Chapter 2 - Securities, Markets, and Transactions
The IPO Process:
1. Approval by Shareholders 2. Finds investment bank willing to underwrite the offering 3. Registration Statement with SEC 4. Prospectus issued 5. Quiet period 6. Red Herring - Prelimniary Prospectus
Broker Markets
Bring together buyers and sellers to make trades in other words, the seller sells his/her securities directly to the buyer
Designated Market Maker
Exchange member specialized in making transactions in one or more stocks, who manages the auction process, buys or sells a specified prices, to provide a continuous, fair and orderly market in the securities assigned to them.
Initial Public Offering (IPO)
First public sale of a company's stock, when a company takes on a public status, going public.
Bid price
Highest price offered to purchase a security
Short Selling is when?
Investor borrows securities form a broker and sells them in the market, at their current price, hoping that the price will decline. Later, when the price has declined, the short seller buys them back and returns them to the lender.
Capital Markets
Investors buy and sell LT securities, such as stocks, bonds, mutual funds, ETFs, options, future. Classified as Secondary or Primar
Ask Price
Lowest price offered to sell a security
Money Markets
Markets where S-T Debt Securities are bought and sold, investors use these markets for ST borrowing and lending.
FED sets Margin Requirement
Minimum amount an investor's own equity must be present in investment
Secondary market consists of:
National Securities Exchange The OTC Market
The Primary Market
New issues of securities are sold to investors. In this market the issuer of the equity or debt securities receives the proceeds of sales.
Dealer Markets
No Centralized trading floor. Deals executed by market makers.
Bear Market
Prices are fallling Investor pessimism Economic slowdown Government Restraint
Bull Market
Prices are rising Investor optimism Economic Recovery Government Stimulus
A company has 3 choices to sell its securities in the primary market: What are they?
Public Offering - Sale to public investors Rights Offering - To existing stockholders Private Placement - Sell directly without SEC registration to select groups of private investors, such as insurance companies, investment management funds, and pension funds.
SEC
Regulates the Securities Markets
FINRA
Requires all companies traded on the OTC market to file audited financial statements and comply with the federal securities law. OTC Companies are not required to file with the SEC.
In the primary market the public companies can also issue the sale of additional stock, called
Seasoned Equity Offerings (SEO)
Secondary Market
Securities traded after they have been issued. Investor to Investor Selling
Short Selling
When a decline in a security's price is anticipated
Long Purchase
a transaction in which investors buy securities in the hope that they will increase in value and can be sold at a later date for profit
Margin Trading
borrowing money from brokers to buy stock, paying interest on the borrowed money, and leaving the stock with the broker as collateral
Margin
the money borrowed from a brokerage firm to purchase an investment