Investments Chapter 2

  1. Securities Markets 
    – forums that allow suppliers and demandersof securities to make financial transactions; they include both themoney market and the capital market.
  2. Money Market
    – market where short term securities are bought & sold.
  3. Capital Market 
    – market where long term securities likestocks and bonds are bought and sold.
  4. Primary Market
    – the market where new issues of securitiesare sold to the public.
  5. Initial Public Offering (IPO) 
    – the first public sale of aco's stock.
  6. Seasoned new issues
    – new securities for co's that are alreadypublic.
  7. Securities and Exchange Commission (SEC)
    - federal agency that regulatessecurities offerings & markets.
  8. Public Offering-
    the sale of a firm's securities to the general public.
  9. Rights Offering
    - anoffer of new shares of stock to existing stockholders on a pro rata basis.
  10. Private Placement
    -the sale of new securities directly to selected groups of investors,without SEC registration.
  11. The IPO Process
    • 1. obtain approval of current shareholders.
    • 2. Co's auditors & lawyers certify all documents for the co. are legit.
    • 3. Co finds an investment bank willing to underwrite the offering. The underwriter is responsible for promoting the stock & facilitating the sale of the IPO shares.
    • 4. Co files a registration statement w/the SEC.
    • 5. After SEC approves, the investment community analyzes the co's prospects.
    • 6.  The co observes a quiet period, at least 1 mo after the IPO is complete, where co officials are restricted on what they can say about the co., so all investors have the same info.
    • 7. Investment bankers & co. execs promote the stock thru a “road show”, a series of presentations.
    • 8. The underwriter sets terms and prices the issue.
    • 9. The SEC must approve the offering.
  12. Prospectus
    – a portion of a security registration statement that describes thekey aspects of the issue, the issuer, and its management and financial position.
  13. Red Herring
    – a preliminary prospectus made available toprospective investors during the waiting period b/t the registrationstatement's filing w/the SEC and its approval.
  14. Investment Banker
    –financial intermediary that specializes in selling new securityissues and advising firms w/regard to major financial transactions.
  15. Underwriting
    – the role of the investment banker in bearing the risk ofreselling, at a profit, the securities bought from an issuing an agreed-on price.
  16. Underwriting Syndicate –
    a group formed by an investment banker to share the financial risk associated with underwriting new securities.
  17. Selling Group –
    a large number of brokerage firms that join theoriginating invesment bankser(s); each accepts responsibility forselling a certain portion of a new security issue.
  18. Secondary Market (aftermarket) –
    the market in which securities are traded after they have been issued.
  19. Organized Securities Exchanges 
    – centralized institutions wheretransactions are made in already outstanding securities.
  20. Over-the-Counter (OTC) Market 
    – widely scattered telecommunications newtorkthru which transactions are made in both initial public offeringsand already outstanding securities.
  21. Specialist
    – stock exchange member who specializes in making transactions in one or more stocks.
  22. Dual Listing 
    –listing of a firm's shares on more than one exchange.
  23. Regional Stock Exchanges
    – as a group, they handle 4% of the dollarvolume of all shares traded on organized US exchanges. Best knownare the Chicago, Pacific, Philadelphia, Boston, and Cincinnati exchanges.
  24. Options Exchanges
    – allow holders to sell or buy another securityat a specified price over a given period of time. The dominantoptions exchange is the Chicago Board Options Exchange (CBOE). Alsotraded on the AMEX, the NYSE, the Pacific Stock Exchange, andPhiladelphia Stock Exchange.
  25. Futures Exchanges
    – Dominant exchange is Chicago Board of Trade(CBT). CBT is broad, others specialize in certain commodities &financial instruments: NY Mercantile Exchange, the ChicagoMercantile Exchange, the Deutsche Terminboerse, the LondonInternational Financial Futures Exchange, the NY Coffee, Sugar &Cocoa Exchange, the Kansas City Board of Trade, and the MinneapolisGrain Exchange.
  26. Over the Counter Market
    • not a specific institution, is another way of trading securities; sellers and buyers linked by a telecommunications network. Dominant; Nasdaq (54% of the total dollar volume of domestic shares traded).
    • Securities traded here aka unlisted securities.
  27. Secondary Distributions
    – the public sales of large blocks ofpreviously issued securities held by large investors.
  28. Dealers
    – traders who “make markets” by offering to buy or sell certainOTC securities at stated prices.
  29. Bid price 
    – the highest price offered by a dealer to buy agiven security.
  30. Ask price 
    – the lowest price at which a dealer is willing tosell a given security.
  31. Nasdaq (National Association of Securities Dealers Automated Quotation) system 
    – an automated system that provides up to date bidand ask prices on certain selected, highly active OTC securities.
  32. Nasdaq National Market 
    – a list of national or international Nasdaq stocks that meet certain qualification standards of financial size, performance, and trading activity.
  33. Third Market
    – over the counter transactions made in securities listed on the NYSE, the AMEX, or one of the other organized exchanges.
  34. Fourth Market
    – transactions made directly b/t large institutional buyers and sellers of securities.
  35. Electronic Communications Networks
    – privately owned electronic trading networks that automatically match buy and sell orders that customers place electronically.
  36. Bull Markets 
    – favorable markets normally associated w/rising prices, investor optimism, economic recovery, and government stimulus.
  37. Bear Markets 
    – unfavorable markets associated w/falling prices,investor pessimism, economic slowdown, and government restraint.
  38. International Investment Performance 
    – high returns, doing better than the US.
  39. Ways to Invest in Foreign Securities 
    • – directly or indirectly.
    • Indirect; buy shares of US based
    • multinational w/substantial foreign ops.
    • Directly; buy from foreign exchanges, buy securities of foreign co's that trade on US exchanges, or buy American depositary receipts.
  40. Yankee Bonds 
    – dollar-denominated debt securities issued by foreign governments or corporations and traded in US securities markets.
  41. American depository receipts (ADRs)
    – dollar-denominated negotiable receipts for the stocks of foreign co's that are held in the vaults of banks in the co's home countries.
  42. Risk of Investing Internationally 
    – changes in trade policies,labor laws, taxation may affect operating conditions, government might not be stable, may be hard for foreigners to get their $ out, dividends may be taxed, accounting standards may differ, foreign currency.
  43. Currency Exchange Rate
    – the relationship b/t 2 currencies on a specified date.
  44. Currency Exchange Risk 
    – the risk caused by the varying exchange rates b/t the currencies of 2 countries.
  45. Trading Hours and Regulation of Securities Markets 
    – US exchanges &Nasdaq 9:30am-4pm Eastern for regular trading, but Nasdaq & ECNs offer extended trading sessions before & after hours.
  46. Regulation of Securities Markets –
    protect investors/participants in the financial marketplace; state & federal laws require adequate & accurate disclosure of info.
  47. Blue Sky Laws
    – state laws that control the sale of securities within state borders, prevent investors from being sold nothing but“blue sky”.
  48. Securities Act of 1933
    – full disclosure of info; requires issuer of new security to file registration statement w/the SEC, cant sell til the SEC approves it. SEC can not only decline it but sue the issuer for fraud.
  49. Securities Exchange Act of 1934 
    – established the SEC as the agency in charge of federal securities laws. Gives power to regulate organized securities exchanges & OTC market by extending disclosure requirements to outstanding securities. The stock exchanges have to register w/SEC, too.
Card Set
Investments Chapter 2
Investment Markets and Transactions