FIN 3323 Chapter 16 pwrpt 16 questions
market makers have what type of obligation to buy stocks from sellers even when the market is crashing
"affirmative obligation"
According to NYSE, DMMs accounted for about how much percent of liquidity adding volume
17%
Revenues and profits fell record amounts in what year, but rebounded sharply in 2009
2008
what are a type of market making transactions are two-way transactions made on behalf of customers— for example, acting as a stockbroker or dealer for a fee or commission
Agency transactions
why is it difficult for for new and small firms to obtaining debt financing from commercial banks?
CBs are generally not willing or able to make loans to new companies with no assets and business history
Most of these accounts allow customers to write checks against some type of mutual fund account (e.g., money market mutual fund). These accounts can even be covered directly or indirectly by federal deposit insurance from the FDIC
Cash Management Accounts
what are Deposit-like accounts such as money market mutual funds (MMMFs) that offer check writing privileges
Cash Management Accounts
what kind of trading involves buying and selling securities in the same day in expectation of a favorable price move.
Day trading
what type of brokerage Offers customers direct access, via the internet, to the trading floor?
Electronic brokerage
what what type of brokerage is the cost per share is generally lower and the price may be advantageous compared with trading directly on the exchanges and Interested parties can then negotiate with each other using the system's computers?
Electronic brokerage
who is involved in the day-to-day regulation of trading practices?
Financial Industry Regulatory Authority (FINRA)
what is A public offering representing the sale of a security to the public at large?
Initial Public offering (IPO)
what type of branch networks are concentrated in major cities
Limited branch networks
what type of venture capital firms dominate the industry?
Limited partner venture capital firms
Since the investing business generates fees that are based on the size of the pool of assets managed, it tends to produce a more or less stable flow of income than does either investment banking or trading
MORE
what involves the creation of a secondary market in an asset by a securities firm or investment bank?
Market making
what activity brings large fees to bankers and remains very cynical and depends on the economy?
Mergers & Acquisitions
is more or less derivatives regulation is expected under the Dodd-Frank Act?
More
are venture capitalist usually passive investors?
NO
is asset value traditionally the main measure of the size of a firm in the Securities trading industry?
NO it is equity capital
do venture capital firms make outright loans?
NO, they purchase an equity interest in the firm that gives them the same rights and privileges associated with an equity investment made by the firm's other owners
what act prevented analysts from attending certain investment banking meetings
National Securities Markets Improvement Act (NSMIA)
what act stated that state are not allowed to require federally registered securities firms to be registered in a state as well, Even so, state attorneys generally intervene through securities-related investigations that have led to many highly publicized criminal cases.
National Securities Markets Improvement Act (NSMIA)
what reaffirmed the significance of the SEC as the primary regulator of securities firms; 1966 Affirmed federal (over state) authority?
National Securities Markets Improvement Act (NSMIA)
what kind of trading involves buying and selling securities on the expectation of a favorable price move. Positions are held for up to several months.
Position trading
what type of trading takes Relatively long-term positions in assets and facilitates the smooth functioning of the secondary markets in such securities
Position trading
who Usually acquire established (but struggling) firms rather than purchasing start ups?
Private equity firms
Profits of securities trading are based solely on what?
Profits & Losses of the trading unit
what is a type of pure arbitrage trading in that it is often associated with seeking to profit from differences between the cash market price and the futures market price of a particular instrument while Simultaneous buying and selling of at least 15 different stocks valued at $1 million or more?
Program Trading
what attempts to profit from price discrepancies that may exist between the spot, or cash, price of a security and its corresponding futures price
Pure arbitrage
what is the simultaneous purchase and sale of a security in the event of pricing discrepancies to lock in profits.?
Pure arbitrage
what type of firm which are often classified as large, medium, and small and concentrate on servicing customers in a particular region, such as New York or California? EX: Raymond James Financial
Regional securities firms
what type of of firms that perform a mix of primary and secondary market services for a particular segment of the financial markets? (5)
Regional securities firms, Specialized discount brokers, Specialized electronic trading securities firms, Venture capital and private equity firms, and research boutiques
what Attempts to profit by forecasting information releases
Risk Arbitrage
what is the purchase of securities in expectation that favorable information will be forthcoming to benefit the position.
Risk arbitrage
what act Increased penalties for corporate wrongdoings, Forced faster and more extensive financial disclosure, Created avenues of recourse for aggrieved shareholders
Sarbanes-Oxley Act (SOX) of 2002
what act created an independent auditing oversight board under the SEC?
Sarbanes-Oxley Act (SOX) of 2002
what is the Equity issuance from a publicly traded firm?
Seasoned Equity Offering (SEO)
what corporation protects investors against losses of up to $500,000 due to securities firm failures but not against poor investment decisions?
Securities Investors Protection Corporation
what was Created following the passage of the Securities Protection Act of 1970?
Securities Investors Protection Corporation
who (2) are by far the most global of any group of financial institutions
Securities firms and investment banks
what is a a financial service that requires relatively little investment in assets or liability funding (such as the issuance of loans funded through deposits or payments on insurance contracts funded through insurance premiums)?
Securities trading and underwriting
what are are privately organized venture capital firms licensed by the SBA that make equity investments (as well as loans) to entrepreneurs for start-up activities and expansions?
Small Business Investments Company (SBIC)
who relied on their unique opportunity to obtain investment funds from the U.S. Treasury at very low rates relative to private-sector institutional venture capital firms?
Small Business Investments Company (SBIC)
what are 3 disadvantages of venture capital firms?
Small businesses must satisfy goals of venture capital firm which can be a constraint on optimal plan. Small businesses are burdened with keeping venture capital firms fully apprised of operations. Small businesses must offer large returns which may not be possible in the first few years.
what type of firms include Regional investment bankers ( "boutiques") Discount brokers Internet brokers Venture capital firms Exchange floor specialists Dealers in off exchange trading
Smaller specialized firms
what type of brokers (such as Charles Schwab), which effect trades for customers without offering investment advice or tips?
Specialized discount brokers
what type of trading securities firms (such as E*Trade), which provide a platform for customers to trade without the use of a broker, the increased speed with which trades can be made?
Specialized electronic trading securities firms
what is Trading on behalf of customers, To conduct such transactions, individuals contact their broker, who then sends the orders to its representative at the exchange to conduct the trades?
Stock brokerage
under what act, the Financial Services Oversight Council (FSOC) has oversight of systemic risk of the industry, Government oversight of industry practices has increased as a result of the bill?
The Dodd-Frank Act
what is an independent, not-for-profit organization authorized by Congress to protect America's investors by making sure the securities industry operates fairly and honestly
The Financial Industry Regulatory Authority (FINRA)
who writes and enforces rules governing the activities of securities firms, examines firms for compliance with those rules, works to foster market transparency, and supports investor education monitors trading abuses (such as insider trading), trading rule violations, and securities firms' capital (solvency positions) performs market regulation under contract for the major U.S. stock exchanges
The Financial Industry Regulatory Authority (FINRA)
what Two self-regulatory organizations oversee the day-to-day regulation of trading practices
The New York Stock Exchange (NYSE) The Financial Industry Regulatory Authority (FINRA)
what act that became effective in 2003 required firms to verify identities of customers, maintain records of identities of customers, and verify customers are not on suspected terrorist lists?
The U.S.A. Patriot Act
what type of firms, pool money from individual investors and other FIs (e.g., insurance companies) to fund relatively small and new businesses (e.g., biotechnology) (2)
Venture capital and private equity firms
what are 2 advantages of venture capital firms?
Venture capital provides a source of rare funding. Venture capital firms offer management advice.
Executive compensation restrictions imposed by the Obama administration, Shareholders now also have what kind of vote on executive compensation packages
a non-binding vote
what kind of activity does not require that FIs actually hold or invest in the securities they trade or issue for their customers?
a profit- (equity-) generating activity
why does the SEC require firms to disclose soft dollar arrangements to their clients
advisors using soft dollars face a conflict of interest between their need to obtain research and their clients' interest in paying the lowest commission rate available
investment banks normally act as what for a fee based on the total bundle of services performed for the client by the firm
agents
debt is less risky than equity, so there is less risk of what with debt compared to equity
an adverse price movement
who are Wealthy individuals who make equity investments that have invested much more in new and small firms than institutional venture capital firms?
angel venture capitalists (angels)
Profits of market-making are based on Profit & Loss of market-making unit as well as what?
any associated client business tied to provision of market-making services.
why do Asset managers sometimes prefer dark pools to exchanges
because orders remain hidden until they are executed, which can help investors get a better price on large trades
what is it called when investment bankers act as agents on a fee basis related to their success in placing the issue with investors?
best efforts underwriting
can Securities underwriting can be undertaken through either public or private offerings?
both
what are Firms that assist in the trading of existing securities or secondary market activies?
broker- dealers
how do private equity firms often acquire funds?
by selling securities
The finance system allocates what in our economy that has a profound impact on our way of life
capital
U.S. Firms are increasingly looking to expand their business abroad, particularly into where?
china and india
corporate strategies increasingly focused on what and away from making large bets through principal investments like hedge funds or risky trading activity for using the firm's capital.
client services
what are are the largest of the full-service investment banks that have extensive domestic and international operations and offer advice, underwriting, brokerage, trading, and asset management services
commercial bank or financial services
What are the different firms in the securities industry (3)?
commercial bank or financial services holding companies, the national full-service firms, and large investment banks
what type of banks are in the "storage" business?
commercial banks
what fell after the 1987 stock market crash and the 2001-2002 stock market decline?
commision income
what type of venture capital firms are subsidiaries of nonfinancial corporations which generally specialize in making start-up investments in high-tech firms?
corporate venture capital firms
is debt or equity more likely to be bought in larger blocks by fewer investors, a transaction characteristic that makes the selling process less costly
debt
what kind of market makers have an obligation to maintain orderly markets, provide quotes on stocks at the "national best bid and offer" and facilitate trading at potentially illiquid moments of the trading day, such as the open and close. It can also match the market's best price in exchange for constantly quoting bids and asks?
designated market makers (DMMs)
what type of market makers are dedicated market makers that provide liquidity in a given NYSE security by assuming risk and displaying quotes in the exchange limit order book.
designated market makers (DMMs)
under the Dodd- Frank Act, More investment advisors will have to be registered with who and Securitization markets should now have more oversight and originators will have to retain a greater interest in loans that will be resold
either the SEC or state advisors
As a result of what (2), pretax profits for the industry topped $9 billion in every year over the period 1996-2000
enhanced trading profits and growth in new issues underwriting
what type of capital held by security firms are generally below the levels held by commercial banks?
equity because securities firm and investment bank balance sheets contain mostly tradable (liquid) securities compared to the relatively illiquid loans that represent a significant portion of banks' asset portfolios
Because of the emphasis on securities trading, the size of the industry is usually measured by the what of the firms participating in the industry rather than by "asset size."
equity capital
A major similarity between securities firms and all other types of FIs is a high degree of what?
financial leverage, because all of these firms hold high levels of debt that is used to finance an asset portfolio consisting primarily of financial securities
most M&As are between who?
financial service firms
what type of venture capital firms are subsidiaries of investment or commercial banks
financial venture capital firms
what is it called when the investment bank acts as a principal, purchasing the securities from the issuer at one price and seeking to place them with public investors at a slightly higher price?
firm commitment underwriting
depository institutions have what kind of term time and what kind of liabilities?
fixed-term time and savings deposit liabilities
what are the Factors causing preference for a best efforts versus a firm commitment offering to the issuing firm include? (3)
general volatility in the market, stability and maturity of the financial health of the issuing firm, and the perceived appetite for new issues in the market place
what do venture capitalists usually look at when investing into a new firm?
if there is a high return and if there is an easy exit before making a decision
By the mid-2010s, while the industry had put most problems from the financial crisis behind it, the industry was affected by post-crisis consequences, with increased regulation on what which lead to what kind of reductions as well as to downsizing or disposition of select businesses, trading products, and investments
increased regulation on risk taking and capital requirements; balance sheet reductions
what kind of venture capital firms Business entities whose sole purpose is to find and fund the most promising new firms?
institutional venture capital firms
what type of banks are in the "moving" business?
invesntment banks
What refers to activities related to underwriting and distributing new issues of debt and equity securities
investment banking
These full-line firms (offer multiple services are generally called
investment banks
what are firms specialize in originating, underwriting, and distributing issues of new securities (the commercial side of the business) and Help in underwriting new security issuance, advise on M&A activity, assist in corporate restructuring?
investment banks
what type of banks Primarily service financial institutions & corporate clients?
large investment banks
what type of firms maintain more limited branch networks concentrated in major cities operating with predominantly institutional client bases?
large investment banks
securities firms tend to use what that are extremely short-term and market based?
liabilities
what type of venture capital firms are established by professional venture capital firms, acting as general partners in the firm: organizing and managing the firm and eventually liquidating their equity investment
limited partner venture capital firms
what type of interest rates and strong stock market helped fuel profit recovery
low interest rates
in periods of what (2), these profits to market makers can rapidly disappear
market stress or high volatility
what type of firms specialize more in corporate finance or primary market activities and are highly active in trading securities, or secondary market activities?
national full-service firms
does pure arbitrage have risk?
no
what makes up a significant portion of most banks' revenue
noninterest income
are best efforts offering very risky?
not very risky
what type of market makeing transaction does the market maker seeks to profit on the price movements of securities and takes either long or short inventory positions for its own account. (Or the market maker may take an inventory position to stabilize the market in the securities.)
principal transactions
what type of firms acquire the investment funds they use from sources such as equity securities and nonpublicly traded stocks as well as the institutional and individual investment pooling used by venture capital firms?
private equity
who usually deals more with existing companies that have already proven themselves in the business field?
private equity firms
what is A securities issue placed with one or a few large institutional investors.
private placement
do many unsolicited proposals of funding from new and small firms are rejected or accepted from venture capital firms.
rejected
what type of companies with large clearing operations, and other firms that do not fit into one of the categories above?
research boutiques
Improvements in the U.S. economy in the mid-2000s led to increases in commission income but income fell with the stock market in 2006-2008 because of what? (2)
rising oil prices and the subprime mortgage collapse
debt securities, growth in the asset backed securities market as a result of increased what added to the value of underwriting
securitization of mortgages (and growth of mortgage debt)
what are some firms in the industry specialize in the purchase, sale, and brokerage of existing securities (the retail side of the business)?
security firms
what is The portion of the fee or commission allocated to research and advisory services
soft dollars
who is the primary regulator of the securities industry, established in 1934 largely in response to abuses by securities firms that many at the time felt were partly responsible for the economic problems in the United States?
the SEC
who sets the overall regulatory standards for the securities industry
the SEC
who's primary role includes administration of securities laws, review and evaluation of registrations of new securities offerings (ensuring that all relevant information is revealed to potential investors), review and evaluation of annual and semiannual reports summarizing the financial status of all publicly held corporations, and the prohibition of any form of security market manipulation
the SEC
what represents a large proportion of the market maker's profit
the bid-ask spread
Executive compensation restrictions imposed by the Obama administration Strengthen the independence of who from senior management and Administration has a say on executive pay for firms that accepted bailout money
the compensation committee
Since when has there been more competition btw private equity and venture capital firms
the financial crisis
what kind of industry suggests that the industry is dominated by a small number of "top tier" underwriting firms?
the investment banking industry
Industry trends depend heavily on what? (2)
the state of the stock market and the economy
what is Taking an active net position in an underlying instrument or asset
trading
what is Assisting in the issue of new securities or primary market activies?
underwriting
what is a professionally managed pool of money used to finance new and often high-risk firms.
venture capital
during risk arbitrage, if the event does not actually occur—for example, if a merger does not take place or the Federal Reserve does not change interest rates—does the trader stands to lose money?
yes