Series 7 - 2 Secondary Market

insider

officer, director, or individual who owns at least 10% of the shares of a corporation. these persons are considered to have access to priveleged information about the company

proxy

means by which a shareholder who does not attend the annual corporate meeting can vote via mail-in ballot

specialist

a person who oversees the market for a particular security, often acting as a buyer or seller to maintain a fair and orderly market

margin

amount an investor must deposit to buy or sell securities on credit. the remainder of the securities' value is loaned to the investor by the brokerage firm

form 10-k

annual report that issuers of registered securities must file with the SEC, detailing the company's financial situation

off-the-floor trading

buying and selling exchange-listed securities (principally from the NYSE) by OTC firms, away from the exchange "floor"

quotation

combination of the highest bid price and the lowest ask price available for any particular security at any time

first market

component of the secondary market that includes the stock exchanges and the exchanges that trade equity options

instinet, inc.

computer network (run by Institutional Networks Corporation and owned by Reuters) used by large institutional investors for trading in the fourth market

equity option

contract giving the purchaser the right to buy or sell a stock at a given price before a certain date

market maker

exchange member registered to trade specific options for his or her own account. when needed, they take the opposite side of public orders, ensuring that options always have a market

mark-up (mark-down)

fee charged by a dealer to its customers, added to (or subtracted from) the current market price of shares sold (or bought)

broker-dealer

firm that buys and sells securities for customers (as a broker) and for itself (as a dealer)

bid price (bid)

highest price a potential buyer is willing to pay for a stock

spread

holding and writing two call options (or two put options) on the same underlying stock, with each option having a different strike price and/or expiration. they limit risk on the primary option in exchange for reduced potential profits

new york stock exchange (nyse)

largest and busiest exchange on the globe, the "Big Board" is where the stocks of many of the most important U.S. corporations are traded

dual listing

listing of a security on both a regional and national exchange

ask price (offer)

lowest price a potential seller prepared accept for a stock

secondary market

market where investors buy and sell securities among themselves. gains and losses accrue to these investors rather than to the stock's issuing company

regional exchange

one of the u.s. stock exchanges located outside of New York City; they generally specialize in smaller, local companies, as well as in dual listings with major exchanges

second market

over-the-counter market; another component of the broader, secondary market

short-sale rule (uptick rule)

provision of the securities exchange act of 1934 that prohibits selling a security short if its price has declined; investors can only sell short after a security's price has increased (an uptick) or remained steady after an increase (a zero uptick)

confirmation

report from a broker-dealer to a customer showing all relevant details of a trade, including the security, amount, price, and counter-party. it must be sent by the business day following the trade's execution

american stock exchange (amex)

second major new york exchange; noted for its listings of oil and gas companies and for its foreign securities; lists close to 1,000 medium sized companies

fourth market

securities trading that occurs directly among big instiutional investors, allowing the participants to avoid brokerage commissions

national association of securities dealers (nasd)

self regulating organization that governs the otc market

selling short

selling a security borrowed from a broker-dealer. if the security's price later falls, the seller can replace the borrowed security for less money than he or she received for its sale

third market

trading of exchange-listed securities by an otc firm, rather than by a member of the exchange; the otc firm necessarily carries out such transactions "off the floor"