Finance Chapter 8

Trading in the crowd

trading that occurs directly between floor brokers around the DMM's post

Other rights usually include

1. Sharing proportionately in dividends paid 2. Sharing proportionately in any liquidation value 3. Voting on matters of importance (e.g., mergers) 4. The right to purchase a pro rata share of any new stock sold - the preemptive right

Designated market maker (DMM)

NYSE members who act as dealers in particular stocks. Formerly known as "specialists."

Floor brokers

NYSE members who execute orders for buys and sellers

Staggered elections

directors' terms are rotated so they aren't elected at the same time. This makes it harder for a minority shareholder group to elect a director and complicates takeovers.

DMM's post

fixed place on the exchange floor where the specialist operates

Proxy voting

grant of authority by a shareholder to someone else to vote his or her shares. A proxy fight is a struggle between management and outsiders for control of the board, waged by soliciting shareholders' proxies.

Supplemental liquidity providers (SLPs)

investment firms that are active participants in stocks assigned to them. Their job is to make a one-sided market (i.e., offering to either buy or sell).

Broker

one who arranges security transactions among investors

Dealer

one who buys and sells securities from inventory

Spread

the difference between the bid and ask prices

Cumulative voting

the directors are all elected at once. Total votes that each shareholder may cast equal the number of shares times the number of directors to be elected. In general, if N directors are to be elected, it takes [1 / (N+1)] percent of the stock to assure a deciding vote for one directorship. Good for getting minority shareholder representation on the

Straight (majority) voting

the directors are elected one at a time, and every share gets one vote. Good for freezing out minority shareholders.

Order flow

the flow of customer orders to buy and sell securities

Secondary market

the market in which existing securities trade among investors

primary market

the market in which new securities are originally sold to investors

Bid price

the price at which a dealer is willing to buy a security

Ask price

the price at which a dealer is willing to sell a security

Floor traders

those who trade for their own accounts, trying to anticipate and profit from temporary price fluctuations