Securities Markets - 8
proxy
a voting ballot sent by a corporation to its stockholders. When returned to the issuing firm, a proxy allows stockholders to vote by absentee ballot or authorizes representatives of the stockholders to vote on their behalf
Insider trading is illegal because through it, investors can earn _______ and enjoy an unfair advantage over other investors.
abnormal returns
cumulative voting
all directors up for election are voted on at the same time. The number of votes assigned to each stockholder equals the number of shares held multiplies by the number of directors to be elected
Level 3 ADR
allowed to issue shares directly into US Markets
rights offering
allows existing stockholders to purchase newly issued shares at a price slightly below market price
shelf registration
allows firms that plan to offer multiple issues of stock over a two-year period to submit one registration statement summarizing the firm's financing plans for the period --- allows firms to get stocks into the market quickly and cost-saves --- avoids 20 day waiting period
naked access trading
allows some traders to rapidly buy and sell stocks directly on exchanges using a broker's computer code without exchanges or regulators always knowing who is making the trades
limit order
an order to transact at a specified price
market order
an order to transact at the best price available when the order reaches the post
Empirical research has confirmed that stock markets ________ semistrong form efficient.
are
Empirical research has confirmed that stock markets ________ weak form efficient.
are
The fact the corporate insiders can earn abnormal returns by (illegally) trading on insider information indicates that stock markets ________ strong form efficient.
are not
semistrong form market efficiency
as public information arrives about a company, it is immediately impounded into its stock price
While common shareholders do not exercise control over the firm's daily activities, they can exercise their voting rights to elect the _______ who has(have) that responsibility.
board of directors
Before common stock can be issued by a corporation, shares must be authorized by a majority vote of the ________ and the ________.
board of directors & existing common shareholders
Level 2 ADR
can be listed on NYSE & NASDAQ
Trading curbs implemented by stock exchanges that are triggered by extreme price movements such as those caused by program trading are called
circuit breakers
Most preferred stock may be converted to _______ at any time the investor chooses.
common stock
Concurrent with the Sarbanes-Oxley Act in 2002, the NYSE took action to heighten corporate governance requirements on domestic NYSE listed companies, including
companies must have corporate governance guidelines and codes of ethics and conduct. CEO's must annually certify the firm's financial information provided to investors. companies must have a majority of independent directors. shareholders must approve all equity-based management compensation plans
The most widely held of all financial securities in pension funds, mutual funds and other other types of funds are
corporate stocks
The additional diversification effect of investing in stocks issued by foreign corporations occurs because global economies and stock markets are not highly
correlated
The NASDAQ is primarily a ______ market, in which multiple ______ stand ready to make a market for each listed stock.
dealer ::: dealers
International stock markets are attractive to investors because of the additional ________ due to holding stocks issued by foreign corporations.
diversification effect
Firms that reward shareholders with capital gains rather than dividends avoid the ________ problem that is particular to dividends.
double taxation
Trading licenses are needed to make trades on the floor of the NYSE. These licenses are sold by _______ and are good for ______.
dutch auction : 1 year
specialists
exchange members who have an obligation to keep the market going, maintaining liquidity in their assigned stock at all times
Although the diversification effect of international investment in stock is beneficial, the global investor is exposed to other risks, such as _______ risk and ______ risk.
exchange rate; political
To the extent that stock prices today reflect investors' current expectations about _______, stock market indexes today might be useful to forecast ________.
expected future dividends; future economic activity
The major U.S. stock markets open at 9:30 am EST and close at 4:00 pm EST. Trading that occurs outside of those hours is called _______ and is processed through ________.
extended-hours trading; electronic communications networks (ECN)
The semistrong of market efficiency predicts that investors cannot make more than the ________ by trading on public news releases.
fair (required) return
The strong of market efficiency predicts that investors cannot make more than the ________ by trading on privately held news about the firm.
fair (required) return
Some of the attractions of ADR's to U.S. investors looking for foreign stock investments are that (choose all that apply)
fees on ADR's are lower than fees on international mutual funds. they trade in dollars, not foreign currency. they diversify a stock portfolio like foreign securities.
Since December 2005, the SEC has allowed large companies to communicate with investors during the quiet period as long as the information is
filed with the SEC
Unlike cumulative voting, straight voting gives the advantage to _______ in controlling seats on the board of directors.
large shareholders
Another risk for the small global investor is that information about foreign stocks is __________ than that for U.S. stocks.
less complete and timely
Firms that wish to list with the NYSE Euronext market must meet the _________ of the exchange, based on firm market value, earnings, total assets, shares outstanding, number of shareholders and trading volume.
listing requirements
In addition to electing the board of directors, shareholders may vote on other major firm changes, such as ______ and ______.
mergers ::: dividend changes
Households invest in corporate stock primarily through ________ and ________.
mutual funds :: pension funds
The second and third largest investors in U.S. stocks are _______ and _______.
mutual funds; foreign investors
limited liability
no matter what financial difficulties the issuing corporation encounters, neither it nor its creditors can seek repayment from the firm's stockholders. This implies that common stockholders' losses are limited to the original amount of their investment
Empirical evidence suggests that stock market movements are _______ predictors of future economic activity.
not consistently accurate
Unlike interest payments on debt, dividends are ________ and failure to pay dividends will not cause the firm to ________.
not guaranteed ::: default
The final prospectus for the issue is distributed and selling of securities starts
on the day following the SEC registration approval
Level 1 ADR
only traded on the OTC market
Because it may not be possible to execute a limit order immediately, the order is recorded in a(n) ________ maintained by the ________ and is executed when and if the current market price of the stock equals the limit price.
order book ::: designated market maker
Between 1990 and 2018, markets in _______ grew more than markets in other parts of the world as a percent of worldwide stock market capitalization.
pacific basin
When an NYSE stock transaction is settled, the investor has three days to _____ and the floor or commission broker has three days to _______.
pay :: deliver
Holders of the common stock of a corporation have an ownership claim on the firm that reflects their __________ the firm's total stock they hold.
percentage ownership of
The quotes for the smallest firms on the OTC bulletin board are recorded manually on _______ published daily and distributed through the National Association of Securities Dealers.
pink sheets
The secondary market for corporate stock is closely watched because stock market movements are sometimes seen as
predictors of future economic activity
participating preferred stock
preferred stock in which actual dividends paid in any year may be greater than the promised dividends
noncumulative preferred stock
preferred stock in which dividend payments do not go into arrears and are never paid
cumulative preferred stock
preferred stock in which missed dividend payments go into arrears and must be made up before any common stock dividends can be paid
nonparticipating preferred stock
preferred stock in which the dividend is fixed regardless of any increase or decrease in the issuing firm's profits
Program trading has been criticized for introducing increased _______ to stock markets
price volatility
A stock market index in which the stock prices of the companies in the index are added together and divided by an adjusted value is called a ______ average.
price-weighted
All of the Dow Jones and Company stock indexes are ________ indexes.
price-weighted
Once authorized, new shares of stock are distributed to existing and new investors through a _________ with the help of investment banks.
primary market sale
The simultaneous buying and selling of a portfolio of at least 15 different stocks valued at more than $1 million using computer programs to initiate the trades is called
program trading
The period of time between the firm's filing of the registration statement with the SEC and the selling of shares is referred to as the
quiet period
The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called the:
red herring
Issuing securities through a syndicate of investment banks spreads the ______ associated with the issue among multiple banks, and results in a larger ________.
risk ::: pool of investors
When a firm's stock is already trading in public stock markets and it offers an additional issue of stock for sale, this is referred to as a(n)
seasoned offering
For a public issue of stock, the investment bank underwriting the issue must register the issue with and get approval from the
securities and exchange commission (SEC)
In the case of ________ and ________, the owners may be liable to satisfy the firm's debts out of their private wealth holdings.
sole proprietorships ::: partnerships
In the NYSE, each listed stock is assigned to one _______ who acts as a _______ for that stock.
specialist ::: designated market maker
A ________ is the composite value of a group of secondary market traded stocks.
stock market index
Strong Form Market Efficiency
stock prices fully reflect all public and private information
Which of the following information is not usually found in a Wall Street Journal stock quote?
stock rating
penny stocks
stocks that trade for less than $5 per share
The process by which board of director seats are put up for election and voted for one director at a time is called
straight voting
Stock markets and stock market participants are subject to regulations imposed by _______ and by ________.
the SEC; the exchanges
The largest stock markets in the world are in
the US
common stock
the fundamental ownership claim in a public or private corporation (characteristics include discretionary dividend payment, residual claim status, limited liability, and voting rights)
In straight voting, the total number of votes eligible to vote for each board of directors seat is equal to
the number of shares outstanding
syndicate
the process of distributing securities through a group of investment banks
market effeciency
the speed with which financial security prices adjust to unexpected new pertaining to interest rates or a stock-specific characteristic
Legally, the limited liability feature enjoyed by shareholders implies that their losses are limited to
their original investment in the firm
Some of the risks of ADR's to U.S. investors looking for foreign stock investments are that (choose all that apply)
they are subject to political risk. they are subject to exchange rate risk. information on the underlying firm may be limited or difficult to understand.
Today, NYSE Euronext is owned by Intercontinental Exchange (ICE), and the combined ICE-NYSE Euronext is the ________ exchange group globally.
third largest
Circuit breakers promote investor confidence in times of high market volatility by giving investors
time to assimilate incoming information and make investment choices
dark pools of liquidity
trading networks that provide liquidity but that do not display trades on order books
dual-class firms
two classes of common stock are outstanding, with differential voting and/or dividend rights assigned to each class
Two of the advantages of preferred stock to the issuing firm are
unlike debt, the firm can miss a preferred dividend payment without fear of bankruptcy :::: funds raised through its sales can be used to acquire income-generating assets
A stock market index in which the current market values of the companies in the index are added together and divided by their total value on a base date is called a ______ average.
value-weighted
Most of the major stock market indexes, with the exception of the Dow, are ______ indexes.
value-weighted
The S&P 500 Index is a ______ index.
value-weighted
The Wilshire 5000 Index is a ______ index.
value-weighted
Common shareholders have the right to _______ on major issues in the firm, such as the election of the board of directors.
vote
Preferred shareholders are granted ________ only if the firm has _______.
voting rights ::: missed preferred dividend payments
According to the ________ of market efficiency, a firm's current stock price reflects all ________ price and volume information about the firm.
weak form; historic
The annual income range in which the greatest percentage of adults are invested in stocks is
$100k and over
Weak Form Market Efficiency
Current stock prices reflect all historic price and volume information about a company
On the NYSE, ______ dealer(s) may make a market in a particular stock, while on the NASDAQ, ______ dealer(s) may make a market for a particular stock.
1 :: many
Electronic communications networks (ECN) now process about ______ of all trading and _______ extended-hours trading.
1/3 ::: almost all
Concerned with the affect that high-speed anonymous trading could have on the stability of exchanges, the SEC banned naked access trading in
2010
Once a stock transaction is completed on the NYSE, settlement occurs within ______ days.
3
On average, less than _______ percent of the total possible votes are cast at corporate shareholders' meetings.
30
The Dow Jones Industrial Average includes the values of ______ large successful firms of interest to investors.
30
The age range in which the greatest percentage of adults are invested in stocks is
30 - 64
order book
A DMM's record of unexecuted limit orders.
red herring prospectus
A prospectus issued before the effective date of a securities registration statement; permissible to release these before the registration statement is effective so long as a disclaimer that it is not an offer to sell securities is noted in red on the prospectus.
NYSE Euronext also operates the _______ market, where OTC and pink sheet stocks are traded.
ArcaEdge
The most widely reported stock market index is the
Dow Jones Industrial Average
The largest independent regulator for all securities firms doing business in the United States is
FINRA
Common stocks typically have which of the following that bonds do not have? I. Voting rights II. Fixed cash flows III. Set maturity date IV. Tax deductibility of cash flows to investors
I
As of December 2005, trading licenses are required to conduct trades on the floor of the NYSE. Which of the following statements about these trading licenses is/are correct? I. Licenses are auctioned off in a special type of auction called a Dutch auction. II. Only a member organization of the NYSE is eligible to bid for a trading license. III. The SEC determines the maximum bid price. IV. Trading licenses are good for 10 years.
I & II
Suppose that over the last 10 to 15 years significantly large numbers of investors have been able to earn abnormal returns from using the firm's publicly-available financial information to forecast growth in earnings and dividends. This would be evidence that the markets are not: I. weak form efficient. II. semistrong form efficient. III. strong form efficient.
I & II maybe
Which of the following is/are true about specialists? I. Investment banks generally cannot be specialists. II. Specialists are used by the NASDAQ system. III. Market and limit orders are transacted at specialist posts, but the specialist's own account orders are executed elsewhere. IV. Specialists help maintain continuous trading.
I & IV
The NYSE specialists are charged with: I. trading for their own account. II. ensuring public limit orders are executed. III. facilitating the processing of public market orders.
I, II, & III
Which of the following indexes are value-weighted? I. NYSE Composite II. S&P 500 III. NASDAQ Composite IV. Dow Jones Industrial Average
I. II, & III
Firms that do not meet the listing requirements of the NYSE Euronext often trade on the
NASDAQ
An index consisting of the stocks of the industrial companies, banks and insurances companies listed on the NASDAQ is the
NASDAQ Composite Index.
Historically the _______ has been the leader in daily stock trading volume, while the ______ is the leader in total number of firms listed.
NYSE :: NASDAQ
The ______ consists of all common stocks listed on the NYSE.
NYSE Composite Index
U.S. stock markets are represented by a variety of market indexes such as the (choose all that apply)
NYSE Composite Index. S&P Composite Index. the Wilshire 5000 Index. the Dow Jones Industrial Average.
The two major secondary stock markets in the U.S. are the _______ and the ______.
NYSE Euronext & NASDAQ
In terms of volume of trading and market value of firms traded, the _____________ is the largest U.S. stock market. In terms of number of firms traded, the ___________ is the largest in the United States.
NYSE; NASDAQ
The SEC has delegated certain regulatory responsibilities related to the day-to-day monitoring of stock trading activities to the ______ and the ______.
NYSE; NASDAQ
For very small firms, NASDAQ maintains an electronic ________, which is not part of NASDAQ, but supports posting and retrieval of price quote information over an electronic network for small stocks.
OTC bulletin board
An index consisting of the stocks of the top 500 of the largest U.S. corporations listed on the NYSE and NASDAQ is the
S&P 500 Index.
Level 1 ADR's have the least amount of ________ and have very weak ________ requirements.
SEC regulation; disclosure
The NASDAQ automatic order execution system for individual traders placing buy or sell orders of 1,000 or fewer shares is called the:
SOES
In the United States, the ________ increased the cost of operating in the U.S. and resulted in a significant drop in IPO's of foreign firms in U.S. stock markets.
Sarbanes-Oxley Act
In the ________, the U.S. Congress in 2002 gave the SEC additional powers to oversee audits, impose penalties on corporate wrongdoers, force faster and more extensive financial disclosure, and provide recourse for aggrieved shareholders.
Sarbanes-Oxley Act
True or false: With dual-class common stock, one class has more rights to elect directors to the board than the other class, effectively giving those shareholders control of the board.
TRUE
initial public offering (IPO)
The first public issue of a financial instrument by a firm.
An index consisting of the stocks of virtually every company that (1) is U.S. headquartered, (2) is actively traded in a U.S. stock market, and (3) has widely available price information, is the
Wilshire 5000 Index.
American Depository Receipt (ADR)
a certificate that represents ownership of a foreign stock
Dividends on preferred stock are _________ and are paid ________.
a fixed percentage of the stock's par value ::: quarterly
preferred stock
a hybrid security that has characteristics of both bonds and common stock (pays a fixed dividend payment
preemptive rights
a right of existing stockholders in which new shares must be offered to existing shareholders first in such a way that they can maintain their proportional ownership in the corporation
trading post
a specific place on the floor of the exchange where transactions on the NYSE occur
In _________ underwriting, the investment bank guarantees the firm a price for newly issued stock by purchasing the entire issue from the firm at a fixed price.
firm commitment where ... net proceeds = the price at which the investment bank purchases the stock from the issuer gross proceeds = the price at which the investment bank resells the stock to investors underwriter's spread = gross - net
flash trading
for a fee, traders are allowed to see incoming buy or sell orders milliseconds earlier than general market traders
NYSE Euronext is a public company that operates ______ exchanges in the U.S., of which the ______ is the largest and most well-known.
four ::: NYSE
The emphasis of SEC regulations is on ________ but not ________.
full and fair disclosure of information; preventing investors from making bad decisions
In a dual-class common stock arrangement, the shareholders with the weaker voting rights are often compensated by receiving
higher dividend rights
On the NASDAQ system, the inside quotes are the:
highest bid & lowest ask
The single largest holders of corporate stock in the U.S. are
households.
Three of the disadvantages of preferred stock to the issuing firm are
if the firm misses preferred dividends, it may be difficult to raise additional capital until all missed payments are paid, preferred stock is a costlier source of funds than bonds, and (unlike coupon payments on debt) preferred dividends are not tax deductible
wash trades
illegally acting as both buyer and seller
NYSE listing has traditionally benefited a firm by:
improving the stock's price, generating increased publicity for the firm, and providing easier access to primary market capital.
residual claim
in the event of liquidation, common stockholders have the lowest priority in terms of any cash distribution
NYSE stocks are divided into 4 subgroups
industrial, transportation, utility, and financial companies
The act of trading on the basis of private firm information is called
insider trading.