Primary Markets and Secondary Markets

A comprehensive set of flashcards covering key concepts, terminology, and processes related to primary and secondary markets in securities, designed for review and exam preparation.

Primary Market

The market where securities are sold by the issuer to the investing public.

Secondary Market

The market where securities trade between investors.

Initial Public Offering (IPO)

The first time an issuer sells securities to the public.

Additional Public Offering (APO)

Subsequent public offerings after an IPO by a corporation.

Exempt Issues

Securities that are exempt from registration requirements of the Securities Act of 1933.

Exempt Issuers

Entities that are exempt from registration such as the federal government and municipalities.

Underwriter

A broker-dealer that works with an issuer to bring its securities to market.

Best Efforts Underwriting

An underwriting commitment where the underwriter acts only as an agent and does not risk capital.

Firm Commitment Underwriting

An underwriting in which the underwriter buys securities from the issuer and resells them to the public.

Syndicate

A group of underwriters that work together to sell a new issue of securities.

Institutional Investors

Entities that pool money to invest in securities, such as banks and mutual funds.

Retail Investors

Individual investors who buy and sell securities for their personal accounts.

Accredited Investors

Individuals or entities that meet certain financial criteria and have higher investment sophistication.

Cooling-Off Period

The period after filing a registration statement where no sales can be solicited.

Prospectus

A detailed disclosure document provided to potential investors when a security is offered.

Tombstone Advertisement

A type of advertisement allowed during the cooling-off period that provides basic information about a new issue.

Registration Statement

A filing with the SEC that must accompany a new securities offering unless exempt.

SEC

Securities and Exchange Commission, the federal agency responsible for regulating the securities industry.

Final Prospectus

The document provided to investors with all necessary details of a securities offering before purchase.

Bid Price

The highest price a buyer is willing to pay for a security.

Ask Price

The lowest price a seller is willing to accept for a security.

Spread

The difference between the bid price and the ask price.

Market Order

An order to buy or sell a security at the best available price immediately.

Limit Order

An order to buy or sell a security at a specified price or better.

Stop Order

An order that becomes a market order once a specified price is reached.

Stop Limit Order

An order that becomes a limit order once a specified price is triggered.

Good-Til-Canceled (GTC) Order

An order that remains in effect until filled or canceled by the investor.

Fill-or-Kill Order

An order that must be executed in its entirety immediately or not at all.

Immediate-or-Cancel Order

An order that can be partially filled, with unexecuted portions canceled.

All-or-None Order

An order that must be executed entirely or not at all, without time constraints.

Long Position

Buying a security with the expectation that price will rise.

Short Position

Selling a security one does not own, expecting the price to decline.

Principal Transaction

When a broker-dealer acts as a dealer executing trades from its own inventory.

Agent Transaction

When a broker-dealer acts on behalf of a customer to execute trades.

Regular Way Settlement

Settlement method for most transactions occurring one or two business days after trade date.

Cash Settlement

Settlement of securities transactions that occurs on the same day as the trade.

Depository Trust and Clearing Corporation (DTCC)

The world’s largest securities depository that provides centralized custody and clearing services.

Transfer Agent

Company responsible for maintaining records of ownership and handling security transfers.

Registrar

A firm separate from the issuer responsible for auditing transfer agents.

Designated Market Maker (DMM)

An exchange member responsible for maintaining liquidity for assigned stocks.

Floor Broker

A trader on the exchange floor who executes trades on behalf of clients.

Two-Dollar Broker

A broker who executes trades for floor brokers that become overwhelmed.

Floor Trader

A member of the exchange who trades for their own firm's accounts.

Non-NMS Securities

Stocks that are not listed on major exchanges or Nasdaq.

Market Maker

Broker-dealer that provides liquidity by maintaining an inventory and quoting bid and ask prices.

Liquidity

The ability to buy or sell a security easily without affecting its price.

Hybrid Offering

An IPO in which existing shareholders sell shares along with new shares.

Shelf Offering

A registration that allows an issuer to sell securities over time without re-registration.

Regulation A

A rule that provides exemptions for small and medium-sized offerings.

Rule 506

Regulation D’s criteria for private placements, allowing exemptions for accredited investors.

Rule 147

Intrastate offering rule that exempts securities sold entirely within one state.

Accredited Investor Criteria

Income or net worth requirements that classify sophisticated investors.

Investment Advisers Act of 1940

Regulates investment advisers and requires registration with the SEC.

Fiduciary

An individual or firm that acts in the best interest of another party.

Broker-Dealer (BD)

A firm engaged in the buying and selling of securities for its own account or for customers.

Clearing Firm

Broker-dealer that processes and settles transactions on behalf of customers.

Introducing Firm

A broker-dealer that introduces its customers to a clearing firm.

Prime Brokerage Account

An account that allows a customer to use multiple executing brokers while maintaining a central account.

Custodian

An entity that manages assets, often for minors, under certain custodial laws.

Trustee

A person or firm that manages a trust and has fiduciary duties.

Dark Pools

Private trading venues where large transactions are executed anonymously.

Bid/Ask Spread

The difference between the bid price and ask price, representing the market maker's income.

SEC Disclaimer

Statement that the SEC does not approve or disapprove the securities being offered.

Liquid Security

A security that can be easily bought or sold without affecting its market price.

Illiquid Security

A security that is difficult to buy or sell without a significant price change.

Securities Act of 1933

Federal law that governs the registration of securities and requires full disclosure.

Prospectus Delivery Rules

Regulations regarding the delivery of prospectuses to investors for new securities.

Mandatory Registration

Requirement for certain securities to be registered with the SEC before being sold.

Material Information

Critical information about a security that investors must receive for informed decision-making.

Bid Size

The number of shares willing to be purchased at the bid price.

Ask Size

The number of shares willing to be sold at the ask price.

Market Conditions

The overall state of the financial market affecting security transactions.

Economic Factors

External variables impacting the financial environment in which securities are traded.

National Market System (NMS)

A system of securities markets established to ensure fair competition and price transparency.

Market Liquidity

The degree to which a market allows assets to be bought and sold at stable prices.

Trade Execution

The process of completing a security transaction in the market.

Order Book

A record of all current buy and sell orders for a particular security.

Order Matching

The process of pairing buy orders with sell orders in the trading process.

Earnings Report

A quarterly report detailing a company's financial performance and condition.

Secondary Market Transactions

Being involved in buying or selling existing securities rather than buying new issues.

Equity Securities

Stocks representing ownership in a company.

Debt Securities

Financial instruments that represent borrowed money that needs to be repaid.

Corporate Bonds

Debt securities issued by corporations to raise capital.

Treasury Securities

Government debt instruments issued by the U.S. Department of the Treasury.

Municipal Bonds

Debt securities issued by local government or municipalities.

Hybrid Securities

Financial instruments that have characteristics of both equity and debt.

Call Option

A financial contract that gives the buyer the right to purchase a security at a specified price.

Put Option

A financial contract that gives the buyer the right to sell a security at a specified price.

Options Clearing Corporation (OCC)

Organization that acts as a clearing agent for options contracts in the U.S.

Performance Guarantee

A provision that ensures parties fulfill their contractual obligations.

Stock Power

A legal document that allows an owner to transfer shares of stock.

Good Delivery Guidelines

Rules governing the acceptable manner of transferring physical securities.

Restricted Securities

Securities that cannot be sold publicly without registration.

Legend Stock

Private placement stock identified by specific inscriptions indicating transfer restrictions.

Offering Circular

The disclosure document resembling a prospectus used for exempt offerings.

Asset Management

The process of managing investments on behalf of clients.

Regulatory Compliance

Adherence to laws and regulations governing the securities industry.

Trade Confirmation

A notification that outlines the details of a securities transaction.

Covenants

Conditions placed on borrowers by lenders to protect the lender's investment.

Recourse

The legal right to demand repayment or compensation in the event of credit default.