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45 Cards in this Set
- Front
- Back
What is preferred stock?
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owners are entitled to a fixed dividend, paid out before it is paid to owners of common stock
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What are the two types of secondary market trading in common stocks?
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1. exchanges- trading floors, auction system; central auction specialist systems
2. over-the-counter (OTC) trading- negotiated system; linked by telecommunication systems; multiple market-maker systems |
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What are electronic communications networks (ECNs)?
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privately owned broker/dealers that operate as market participants in the Nasdaq system; alternative to exchanges and OTC; offer transparency to limit order book; reduced prices; good for small orders;
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What is the Big Board?
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the New York Stock Exchange
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What is Nasdaq?
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National Association of Securities Dealers Automated Quotation System; run by NASD, an SRO controlled by SEC
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What are the 4 major types of markets on which sotck are traded?
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1. first market- trading on exhcanges of listed exchange stocks
2. second market- trading in OTC market of stock not listed on an exchange 3. third market- trading in OTC market of stock listed on an exchange 4. fourth market- private transactions; no broker-dealer intermediary |
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What are listed stocks?
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individually approved stocks traded on an exchange; stocks traded on in the OTC market are considered unlisted
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What is a seat on the exchange?
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become a member of the exchange; right to trade securities and make markets on the exchange floor; 2001- 1,366 seats costing $2million per
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What is a post?
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where centralized continuous auction markets occurs; designated location on the floor
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What is a specialist?
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single market maker for each stock; conduct auction process; can be broker or agent
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What is a limit order book?
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list on which the specialist keeps the limit and stop orders that are given to them; only specialist can see it
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What are discount brokers?
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arisen after introduction of negotiated commissions; offer no advice and charge lower commissions
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What are the two non-Nasdaq OTC markets?
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1. the OTC Bulletin Board (OTCBB)- includes stocks not traded on the NYSE, Amex, or Nasdaq
2. Pink Sheets- often called pejoratively penny stocks; dealer quotations once disseminated by paper copy only; operated by National Quotation Bureau |
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What are Consolidated Quotations Service (CQS)?
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electronic display system providing data on trades of listed stocks in different market centers
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What are alternative trading systems (ATSs)?
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divided in electronic communications networks and crossing networks; comprise the fourth market; direct trading of stocks
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What are crossing networks?
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allow institutional investors to cross trades- match buyers and sellers directly- typically via computer; excecute aggregate orders; lower trading costs; anonymity
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What is Rule 144A?
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permits the issue of nonregistered securites and their purchase by qualified institutions
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What is a market order?
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an order to be executed at the best price available in the market; simplest type of order
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What are priority rules?
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1. buyers bidding a higher price are given a high priority
2. first orders are first orders executed 3. public orders have priority |
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What are public orders?
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orders made by the public not specialists or nonspecialists
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What is a stop order?
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order is not to be executed until the market moves to a designated price, at which time the order will become a market order; good for investor who cannot watch market constantly; danger is stock price shifts are only temporary- could result in premature trading
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What is a market if touched order?
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order becomes a market order if a designated price is reached; a market if touched order to buy becomes a market order if the market falls to a given price, a stop order to buy becomes a market order if the market rises to a given price
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What is a fill or kill order?
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order that must be immediately executed or it is dead
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What is an open order?
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order that is good until the investor specifically terminates the order
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What is a round lot?
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typically order of 100 shares of a stock
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What is an odd lot?
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order of less than 100 shares, less than round lot; or 350 shares would be 50 odd lost
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What are tick-test rules?
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restrictions as to when a short sale may be executed;
1. uptick trade- sale price of stock is higher than last trade price 2. zero uptick- if no change in last trade of stock, the previous trade price must be higher than the trade price that preceded it |
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What is buying on margin?
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a transaction in which an investor borrows to buy shares using the shares themselves as collateral
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What is the call money rate?
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the interest rate that banks charge brokers for funds to allow clients to buy on margin
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What is the initial margin requirement?
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proportion of the total market value of the securities that the investor must pay as an equity share, and the remainder is borrowed from the broker
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What is a maintenance margin requirement?
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minimum proportion of the equity in the investor's margin account to the total market value
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What is an impact cost?
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change in market price due to supply/demand imbalances caused by the presence of the trade
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What are timing costs?
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price change between the time the order his the trading desk and when the trade is completed
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What are block trades?
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orders requiring the execution of a trade of a large number of shares of a given stock; orders of at least 10,000 shares or market value of at least $200k
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What are program trades?
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orders requiring the execution of trades in a large number of different stocks at as near the same time as possible
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What is the upstairs market?
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network of trading desks of major securities firms and other institutional investors to communicate with each other; provides liquidity and arbitrage activities
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What are basket trades/program trades?
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trades involving a "basket" of stocks; large number of names simultaneously; at least 15 stocks with a total value of $1 million or more
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What does frontrun the transaction mean?
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take foreknowledge of a program trade and benefit by buying a stock for their own account before filling the customer buy order
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What are stock market indicators (indexes)?
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benchmarks for evaluating the performance of professional money managers and answer question of how market did today; Dow Jones Industrial Average
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What are the three main approaches to weighting stocks?
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1. market capitalization- value of the number of shares times price per share
2. weighting by the price of the stock; e.g. DJIA 3. equal weighting for each stock |
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What are the three different forms of pricing efficiency?
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1. weak form- prices reflect past prices
2. semistrong form- pricing reflects all public information 3. strong form- public information and inside information |
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What are positive abnormal returns?
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whether or not historical price movements can be used to project future price movements in a way to produce above normal returns
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What are technical analysts or chartists?
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investors who follow a strategy of selecting stocks solely on the basis of price and volume patterns
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What is fundamental security analysis?
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analyzing financial statements, quality of management, economic environment of the company
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What are anomalies in the market?
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patterns of pricing inefficiency over long periods of time
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