Chapter 5 The Stock Market
Underwriter spread
Compensation to the underwriter, determined by the difference between the underwriter's buying price and offering price.
Index staleness
Condition that occurs when an index does not reflect all current price information because some of the stocks in the index have not traded recently.
Stop order
Customer order to buy or sell securities when a present stop price is reached.
Limit order
Customer order to buy or sell securities with a specified limit price. The order can be executed only at the limit price or better
Prospectus
Document prepared as part of a security offering detailing a company's financial position, its operations, and investment plans for the future.
Securities and exchange commission (SEC)
Federal regulatory agency charged with enforcing US securities laws and regulations.
Commission brokers
Firms that execute customer orders to buy and sell stock transmitted to the exchange floor.
Specialists
Formally, sold dealers in a small number of securities on the floor of the NYSE; often called a market maker
Inside quotes
Highest bid quotes in the lowest ask quotes offered by dealers for security.
Floor traders
NYSE license holders to trade securities for their own account.
Floor brokers
NYSE members who execute orders for commission brokers on a fee basis
Over-the-counter (OTC) market
Securities market in which trading is almost exclusively done through dealers to buy and sell for their own inventories.
Value - weighted index
Stock market index in which stocks are held in proportion to the aggregate market value of the companies in the index.
Price - weighted index
Stock market index in which stocks are held in proportion to their share price.
Display book a chronological record of all limit, stop, and short sale orders that have been pleased with the specialist; also contains an inventory of the specialist's holdings.
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Market order
A customer order to buy or sell securities marked for immediate execution at the current market price
Investment banking firm
A firm specializing in arranging financing for companies.
Syndicate
A group of underwriters for me to share the risk and to help sell an issue.
Designated market maker (DMM)
A new class of marketmakers at the NYSE; replaced the role of specialists on the exchange floor.
Red herring
A preliminary prospectus not yet approved by SEC.
Right offer
A public issue of securities in which securities are first offered to existing shareholders (also called a rights offering).
Dealer
A trader who buys and sells securities from inventory.
Initial public offering (IPO)
An initial public offering occurs when a company offers stock for sale to the public for the first time.
Broker
And intermediary who arranges security transactions among investors.
General cash offer
And issue of securities offered for sale to the general public on a cash basis.
Spread
The difference between the bid and ask prices.
Primary market
The market in which new securities are originally sold to investors.
Secondary market
The market in which previously issued securities trade among investors.
Bid Price
The price a dealer is willing to pay.
Ask price
The price at which a dealer is willing to sell. Also called the offer or offering price.
Seasoned equity offering (SEO)
The sale of additional shares of stock by a company who shares are already publicly traded.
Dutch auction underwriting
The type of underwriting in which the offer price is set based on competitive bidding by investors. Also known as uniform price auction.
Firm commitment underwriting
The type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares.
Best efforts underwriting
The type of underwriting in which the underwriter sells as much as the issue as possible, but can return any unsold shares to the issuer without financial responsibility.
Underwrite
To assume the risk of buying newly issued securities from a company and reselling them to investors.
