investor places an IOC market order to buy 1,000 shares of Apple Inc. (AAPL). Let’s say the order book shows 2,000 shares bid at $170.95 and 500 shares offered at $171.00. The order would immediately fill 500 shares at the offer price ($171) and cancel the unfilled portion of 500 shares.
Let’s assume another investor places an IOC limit order to buy 1,000 shares of Apple at $169 around the market open when the stock is currently offered at $170. The S&P 500 drops slightly in the afternoon, at which time a seller offers 700 shares of AAPL at $169. The IOC order, however, would not be filled because it was cancelled immediately after not being filled earlier in the day.
