31 terms

Investments Midterm 2 Chapter 5 Stock Markets

Chapter 5-8, 17, 4
private equity
equity financing for nonpublic companies
venture capital VC
financing for new, often high-risk ventures
unseasoned equity offering
another name for IPO, b/c shares are not available to the public before the IPO
seasoned equity offering (SEO)
also known as secondary and follow-on offering
general cash offer
securities or SEO offered to the public on a first-come first serve basis
rights offer
securities initially offered only to existing owners
a group of underwriters formed to share the risk and to help sell an issue
firm commitment underwriting
when issuer sells the entire issue to the underwriters
best efforts underwriting
underwriter doesn't guarantee any particular amount of money to the issuer
dutch auction underwriting
also known as uniform price auction b/c all successful bidders pay the same price
red herring
a preliminary prospectus among investor to generate interest in the stock offering
detailed acct of company's financial position, its operations, and its investment plans for the future which is submitted to SEC for approval
three ways of the secondary market
1directly with other investors
2indirectly through a broker who arranges transactions with others
3directly with a dealer who buys and sells securities from inventory
dealer v. broker
dealer- has inventory like car dealer
broker- brings buyers and sellers together (like real estate broker)
bid v. ask
bid- price dealer is willing to pay
ask- price dealer will sell at
exchange members at the NYSE
people who own seats at the exchange
commission brokers
500 NYSE members are commission brokers who execute customer orders to buy and sell stock transmitted to the trade floor
an NYSE member acting as a dealer in a small number of securities on the exchange floor; aka market maker;
can trade for their own accounts and stand ready to trade at quoted bid and ask prices;

earns money through the spread, but not commission like brokers do
floor brokers
NYSE member who execute orders for commission brokers on a fee basis; aka $2 brokers
SuperDOT system
-for communication
electronic NYSE system allowing orders to be transmitted directly to the specialist
floor traders
NYSE member who trade for their own accts; trying to anticipate temporary price fluctuations
NYSE Hybrid Market
-for efficient trading
not used in 1. less liquid stocks 2. during the opening and close of trading sessions 3. during times of market duress
NYSE minimum requirements
1. at least 2200 shareholders and average monthly trading volume for the most recent six months must be at least 100,000 shares
2. at least 1.1 million stocks shares in public hands
3. must be at $100 million in market value ($60 million for IPOS)
4. aggregate earnings of $10 million before taxes in the previous three years
third market v. fourth market
trading that occurs off the exchange on which the security is listed and fourth market is the direct trading of exchange-listed securities maong investors
over-the counter market
securities market where dealers buy and sell securities for their own inventories; NASDAQ is one example
electronic communications networks (ECNs)
NASDAQ was opened to his which is a website that allowed investors to trade directly with one another;
NASDAQ is a computer network with no physical location and has a multiple market maker system rather than a specialist system
limit v. stop orders
stop order is where the customer specifies a stop price in which once it's reached, it is converted into a market order
with regard to NASDAQ, what are inside quotes?
the highest bid and lowest offer price quoted among market makers for a security
stop-sell v. stop-buy
order to sell shares if the stock price falls to a specified stop price above the current stock price; also called stop-loss b/c it is usually intended to limit losses on a long position
stop-limit order
once the stock price reaches the preset stop price the order is converted ito a limit order