general unit of trading; 100 shares
a unit of trading that is smaller than the general unit; 22 shares
Anyone who engages in the business of buying and selling for their own account (the firm's account)
dealers in the OTC markets
dealers in the listed markets
role of dealers
they maintain an orderly market in securities so that buyers and sellers will have an established market in which to trade
difference between the bid and the ask price; how the dealers make their money
determination of price
Securities prices are set by supply and demand. Market makers try to quote an equilibrium price that equates the supply with the demand
over the counter market for securities listed on exchanges
Participants: usually institutional investors, pensions plans, mutual funds, or insurance companies
trade securities through a computerized system.
Participants: institutions and those that subscribe to the service
individuals who buy and sell for customers' accounts
expects a securities price to rise, the security is purchased; bullish position
expects a securities price to fall, sells security; bearish position.
an order to buy or sell at the current price
an order to buy or sell at a specified price
good for that day only
good till canceled order
remains in effect until executed or canceled
a buy or sell order designed to limit lose or protect a gain
Also specifies a price. Once the price is reached, the order becomes a market order and is executed. Since it becomes a market order, the actual price at which it is executed is not guaranteed.
after the sale or purchase of a security and specifying a settlement date
Includes: number of shares, name of security, total amount that is due (including price and transaction fees)
trade date plus 3 days; the investor has three days after the trade date to pay the amount that is due
using borrowed funds to buy securities
Should the amount of collateral on the account fall below a specified level, the broker can require that the investor put more assets in the account
If not, the broker will sell some securities in the account to raise the cash needed to protect the loan
the minimum percentage of the total price that the investor must pay in order to buy securities; set by the Federal Reserve Board.
If the stock's price declines sufficiently so that the investor violates the requirement (the minimum equity required), the investor receives a margin call and must advance additional funds or the broker will sell the stock and close the position.
if securities are left with the broker they are registered in_______.
Brokerage firms cannot require the investor leave the securities in the _______.
the investor sells the security first then buys it back later
short interest ratio
The number of shares that have been sold short is referred to as the short interest. The number of shares short is often divided by the number of shares outstanding
A ratio of 2.5 indicates that it will take 2.5 days of trading to cover existing shorts.
receipts issued for foreign securities held by a trustee (large bank/financial institution). The shares of foreign stock are not actually traded but the receipts are.
Act of 1933
This act deals with the registration and issuance of new securities
Registration consists of supplying the SEC with information concerning the firm, the nature of its business and competition, and its financial position
Act of 1934
This act deals with the registration which consists of supplying the SEC with information concerning the firm, the nature of its business and competition, and its financial position
the firm's annual report filed with the SEC giving detailed statements of the firm's financial position, the basic source of data for the professional financial analyst
quarterly report on the firm's financial position.
Individuals that hold more than 5% of a firms shares, known as insiders
provides specific information and must be filed with the SEC within 15 days after an event that may materially affect the value of the firm's securities
SEC website where forms are filed
The Purpose of Full Disclosure Laws
Is not to restrict the corporation but:
• to inform the investors so that they can make intelligent decisions and
• To prevent a firm's employees from using privileged information for personal gain.
Main provisions of the _______ Act
The independence of auditors and the creation of the Public Company Accounting Oversight Board
Corporate Responsibility and financial disclosure
Conflicts of interest and corporate fraud and accountability
Public Holding Company Act of 1935
Reorganized the utility industry by requiring better methods of financial accounting and more thorough reporting and by constraining the use of debt financing
Investment Company Act of 1940
extended regulations to include investment companies and mutual funds
brings investment advisers under the regulation of the SEC
Securities Investor Protection Act of 1970
designed to protect investors from brokerage firm failures and bankruptcies, Created SIPC
The agency that insures investors against failures by brokerage firms (7 member board, 5 appointed by President)
Objective: preserve public confidence in the securities market and industry.
Protects investors from losses arising from the failure of a brokerage firm (Customers cash and securities up to 500,000)
The cost of this insurance is paid for by the brokerage firms that are members of the SIPC.
Initial Public Offering
When a firm's securities are initial sold to the public through the primary market
the direct sale of an entire issue of bonds or stocks to an investor or to a financial institution such as a pension fund or a life insurance company
provides lower cost, generates cash quicker, offerings do not have to be registered with SEC
the process of selling new securities
investment banker helps sell the securities
the firm that manages the underwriting is known as the originating house
group of brokerage houses
(1) may have access to more potential buyers for the securities, (2) the number of securities that each brokerage firm must sell is reduced
best efforts agreement
investment banker does not guarantee the sale of the security but agrees to make the best effort to sell it
investment banker purchases some or all of the issue at a specified price and subsequently sells it to the public
initial document detailing the financial condition of a firm that must be filed with the SEC to register a new issue of securities