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Chapter 6 INVESTOR PARTICIPATION IN THE
FINANCIAL MARKETS
• How should investors choose a broker?
• What are the various types of orders placed by investors?
• What is cyber trading?
• What are block trades and program trading?
• Who regulates the financial markets and protects investors?
Choosing a broker
• Types of brokerage firms
• Full service firms
• Discount firms
• Deep discount firms
• Cyber (electronic) brokers
• Buying securities without a broker
Dividend reinvestment plans
• No-load stock purchase programs
Types of orders• Market order
– Definition
• How it is executed on the NYSE
• How it is executed on Nasdaq
• Spreads and decimal pricing
• Clearing procedures
• Limit orders
• Stop (or stop-loss) orders
Margin transactions
• What is a margin transaction
• Initial and maintenance margin requirements
• Margin calls
• Risk/return characteristics of margin transactions
• Short sales
Figure 6.2 – Illustration of Cash versus Margin Purchase
Cyber trading
• History of cyber trading
• Advantages and disadvantages of cyber trading
• Low cost
• Easy, 24 hour access
• Delays in order execution
–Margin calls are not required
• Day trading
Block trades and program trading
• Block trades
• Definition
• The creation of block houses and the third market
Program trading
• Wall Street definition
• Index arbitrage
• Circuit breakers employed by NYSE
Investor protection• Importance of investor confidence
• Government regulation in the United States
• The Securities & Exchange Commission
• Regulatory philosophy
• Full and fair disclosure
• Prospectus
• Insider trading
• State regulation
Securities regulation in other countries• Modeled on U.S. regulation
• Japan
• Canada
• Industry self regulation
• Professional rules of conduct
• NASD rules
• AIMR standards
• Arbitration and discipline procedures
• Market surveillance