The issuing firm, rather than the investment banker, assumes the risk for a distribution. The investment banker merely agrees to provide his best effort to sell the securities. 

An option to buy 100 shares of common stock at a specified price for a given period.

Circuit breakers shut down the market for a period of time (usually 30 minutes) if there is a dramatic drop in stock prices. 

The capacity of the market to react to new information, to avoid rapid price fluctuations, and to engage in increased or reduced trading volume without realizing significant price changes. In an efficient market environment, securities are assumed to be correctly priced at any point in time. 

Electronic Book 

The database system that covers all stocks listed on the New York Stock Exchange and keeps track of limit orders and market orders for the specialist. 

These are electronic trading systems that automatically match buy and sell orders at specified prices. ECNs are also known as alternative trading systems (ATSs) and have been given Security Exchange Commission approval to be more fully integrated into the national market system by choosing to either act as a broker-dealer or as an exchange. 

The American Stock Exchange created exchange-traded funds that are similar to index mutual funds. Their structure is different than mutual funds but they allow an investor to buy an index such as the Standard and Poor's 500 on the AMEX just the same as buying common stock. 

An independent stockbroker who is a member of a stock exchange and who executes trades, for a fee, for commission brokers experiencing excessive volumes of trading. 

Brokers who got their name because they represent NYSE member firms such as Merrill Lynch or Smith Barney which used to be known as investment houses. House brokers either trade for clients of the investment house or for the firm's direct account. 

Independent brokers 

Individuals on the NYSE that are employees of small "boutique firms." These independent brokers can provide execution services to member firms or nonmember firms as well as for house brokers who need extra help.

The process of bringing private companies to the public market for the first time. 

One who is primarily involved in the distribution of securities from the issuing corporation to the public. An investment banker also advises corporate clients on their financial strategy and may help to arrange mergers and acquisitions. 

Liquidity 

The capacity of an investment to be retired for cash in a short period with a minimum capital loss. 

A mechanism for facilitating the exchange of assets through buyer-seller communication. The communication, and not a central negotiating location, is the requisite condition for a market to exist, though some transactions (for example, trades at the various stock exchanges) do involve a direct meeting of buyers and sellers or their agents. 

Nasdaq Stock Market 

Nasdaq was formerly referred to as the National Association of Securities Dealers Automated Quotation system. This is where all over-the counter stocks trade through electronic medium. Eventually the over-the-counter market became known as the Nasdaq Stock Market. 

Institutions, such as the New York Stock Exchange, the American Stock Exchange, or any of the smaller regional exchanges, that provide a central location for the buying and selling of securities. 

Over-the-counter bulletin board market (OTC. BB) 

Mechanism that provides quotes on unlisted firms. The firms represented, however, file regulatory reports to the SEC (unlike those listed on pink sheets). 

Not a specific location but rather a communications network through which trades of bonds, nonlisted stocks, and other securities take place. Trading activity is overseen by the National Association of Securities Dealers (NASD). 

Sheets that provide quotes on companies not listed on an exchange or on the over-the-the-counter bulletin board market. The companies do not file reports with the SEC. 

A market in which an investor purchases an asset (via an investment banker) from the issuer of that asset. The purchase of newly issued shares of corporate stock is an example of primary market activity. Subsequent transfers of the particular asset occur in the secondary market. 

Computer-based trigger points are established in which large volume trades are indicated. The technique is used by institutional investors. 

A market in which an investor purchases an asset from another investor rather than the issuing corporation. The activity of secondary markets sets prices and provides liquidity. Also see primary market. 

Securities Act of 1933 

Enacted by Congress to curtail abuses by securities issuers, the law requires full disclosure of pertinent investment information and provides for penalties to officers of firms that do not comply. 

Securities Acts Amendments of 1975 

Enacted to increase competition in the securities markets, this legislation prohibits fixed commissions on public offerings of securities and directs the Securities and Exchange Commission to develop a single, nationwide securities market. 

Securities and Exchange Commission (SEC) 

The federal government agency created in 1934 to enforce securities laws. Issuers of securities must register detailed reports with the SEC, and the SEC polices such activities as insider trading, investor conspiracies, and the functionings of the securities exchanges. 

Securities Investor Protection Corporation (SIPC) 

Created under the Securities Investor Protection Act of 1970, this agency oversees the liquidation of insolvent brokerage firms and provides insurance on investors' trading accounts. 

The least-used method for distributing securities by a public corporation. The securities are sold directly to the public by the corporation without the assistance of an investment banker. 

Specialist or dealer hedge

Super Dot 

The computer system that allows New York Stock Exchange members to electronically transmit all market and limit orders directly to the specialist at the trading post or member trading booth. 

A group of investment bankers that jointly shares the underwriting risk and distribution responsibilities in a large offering of new securities. Each participant is responsible for a predetermined sales volume. One or a few firms serve as the managing underwriters. 

Refers to the guarantee the investment banking firm gives the selling firm to purchase its securities at a fixed price, thereby eliminating the risk of not selling the whole issue of securities.