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Security Market Efficiency and Returns > The Security Markets
The Security Markets
• Types of Stock Market Transactions
• Types of Market Organizations
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Security Market Efficiency and Returns > The Security Markets
Types of Stock Market Transactions
• An initial public offering (IPO), or stock market launch, is a type of public offering
where shares of stock in a company are sold to the general public, on a securities
exchange, for the first time.
• A secondary market offering is a registered offering of a large block of a security
that has been previously issued to the public.
• In the secondary market, securities are sold by and transferred from one investor
or speculator to another. It is therefore important that the secondary market
remain highly liquid.
• Private placement (or non-public offering) is a funding round of securities which
are sold not through a public offering, but rather through a private offering, mostly
Secondary market
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to a small number of chosen investors.
• Stock repurchase (or share buyback) is the reacquisition by a company of its own
stock.
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Security Market Efficiency and Returns > The Security Markets
Types of Market Organizations
• The primary market is that part of the capital markets that deals with the issue of
new securities.
• Over-the-counter (OTC) or off-exchange trading is to trade financial instruments
such as stocks, bonds, commodities, or derivatives directly between two parties.
• The secondary market, also called aftermarket, is the financial market in which
previously issued financial instruments such as stock, bonds, options, and futures
are bought and sold.
• One type of market structure is the auction market, where buyers and sellers are
brought together directly, announcing the prices at which they are willing to buy or
NASDAQ
sell securities.
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• Broker markets are usually only used for securities that have no public market,
necessitating the middleman in the form of a broker. The broker works for a client
to find a suitable trading partner.
• Dealer markets, also called quote-driven markets, centers on market-makers (or
dealers) who provide the service of continuously bidding for securities that
investors want to sell and offering securities that investors want to buy.
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Appendix
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Security Market Efficiency and Returns
Key terms
• auction market an exchange where goods and services are offered up for bid, bids are taken, and then sold to the highest
bidder
• dealer market an exchange where institutions are assigned to a particular security and trade out of their own account
• FINRA In the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a
self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD).
Though sometimes mistaken for a government agency, it is a non-governmental organization that performs financial regulation
of member brokerage firms and exchange markets. The government organization which acts as the ultimate regulator of the
securities industry, including FINRA, is the Securities and Exchange Commission.
• forwards A non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed
upon today.
• securities Synonymous with "financial instrument. " A tradable asset of any kind; either cash, evidence of an ownership interest
in an entity, or a contractual right to receive or deliver cash or another financial instrument.
• swaps A swap is a derivative in which counterparties exchange cash flows of one party's financial instrument for those of the
other party's financial instrument.
• underwriter An entity which markets newly issued securities
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Security Market Efficiency and Returns
Secondary market
Secondary market shares should be highly liquid.
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Google. "Google Image Result for." CC BY
http://www.google.com/imgres?q=stock+market&num=10&hl=en&biw=1275&bih=596&tbs=sur:fmc&tbm=isch&imgrefurl=http://investorcentric.blogs.nuwireinvestor.
Security Market Efficiency and Returns
NASDAQ
NASDAQ is a major example of a secondary quote-driven market.
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Wikipedia. "NASDAQ." GNU FDL http://en.wikipedia.org/wiki/NASDAQ View on Boundless.com
Security Market Efficiency and Returns
Which of the following correctly defines a type of stock market
transaction?
A) A private placement is an offering of a block of a security that has
been previously issued to the public.
B) A secondary market offering is a funding round of securities which are
not sold through a public offering.
C) All of these answers.
D) A stock repurchase is the reacquisition by a company of its own stock.
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Security Market Efficiency and Returns
Which of the following correctly defines a type of stock market
transaction?
A) A private placement is an offering of a block of a security that has
been previously issued to the public.
B) A secondary market offering is a funding round of securities which are
not sold through a public offering.
C) All of these answers.
D) A stock repurchase is the reacquisition by a company of its own stock.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Security Market Efficiency and Returns
Which of the following correctly defines a type of market
organization?
A) A dealer market is used for securities that have no public market.
B) A broker market centers on market-makers who provide the service of
continuously bidding for securities.
C) All of these answers.
D) An auction market allows buyers and sellers to negotiate the
securities' prices between themselves.
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Security Market Efficiency and Returns
Which of the following correctly defines a type of market
organization?
A) A dealer market is used for securities that have no public market.
B) A broker market centers on market-makers who provide the service of
continuously bidding for securities.
C) All of these answers.
D) An auction market allows buyers and sellers to negotiate the
securities' prices between themselves.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Security Market Efficiency and Returns
Attribution
• Wikipedia. "Secondary market offering." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Secondary_market_offering
• Wikipedia. "IPOs." CC BY-SA 3.0 http://en.wikipedia.org/wiki/IPOs
• Wikipedia. "Secondary market." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Secondary_market
• Wikipedia. "Stock repurchase." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Stock_repurchase
• Wikipedia. "Private placement." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Private_placement
• Wiktionary. "underwriter." CC BY-SA 3.0 http://en.wiktionary.org/wiki/underwriter
• Wikipedia. "FINRA." CC BY-SA 3.0 http://en.wikipedia.org/wiki/FINRA
• Wikipedia. "Broker-dealer." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Broker-dealer
• Wikipedia. "Auction." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Auction
• Wikipedia. "securities." CC BY-SA 3.0 http://en.wikipedia.org/wiki/securities
• Wikipedia. "forwards." CC BY-SA 3.0 http://en.wikipedia.org/wiki/forwards
• Wikipedia. "swaps." CC BY-SA 3.0 http://en.wikipedia.org/wiki/swaps
• Wikipedia. "Market maker." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Market_maker
• Wikipedia. "NYSE." CC BY-SA 3.0 http://en.wikipedia.org/wiki/NYSE#Trading
• Wikipedia. "Securities market." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Securities_market
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