Term
| What are the regulations, forms, and processes of the key modes of primary offerings? |
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Definition
Registration Statement filed with the SEC
Rule 415: Shelf Registration Rule
Rule 144a |
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Term
| Registration Statement filed with the SEC |
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Definition
Part 1: Prospectus - Distributed to the public as an offering of the securities
Part 2: Contains supplemental info, not released to the public, but available from the SEC upon request |
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Term
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Definition
| (Shelf Registration Rule) Permits certain issuers to file a single registration document indicating that it intends to sell a certain amount of a certain class of securities at one or more times within the next two years. |
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Term
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Definition
| Eliminates the two year holding period by permitting large institutions to trade securities acquired in a private placement among themselves |
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Term
| Alternate modes of primary pricing and distribution |
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Definition
Bought deal
Auction process
Dutch auction (single price auction)
Multiple price auction |
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Term
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Definition
| Used solely for debt securities |
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Term
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Definition
| Competitive bidding underwriting |
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Term
| What functions and economic value does a secondary market provide? |
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Definition
Firms discover what value investors attach to their stocks
Allows original buyers to sell their securities for cash
Reduce costs of searching for likely buyers |
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Term
| How do order driven and quote driven markets differ? |
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Definition
Order driven (auction market): All participants are natural buyers and sellers. No dealer intermediary.
Quote driven (dealer market): Price is determined by the dealer based on prevailing market information. |
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Term
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Definition
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Term
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Definition
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Term
| Different types of orders |
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Definition
| Limit order, market order |
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Term
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Definition
Designates a price threshold for the execution of the trade.
Only at the limit price or better does a trade take place |
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Term
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Definition
Simplest type.
An order executed at the best price available in the market |
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Term
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Definition
| The act of borrowing stock, selling it, and buying it back at a lower price. |
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Term
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Definition
| Borrowing cash to buy securities and using the securities themselves as collateral. |
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Term
| Distinguish operational from pricing efficiency. |
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Definition
Operational: Investors can obtain transaction services as cheaply as possible.
Pricing: Prices at all times fully reflect all available and relevant information |
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Term
| What are the three forms of pricing efficiency? |
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Definition
| Weak, semi-strong, strong |
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Term
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Definition
| Price reflects the past price and trading history of the security. |
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Term
| Semi-strong pricing efficiency |
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Definition
| Price fully reflects all public information, including historical price and trading patterns. |
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Term
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Definition
| Price reflects all information, public or not. |
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Term
| Exchange markets vs. over-the-counter stocks |
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Definition
Exchange: A physical place where buyers and sellers meet on a trading floor, Auction system
OTC: Geographically dispersed buyers and sellers, Negotiated system where individual buyers negotiate with individual sellers. |
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Term
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Definition
A physical place where buyers and sellers meet on a trading floor.
Auction system. |
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Term
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Definition
Geographically dispersed buyers and sellers.
Negotiated system where individual buyers negotiate with individual sellers. |
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Term
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Definition
| First, second, third, fourth |
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Term
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Definition
| Trading on exchanges of listed stocks |
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Term
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Definition
| Trading in the OTC market of stocks not listed on an exchange |
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Term
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Definition
| Trading in the OTC market of listed stocks |
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Term
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Definition
| Private transactions between institutional investors without the use of a broker/dealer |
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Term
| Alternative trading systems |
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Definition
| ECNs (Electronic Communications Networks), Crossing Networks |
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Term
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Definition
(Electronic Communications Networks): Privately owned broker/dealers that operate as market participants within the Nasdaq
A limit order book that is open for continuous trading |
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Term
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Definition
Batch processes that aggregate orders for execution at specified times.
Designed to minimize trading costs. |
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Term
| Why issuers might raise equity outside their domestic stock market |
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Definition
Diversity in sources of capital.
Diminishes prospect of takeover by domestic competitors.
Boost their name, awareness, and sales. |
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Term
| Calculate return on a margin transaction P. 274 |
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Definition
Profits = (Sale Price - Bought Price) + Dividends - interest
Profits / Cash originally paid = Rate of Return |
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Term
| Types of transaction costs |
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Definition
| Explicit, Implicit (Impact cost, timing cost, opportunity cost) |
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Term
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Definition
| Commission paid to the broker/dealer to execution |
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Term
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Definition
| Impact cost, timing cost, opportunity cost |
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Term
| Impact cost (explicit vs. implicit) |
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Definition
| Change in market price due to supply/demand imbalances caused by the presence of trade. |
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Term
| Timing cost (explicit vs. implicit) |
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Definition
| Price change between the time the parties initiate the trade, and the time it gets processed. |
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Term
| Opportunity cost (explicit vs. implicit) |
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Definition
| “Cost” of securities not traded. |
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Term
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Definition
| Circuit breakers and trading collars |
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Term
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Definition
| Imposed price limit: temporary halting of trading during a severe market decline |
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Term
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Definition
| Imposed price limit: Restricts index arbitrage trading |
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Term
| The major market indicators (indexes) |
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Definition
| DJIA, NYSE Composite, S&P 500, Nasdaq |
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Term
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Definition
| Major market indicator, 30 large "blue-chip" companies |
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Term
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Definition
| Major market indicator, Only stocks listed on that exchange |
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Term
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Definition
| Major market indicator, Includes NYSE and OTC shares |
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Term
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Definition
| Major market indicator, Only OTC stocks |
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Term
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Definition
| After a certain period of time, the bond is able to be converted into a certain number of shares of stock. |
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Term
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Definition
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Term
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Definition
| Strike price (exercise price) |
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Term
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Definition
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Term
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Definition
| Expected price volatility of underlying asset |
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Term
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Definition
| Short term risk-free rate |
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Term
| Unnamed variable of options valuation |
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Definition
| Any cash payments made by underlying asset |
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Term
| Key variables of options valuation |
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Definition
| S, X, t, v, i, cash payments made by underlying asset |
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Term
| Pros and Cons of convertibles for issuers |
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Definition
Pro: Lower interest rate or higher price
Con: May lose money on conversion |
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Term
| Pros and Cons of convertibles for investors |
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Definition
Pro: May make money on conversion
Con: Lower interest rate or higher price |
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Term
| Who buys municipal securities and why the securities are attractive investments to these buyers |
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Definition
(2-part question)
Mutual funds, bank trust departments, property and casualty insurance companies, and high net worth individuals.
They are attractive because they are tax exempt on the federal level |
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Term
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Definition
| General obligation, appropriation backed, insured, prerefunded. |
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Term
| General obligation muni security |
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Definition
| Secured by the issuer’s taxing power. |
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Term
| Appropriation backed muni security |
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Definition
| Backed by the state’s tax revenue, rather than just the municipality’s. |
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Term
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Definition
| Backed by insurance policies that pay the bondholder any principal and/or coupon not paid by the issuer. |
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Term
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Definition
| Occurs when original bonds are collateralized by direct obligations by the U.S. Government with cash flows identical to that of the bond. |
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Term
| The risks unique to investment in muni securities |
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Definition
| Tax risks - Even being tax exempt, a higher yielding taxable bond may have had a higher overall yield |
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Term
| Level of regulation of the muni market |
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Definition
Exempted from registration requirements of the Securities Act of 1933 and the periodic reporting requirements of the Securities Exhange Act of 1934.
After SOX, congress exempted issuers of Munis from the application of some important changes. |
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Term
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Definition
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Term
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Definition
| A customized agreement between two parties to exchange an amount of money based on a reference interest rate, and a notional principal amount. |
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Term
| Interest rate swap mechanics |
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Definition
Two parties agree to exchange periodic interest payments
One is usually fixed, and the other is floating
ex. Libor + 3% for 5.5% |
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Term
| Define a swaption and how it might be used by a company |
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Definition
(2-part question)
Based on options for interest rate swaps
Grants the option buyer the right to enter into an interest rate swap at a future date
Time until expiration, the term, and the rate are all specified
The option can only be exercised at the options expiration date (European-type) |
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Term
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Definition
| When one party agrees to pay the other when the reference rate exceeds a predetermined level. |
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Term
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Definition
| When one party agrees to pay the other when the reference rate falls below a predetermined level. |
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Term
| Pricing T-Bills as a discount security |
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Definition
| T-Bills do not pay any coupons, so they are priced below their par value. |
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Term
| Commercial paper definition |
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Definition
A short term, unsecured, promissory not issued in the open market that represents the obligation of the issuing organization
Alternative to bank borrowing for large corporations with strong credit ratings
Maturity is typically less than 270 days with most maturing in less than 90 days
Usually pay off maturing paper with a new issue of paper |
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Term
| Commercial paper distribution methods |
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Definition
| Direct placement, dealer placement |
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Term
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Definition
| (Commercial paper distribution method) Company sells paper directly to investors |
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Term
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Definition
| (Commercial paper distribution method) Company uses an agent to sell its paper |
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Term
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Definition
Basically a collateralized loan.
The sale of a security with a commitment by the seller to buy the security back from the purchaser at a specified price at a designated future date. |
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Term
| love, romance, and time together |
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Definition
| things teri wants for our anniversary |
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Term
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Definition
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Term
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Definition
| Electronic Communications Network |
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