Securities

Market Weighted Series

(Sum of current market values x beginning value)/ Sum of base market values S&P 500 Index Composite, the New York Stock Exchange Index and the Financial Times Actuaries Share Indexes.

Margin Call

A demand by a broker that a customer deposit enough to bring his margin up to the minimum requirement. The maintenance margin, the amount of equity an investor needs to hold in his account if he buys stock on margin or sells shares short, is 25%

Primary Market

A financial market in which new issues of a security are sold to initial buyers or through an IPO.

Global Stock Indexes

A global stock index is similar to a domestic stock index except that it is made up of both domestic and international equity securities. An example of a global index is the S&P Global 1200. The index comprises securities in 29 countries. For a global investor, this is a nice gauge to measure relative return.

Secondary Market

A market for reselling financial assets

Negotiated Sales

A negotiated sale is the process whereby a bond issuer negotiates with the investment bank with respect to the pricing of underwriting services.

Regional Exchanges

A regional exchange is similar to the national stock exchanges except regional exchanges serve smaller markets and typically trade smaller issues. A company that cannot list its shares on a national stock exchange because it does not meet the requirements may choose to list its share on a regional exchange.

underwriting

An arrangement under which an investment banker agrees to purchase all shares of a public offering at an agreed upon price

Market Order

An order telling a broker to buy or sell a specific security at the best currently available price

Limit Order

An order to a broker to buy a specific stock only if its price is below a certain level, or to sell a specific stock only if its price is above a certain level. Otherwise, the order will expire in the allotted time.

Unweighted Series

An unweighted series is based on the average price movement of the stock prices in the index. In this series, all stocks, no matter what the price, have the same effect on the series. To calculate the unweighted series, take an arithmetic average or a geometric mean of the relative returns. Value Line Composite Average and the Financial Times Ordinary Share Index are examples of unweighted series.

Registered Traders

Are members that buy and sell for their own account. They help to provide liquidity. Because they are independent, however, the exchange places limits on how they trade.

Weak-Form EMH

Asserts that stock prices already reflect all information contained in the history of past prices

Composite Stock-Bond Indexes

Composite stock-bond indexes are good proxies to measure a diversified stock/bond portfolio. These composites contain both stock and bond securities.

Semi-Strong EMH

Contends that the current prices of financial assets already reflect all publicly available information affecting the value of these instruments, including info about past prices and volume, the financial condition and credit rating of each issuer, any published forecasts, the condition of the economy, and all other relevant info.

Over-the-Counter Markets

Electronic purchase and sale of stocks and bonds, often of smaller companies, which takes place outside the organized stock exchanges; The OTC market operates as an order-driven market where buyers and sellers submit bids and a dealer buys or sells the stock from his own inventory. As a result, the OTC market is also referred to as a negotiated market.

Buying Stock on Margin

Essentially using credit to purchase stock shares, much like using a credit card. A brokerage firm lends money to an investor to buy stocks. Must at least be able to pay for 50% of cost him/ herself. If the stock goes up after it is purchased, the investor's profit will be magnified given the stocks purchased on margin. However, if the stock goes down, the losses are then magnified.

Floor Brokers

Floor brokers function much like commission brokers buying and selling shares. Unlike commission brokers who are employees of member firms however, floor brokers are independent and aid commission brokers when they become too busy.

3 Predominant Weighting Schemes

In constructing stock market series, there are three predominant weighting schemes used: 1. Price Weighted Series 2. Market Weighted Series 3. Unweighted Series

Exchange Membership

In the U.S., the listed securities exchanges classify memberships as: 1. Specialists, 2. Commission Brokers, Floor Brokers, Registered Traders

Commission Brokers

Individuals employed by brokerage firms that are member of the exchange. The commission broker buys and sells shares for the clients of its firm.

Price Weighted Series

It is calculated by adding together each stock price and dividing the total by the number of stocks in the series. The main problem that occurs with the price weighted series is the effect a price change in a high-priced stock will have on the series, as well as the lack of effect a low-priced stock will have on the series. Sum of stock prices/ # of stocks Ex: Dow Jones Industrial Average and the Nikkei Dow Jones Stock Average.

Continuous Markets

Markets in which trading can occur at any time, with prices free to fluctuate as trading occurs. An example would be both the NYSE and the AMEX.

Bond Indexes

Much trickier to construct than stock indexes. Given that there are typically many bonds issued for each company, there are many times more bond issues than stock issues to choose from. A bond index thus takes a sampling to create an index. An example of a bond index is the Lehman Brothers Aggregate Bond Index, which made up of 5,545 bonds across all segments of fixed income, including corporate, treasury and mortgage-backed segments.

Stock Price Volatility Impact

One theory of the institutionalization of securities markets is that volatility is increased given the increased institutional trading, typically done in block trades. The counter-argument to the theory is that institutional trading will decrease volatility because it will make the markets more liquid.

Short Sale Order

Orders where traders borrows stock, sells it, and the purchases the stock later to return to the original owner.

Market Makers

Securities dealers that make a commitment to continuously offer to buy and sell the stock of a specific corporation listed on the NASDAQ exchange or traded in the OTC market. In the U.S. exchanges, the market maker is known as a specialist.

Specialists

Specialists are the market makers for stocks, controlling the limit book and posting bid and ask prices; Individuals on the trading floor of the NYSE who match buyers with sellers

Domestic Stock Index

The Dow Jones Industrial Average is comprised of 30 domestic stocks selected by the Wall Street Journal. The S&P 500 index contains 500 domestic stocks. To be included in the index, a company must have a minimum market cap of $4 billion, be financially viable and have a public float of at least 50%.

Strong-Form EMH

The assertion that stock prices reflect all relevant information, including inside information. This is in addition to all the other EMH Forms.

Maintenance Margin

The required amount of securities an investor must hold in his account if he either purchases shares on margin, or if he sells shares short. If an investor's margin balance falls below the set maintenance margin, the investor would then need to contribute additional funds to the account or liquidate stocks in the account to bring the account back to the initial margin requirement.

National Market System (NMS)

To facilitate trading of OTC stocks whose size, profitability, and trading activity meet specific criteria. It would provide even greater efficiency with lower transaction costs. In proposals, the NMS would contain a centralized reporting system, a centralized quotation system, centralized limit order book and increased competition among all market makers.

Private Placements

Unregistered security offerings sold directly to accredited investors.

Call market

When trades can only be placed during a specific time period; traded at specific times. all price are declared, then one negotiated price is set that clears the market for the stock.

National Stock Exchanges

entity for trading stocks of publicly held corporations. The two U.S. exchanges are the NYSE and the NASDAQ.

Block Trades

large transaction in which at least 10,000 shares of stock are bought and sold. Block trades are large trades that are primarily done through institutions. As a result, block trading houses were developed to handle these trades in an organized and efficient manner so as not to disrupt the securities market and cause large-scale volatility.

Competitive Bids

prices requested for items of the same quality from a specified number of vendors to determine the lowest price

Stop Loss Orders

the stock is to be sold if it falls below a stipulated level, order lets the stock be sold to stop further losses from accumulating