Ch 1: Overview of Market Participants and Market Structure

Primary and Secondary Market

The two types of securities markets

A Nasdaq-listed stock trades in the __________ market.

secondary

Explain the secondary market

The market on which existing securities are traded

The third market is the term used to describe _____-listed securities trading _______.

NYSE, over-the-counter

The ______ is where trades of NYSE-listed securities occur in the over-the-counter market

third market

A BD that does not hold a customer's cash or securities is known as a _____

Non-carrying firm

Explain the primary market

The market on which new securities are offered

Which departments of a broker-dealer executes securities transactions?

Trading

What is a dark pool?

a place for large institutional investors and high-frequency traders to trade directly with one another

Explain a prime-brokerage arrangement

A situation in which multiple BDs execute a client's trades and report them to one independent BD for settlement

True or False: A market maker publishing a firm quote is obligated to honor the price and the number of shares quoted?

True. (A BD providing a firm quote is obligated to honor both the ______ and ________.

True or False: The offer (ask) is the price at which a broker-dealer is willing to buy shares from a customer

False. The ______ price is the price at which a firm will buy, while the ______ is the price at which it will sell.

True or False: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.

True. A ________ is an example of a client that may benefit from a prime-brokerage arrangement.

What does it mean to clear a trade?

It is the end-of-day process of matching trades executed by a BD to determine what is owed.

True or False: Unlike equities, bonds do not have organized exchanges

True. Unlike equities, _________, _________, and ___________ don't have organized exchanges

Identify the acronym: RR

Registered Representative

An RR's employer is referred to as a ________________.

An RR's employer is referred to as a Broker-Dealer (BD).

What is a clearing firm?

A firm that is responsible for the efficient confirmation, settlement, and delivery of securities transactions

Define an introducing BD

A BD using another BD to handle cash and securities, trade execution, reporting, clearing, and confirmation

True or False: Nasdaq is a securities exchange registered with the SEC

True. _________ is a securities exchange registered with the SEC

What is the price at which a dealer is willing to buy

Bid price

BD employees who are involved in the investment banking and securities business are called _____________.

registered representatives

What are the two types of arrangements that an introducing firm can have with a carrying firm?

Fully Disclosed and Omnibus

Define the term dealer

A person engaged in the business of buying securities for, and selling securities from, his own account

In an ______ arrangement, a clearing firm doesn't have information on each individual customer of an introducing firm

Omnibus arrangement

QIB stands for ___________

Qualified Institutional Buyer

What does it mean for a client to use a prime brokerage account?

The client trades through multiple BDs, but has its trades cleared and settled with one prime BD

True or False: Both stocks and bonds represent ownership in a corporation

False. Bonds are debt instruments, while stocks represent ownership interest in a corporation.

What's the Pink Market?

A real-time electronic quotation system for OTC equities

A ____ is any person that executes _____ transactions in securities for the account of others.

Broker; agency

List some examples of issuers

Corporations, the U.S. Treasury, foreign governments, states and other municipalities

List the two main types of secondary markets

Exchange markets (e.g., the NYSE or Nasdaq) and the over-the-counter (OTC) markets (e.g., Pink Market)

Explain the concept of holding securities in street name

This is when client securities are held by and registered in the name of the BD

Identify the acronym: OTC

over the counter

List some responsibilities of a transfer agent

Issue and cancel securities, pay dividends and interest, mail shareholder reports, handle lost or stolen certificates

What is an ECN?

Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes

What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?

Clearing, settlement, and information services

The new issue market is also known at the _____ market

Also known as the primary market

What is the price at which a dealer is willing to sell?

The ask/offer price

Who guarantees and issues all exchange-listed option contracts?

Options Clearing Corporation (OCC)

Define the term broker

Any person engaged in the business of effecting transactions in securities for the account of others

True or False: An individual with $100 million in assets is a QIB

False. Even with $100 million in assets, individuals are not considered QIBs

In a ____ ______ account, information about each customer of the introducing firm is sent to the clearing firm

Fully disclosed account

Where may quotes for non-Nasdaq (OTC) stocks be found?

Pink Market

For what types of securities is a trustee required?

Bonds

Who can charge a client for securities-related advice?

Only registered investment advisers. (Remember, BDs charge a commission for executing trades, not for advice)

To be considered an investment adviser, what are the three parts of the ABC test?

A - Advice, B - Business, C - Compensation

The ____ market refers to direct institution-to-institution trading and doesn't involve public exchanges

The fourth market (refers to what...)

Define a prime broker

A BD that clears and settles trades effected by one or more executing brokers at the direction of the customer

Where can quotes be found for stocks that are not listed on an exchange or Nasdaq?

Pink Market

A ______ _____ is a type of advisor that provides advice either to a state, county, or city

Municipal Advisor

Which department of a broker-dealer writes reports about markets and securities for investors?

research department

What is the general definition of a QIB?

An entity that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers

Who can charge a client for buying it selling securities?

Only registered broker-dealers can levy transaction-based charges. (Remember, investment advisers charge fees for advice)

Which market is the decentralized, negotiated market?

The over-the-counter market (OTC)

Which department of a broker-dealer handles the underwriting and issuance of securities for clients?

Investment banking

A ______ is any person that executes _____ transactions in securities for its own account

Dealer; principal

What is the role of a broker-dealer's operations department?

To process paperwork, handle funds and securities transfers, and settle and confirm transactions

What is a market maker?

A person who enters quotes and stands ready to buy and sell securities for his own account on a regular basis