Equity, MARKET ORGANIZATION AND STRUCTURE
21 important questions on Equity, MARKET ORGANIZATION AND STRUCTURE
Public (publicly traded) securities
Public (publicly traded) securities are traded on exchanges or through securities dealers and are subject to regulatory oversight.
Physical derivative contract:
- You actually receive 100 barrels of oil when the contract expires.
- You then own the physical commodity.
Traditional investment markets
refer to those for debt and equity. (bonds and stocks)
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To issue a security (=debt, equity or derivative)
bonds are generally .... term, whereas notes are ....... term. Commercial paper refers to ...... term debt issued by firms.
Pooled investment vehicles
Investors share proportionally in the fund’s gains and losses, gaining diversification, expertise, and efficiency, but facing fees, less control, and sometimes low liquidity.
Exchange-traded funds (ETFs) and exchange-traded notes (ETNs)
So they trade like closed-end funds, but — and this is key — they behave like open-end funds, because built-in mechanisms keep their prices close to the actual value of the underlying assets.
That’s what the CFA text means by “special provisions.”
maintenance margin requirement
To ensure that the loan is covered by the value of the asset, an investor must maintain a minimum equity percentage
Securities dealers provide prices at which they will buy and sell shares. The bid price is the price at which a dealer will ...... a security. The ask or offer price is the price at which a dealer will ..... a security.
Execution instructions: market order
Execution Instructions: standing limit orders
When investors want to buy or sell, they must enter orders specifying the trade size and whether to buy or sell. The order can also include execution instructions, validity instructions and clearing instructions
- Which broker, custodian, or clearinghouse will handle the trade.
- The account in which the securities and cash will be delivered.
- Whether the trade is for cash, margin, or short selling.
Execution Instructions: All-or-nothing orders
Execution instruction: Hidden orders
Hidden orders are those for which only the broker or exchange knows the trade size. These are useful for investors that have a large amount to trade and do not want to reveal their intentions
Execution instruction: iceberg orders, display size
where some of the trade is visible to the market, but the rest is not.
Validity instruction: Good til canceled
It does not expire at the end of the trading day, unlike a day order.
Immediate-or-cancel order (=fill or kill)
Immediate-or-cancel orders are canceled unless they can be illed immediately.
Stop-buy order (when the market is rising)
Once the stop price is reached, the order becomes a market order and is executed at the next available price.
initial public offerings (IPOs).
First-time issues by firms whose shares are not currently publicly traded. These are called initial public offerings (IPOs).
dividend reinvestment plan (DRP or DRIP)
A dividend reinvestment plan (DRP or DRIP) allows existing shareholders to use their dividends to buy new shares from the irm at a slight discount.
There are three main categories of securities markets: quote-driven markets, order-driven markets and brokered markets
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