Chapter 2 - Securities, Markets, and Transactions

The IPO Process:

1. Approval by Shareholders 2. Finds investment bank willing to underwrite the offering 3. Registration Statement with SEC 4. Prospectus issued 5. Quiet period 6. Red Herring - Prelimniary Prospectus

Broker Markets

Bring together buyers and sellers to make trades in other words, the seller sells his/her securities directly to the buyer

Designated Market Maker

Exchange member specialized in making transactions in one or more stocks, who manages the auction process, buys or sells a specified prices, to provide a continuous, fair and orderly market in the securities assigned to them.

Initial Public Offering (IPO)

First public sale of a company's stock, when a company takes on a public status, going public.

Bid price

Highest price offered to purchase a security

Short Selling is when?

Investor borrows securities form a broker and sells them in the market, at their current price, hoping that the price will decline. Later, when the price has declined, the short seller buys them back and returns them to the lender.

Capital Markets

Investors buy and sell LT securities, such as stocks, bonds, mutual funds, ETFs, options, future. Classified as Secondary or Primar

Ask Price

Lowest price offered to sell a security

Money Markets

Markets where S-T Debt Securities are bought and sold, investors use these markets for ST borrowing and lending.

FED sets Margin Requirement

Minimum amount an investor's own equity must be present in investment

Secondary market consists of:

National Securities Exchange The OTC Market

The Primary Market

New issues of securities are sold to investors. In this market the issuer of the equity or debt securities receives the proceeds of sales.

Dealer Markets

No Centralized trading floor. Deals executed by market makers.

Bear Market

Prices are fallling Investor pessimism Economic slowdown Government Restraint

Bull Market

Prices are rising Investor optimism Economic Recovery Government Stimulus

A company has 3 choices to sell its securities in the primary market: What are they?

Public Offering - Sale to public investors Rights Offering - To existing stockholders Private Placement - Sell directly without SEC registration to select groups of private investors, such as insurance companies, investment management funds, and pension funds.

SEC

Regulates the Securities Markets

FINRA

Requires all companies traded on the OTC market to file audited financial statements and comply with the federal securities law. OTC Companies are not required to file with the SEC.

In the primary market the public companies can also issue the sale of additional stock, called

Seasoned Equity Offerings (SEO)

Secondary Market

Securities traded after they have been issued. Investor to Investor Selling

Short Selling

When a decline in a security's price is anticipated

Long Purchase

a transaction in which investors buy securities in the hope that they will increase in value and can be sold at a later date for profit

Margin Trading

borrowing money from brokers to buy stock, paying interest on the borrowed money, and leaving the stock with the broker as collateral

Margin

the money borrowed from a brokerage firm to purchase an investment