Term
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Definition
- Issuer -> investor
- Role of underwriter - advice in structure and pricing
- Private placement vs. public offering - registration requirements, liquidity (higher for public offering), costs (higher for public offering)
- Stocks - IPO (initial public offering), secondary offering (rare)
- Bonds - private placement more common |
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Term
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Definition
- investor -> investor
- Stocks - much activity, many exchanges, low cost
- Bonds - relatively little activity (thin market), higher costs, dealers hold little inventory (too capital intensive) |
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Term
| Two major factors influence market structure |
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Definition
- Volume of trading
- Homogeneity (sameness) of assets being traded |
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Term
| Markets are transitioning |
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Definition
- Direct search (low volume, limited homogeneity) ->
- Brokered market ->
- Dealer market ->
- Continuous (auction) market - (high volume, high homogeneity) |
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Term
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Definition
- low volume, unique assets
- low liquidity and high costs
- M&A (mergers and acquisitions) |
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Term
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Definition
- enough volume and similarities of deals to allow expertise to develop
- broker receives a fee for services
- e.g. real estate, underwriting of IPOs, large block transactions |
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Term
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Definition
- typically homogeneous assets, but relatively low volume
- bid-ask price quote (promise to transact - some limited volume - at the quote)
- aka Over-the-Counter (OTC) market
- electronic communications networks (ECNs)
- markets in which traders specializing in particular assets buy and sell for their own accounts |
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Term
| (Continuous) Auction Market |
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Definition
- requires homogenous assets and high volume
- economies of scale (high fixed costs, low variable costs)
- electronic versions can operate efficiently at lower volumes (lower fixed costs)
- market where all traders meet at one place to buy or sell an asset |
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Term
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Definition
- market buy or sell order
- limit buy or sell order
- stop order |
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Term
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Definition
- know date of transaction but not price
- buy: take lowest available price
- sell: take highest available price |
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Term
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Definition
- know price of transaction but not date
- may not transact |
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Term
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Definition
- stop loss: sell if price falls below a certain price (used to protect a long position)
- stop buy: buy if price rises above a certain price (used to protect a short position) |
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Term
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Definition
- specialist system - maintains record of limit buy/sell orders and "crosses" them (private)
- Electronic communications networks (ECNs) - create an electronic limit order book (public), crossed or matched orders are automatically executed, NASDAQ has evolved from a pure quotes system to an ECN
- Multiple markets - some stocks trade through a specialist and multiple ECNs |
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Term
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Definition
- Commissions
- Bid-ask spread
- Adverse price movement
- Failure to trade |
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Term
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Definition
- other direct transactions costs, including taxes
- role of "soft dollars" in institutional trading |
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Term
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Definition
- implicit cost = (ask price-bid price)/2
- the difference between a dealer's bid and asked price |
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Term
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Definition
- your supply or demand always moves price against you
- larger impact for larger blocks (desire to hide trading volume and avoid front running) |
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Term
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Definition
- hard to measure precisely
- potentially huge cost if trading on time-sensitive information |
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Term
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Definition
- Straight purchase
- margin purchase
- short sale |
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Term
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Definition
- borrow part of the cost of buying the security
- key elements (margin requirements, interest costs)
- higher expected return, higher risk |
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Term
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Definition
- borrow the security, sell it, wait, repurchase it
- "bet" that security's price will decline
- key elements - margin requirements, short sale restrictions |
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Term
| Regulation of securities markets |
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Definition
- varies from country to country - US still sees influence of 1930s modified by deregulation of 1980s (SEC, FRB, CFTC)
- role of self-regulation
- Sarbanes-Oxley
- SEC's regulation FD |
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Term
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Definition
- independence of auditors (no consulting work)
- outside directors
- personal certification of financial statements by CEO and CFO
- Public Company Accounting Oversight Board |
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Term
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Definition
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Term
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Definition
- initial public offering
- first sale of stock by a formerly private company |
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Term
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Definition
| purchase securities from the issuing company and resell them |
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Term
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Definition
| a description of the firm and the security it is issuing |
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Term
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Definition
| primary offerings in which shares are sold directly to a small group of institutional or wealthy investors |
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Term
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Definition
| the price at which a dealer or other trader is willing to purchase a security |
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Term
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Definition
| - the price at which a dealer or other trader will sell a security |
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Term
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Definition
- over-the-counter market
- an informal network of brokers and dealers who negotiate sales of securities |
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Term
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Definition
| - computer networks that allow direct trading without the need for market makers |
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Term
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Definition
| - a trader who makes a market in the shares of one or more firms and who maintains a "fair and orderly market" by dealing personally in the market |
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Term
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Definition
| - large transactions in which at least 10,000 shares of stock are bought or sold |
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Term
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Definition
| coordinated sale or purchase of a portfolio of stocks |
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Term
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Definition
| nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm |
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