Financial intermediaries

Brokers

agents who execute orders to buy or sell securities on behalf of clients in exchange for a commission

Individual brokers

work for large brokerage firms, exchanges ..

Prime brokers

give special services such as security lending to large scale investors and institutions

Block brokers

for large traders

Market makers

firm or individual who quotes two sided markets in a particular security providing bids and asks, they provide liquidity and depth to markets and profit from the difference in the bid-ask spread

bid-ask spread

best bid price-best ask price

Investment banks

provide advice to the best clients(big firms) and help arrange transactions such as initial and seasoned securities offerings

Initial public offering (IPO)

first assuance of common shares to the public by a formely private corporation

Seasoned offering

issue of additional securities from a company whose shares are already in the secondary markets

Exchanges

places that require timely financial disclosure and where traders arrange their trade

Electronic communications networks (ECNS)

are alternative trading systems in USA that automatically match buy and sell orders

Alternative Trading systems (ATS)

also know as dark pools, are alternative trading systems they have less regulatory authority than exchanges but they are not open for everybody, multilateral trading facilities (MTFs, in Europe)

Dealers

they trade with their clients; they buy securities or contracts from their clients and sell them to other clients.

OTC markets

decentralized markets where orders initiated from diffrent locations are matched through communications network

broker-dealers

they act like brokers when they seek the best price for the client and like a dealer when they make sure to profit the most from their clients

mortgage backed securities (MBS)

debt obligations that represent claims to the cash flows from pools of mortgage loans

securitization

the process of buying assets, placing them in a pool, and then selling securities that represnt ownership to the pool

Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE)

is a non-operating entity created to carry out a specified purpose, leasing assets or securitizing receivables

arbitrageurs

trade when they can identify opportunities to buy and sell similar instruments at different prices in different markets

replication

buying a risk at one form and selling it in another form

Tranches

classes of Securities, They are structured so that some produce more predictable cash flows than do others. The senior ones have first rights to the cash flow from the asset pool. AAA

Asset-backed securities

securities whose values and income payments are derived from a pool of assets, such as mortgage bonds, credit card debt, or car loan