The following section focuses on how the markets themselves function. Understanding how the markets function is key in determining how securities themselves function.

It is unlikely that your CFA Level 1 exam will test you directly on the topics presented, as the material itself is quite simplistic. However, you will be asked several comprehensive questions on this material.


CHARACTERISTICS
The characteristics of a well-functioning securities market are:
  • Efficient - Internal - Markets must be efficient internally.
  • Efficient - External - Markets react quickly to new news; existing prices reflect all available information.
  • Liquidity - Markets are liquid and as such, assets can be bought or sold easily. There are numerous buyers and sellers giving depth to the market.
  • Continuity - In the context of liquidity, prices do not change substantially from one transaction to another unless significant new news arises.
  • Marketability - In the context of liquidity, marketability is the ability to sell an asset quickly.
  • Timely and accurate information - New information is brought to the market in a timely and accurate way.
Issuing Bonds

Related Articles
  1. Personal Finance

    What's the SEC?

    The Securities and Exchange Commission (SEC) is an independent agency of the United States government. The mission of the SEC is to enforce securities laws passed by congress. These laws aim ...
  2. Financial Advisor

    What Is The Quick Ratio?

    Find out about this liquidity indicator and how it's used.
  3. Investing

    ETF Liquidity: Why It Matters

    Lower levels of liquidity in exchange-traded funds make it harder to trade them profitably.
  4. Investing

    What is Reduced Bond Liquidity and Why Does it Matter Now?

    Reduced bond liquidity caused investor concern earlier in the year, but some signs point to a resurgence going forward.
  5. Financial Advisor

    Small Cap Investing: How to Think About Illiquidity

    Do your homework, have a long term view, exercise patience, you'll find that investing in small market capitalization stocks is no riskier than investing in large stocks
  6. Personal Finance

    What to Expect on the CFA Level I Exam

    The Level I exam for the Chartered Financial Analyst designation can be challenging. Here's what to expect.
  7. Managing Wealth

    What Does Liquidation Mean?

    Creditors liquidate assets to try and get as much of the money owed to them as possible.
  8. Financial Advisor

    Tips on Passing the CFA Level I on Your First Attempt

    Obtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
Frequently Asked Questions
  1. Why Do Most of My Mortgage Payments Start Out as Interest?

    Fear not: Over the life of the mortgage, the portions of interest to principal will change.
  2. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  3. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  4. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
Trading Center