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