Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Chapter 12 – Securities Markets Where financial assets are traded


Published on

  • If you are looking for customer-oriented academic and research paper writing service try ⇒⇒⇒ ⇐⇐⇐ liked them A LOTTT Really nice solutions for the last-day papers
    Are you sure you want to  Yes  No
    Your message goes here

Chapter 12 – Securities Markets Where financial assets are traded

  1. 1. Chapter 12 – Securities Markets <ul><li>Where financial assets are traded </li></ul><ul><li>Primary market – First time a security sold </li></ul><ul><ul><li>Initial Public Offering (IPO's) </li></ul></ul><ul><li>Secondary market – existing securities </li></ul><ul><li>Investment bankers – financial advice to companies </li></ul><ul><ul><li>Underwrite – purchase entire new issue </li></ul></ul><ul><ul><li>Merrill Lynch, Goldman Sachs, Citibank </li></ul></ul>
  2. 2. Terminology to Understand <ul><li>Securities and Exchange Commission </li></ul><ul><li>Registration (prospectus) required by SEC </li></ul><ul><ul><li>Fair, truthful, accurate info about new issues </li></ul></ul><ul><ul><li>Does not prohibit sale of risky assets </li></ul></ul><ul><li>Organized exchanges such as NYSE </li></ul><ul><ul><li>Has physical location; trades listed securities; generally of larger companies </li></ul></ul><ul><ul><li>Nine exchanges in the US </li></ul></ul>
  3. 3. Stock Markets NYSE, NASDAQ, ECN’s <ul><li>New York Stock Exchange </li></ul><ul><ul><li>2,800 listed stocks </li></ul></ul><ul><ul><li>Most liquid market </li></ul></ul><ul><ul><li>Humans (specialists) match bids and offers </li></ul></ul><ul><ul><li>Physical floor on Wall Street </li></ul></ul><ul><ul><li>Owned by 1,366 seat holders </li></ul></ul>
  4. 4. NASDAQ or Over-the-Counter <ul><li>National Association of Securities Dealers Automated Quotation System </li></ul><ul><ul><li>Trades 3,400 stocks </li></ul></ul><ul><ul><li>No formal listings </li></ul></ul><ul><ul><li>But traded companies must register with SEC </li></ul></ul><ul><ul><li>Traders at hundreds of locations </li></ul></ul><ul><ul><li>Loose federation of electronic traders </li></ul></ul>
  5. 5. Electronic Communications Networks (ECN’s) <ul><li>Trade exchange-listed and NASDAQ stocks </li></ul><ul><li>Collect and post bids and offers </li></ul><ul><li>Match orders electronically </li></ul><ul><li>Execution is immediate </li></ul><ul><li>Have 7% of the trading volume in NYSE stocks and 83% of OTC stocks </li></ul><ul><li>Biggest: Instanet, Island and ArcaEx </li></ul>
  6. 6. Regulation <ul><li>SEC plus self-regulation </li></ul><ul><li>Securities Act of 1933 associated with new securities </li></ul><ul><li>Securities Exchange Act – 1934 regulates secondary market and financial reporting </li></ul><ul><li>Investment Advisors Act of 1940 – covers all types of advisors and mutual funds </li></ul>
  7. 7. Stock Trading <ul><li>Exchange assigns stock to a &quot;specialist&quot; who buys and sells the issue to &quot;maintain a fair and orderly market&quot;. </li></ul><ul><li>Orders can take various forms </li></ul><ul><li>Short selling – borrow a stock, sell it in expectation of buying back at lower price </li></ul><ul><li>Market order – immediate at best possible price </li></ul>
  8. 8. Brokers <ul><li>Licensed by SEC </li></ul><ul><ul><li>Can sanction rule-breakers; names in newspapers </li></ul></ul><ul><li>Types – full service versus discount brokers </li></ul><ul><ul><li>500 shares @ $20 = $10,000 investment </li></ul></ul><ul><ul><li>Commissions: FS = $253; Discount $7 to 30 </li></ul></ul><ul><li>Registration – you can hold paper certificates or broker can hold electronically </li></ul>
  9. 9. Stock Brokers <ul><li>A person who buys and sells stock on behalf of clients. </li></ul><ul><li>Operates as an agent </li></ul><ul><ul><li>Doesn’t own the securities but matches buy and sell orders </li></ul></ul><ul><li>Securities Investor Protection Corp (SPIC) insures customer accounts against financial failure of brokers </li></ul>
  10. 10. SIPC <ul><li>Securities Investor Protection Corp. </li></ul><ul><li>Federal agency but not like FIDC </li></ul><ul><li>Does not protect against loss of value </li></ul><ul><li>Replaces securities stolen by a broker or loss through failure of brokerage holding your securities </li></ul><ul><ul><li>Up to $500,000; 99% recovery rate </li></ul></ul>
  11. 11. Brokerage Fees <ul><li>Have been increasing </li></ul><ul><li>What can you do to hold down? </li></ul><ul><ul><li>Do you even need a broker? </li></ul></ul><ul><ul><li>Trade online </li></ul></ul><ul><ul><li>Watch asset level- big balances help a lot </li></ul></ul><ul><ul><li>Consolidate household accounts </li></ul></ul><ul><ul><li>Opt for e-mail confirms </li></ul></ul>
  12. 12. Sources of Information <ul><li>Annual reports to shareholders </li></ul><ul><li>(Full service) broker reports </li></ul><ul><li>Rating agencies </li></ul><ul><li>Press – WSJ, Barons, Fortune Value Line </li></ul><ul><li>SEC's online EDGAR </li></ul><ul><li>Watch out for &quot;free advice&quot; </li></ul>
  13. 13. Registration <ul><li>Book entry – completely electronic </li></ul><ul><ul><li>No paper certificates </li></ul></ul><ul><ul><li>More convenient, less costly </li></ul></ul><ul><li>Joint tenancy with Right of Survivorship </li></ul><ul><ul><li>Surviving owner receives full ownership </li></ul></ul><ul><li>Tenancy-in-Common - goes to heirs </li></ul>
  14. 14. Key Topics <ul><li>IPO </li></ul><ul><li>Investment banker </li></ul><ul><li>Exchanges vs OTC </li></ul><ul><li>International Market </li></ul><ul><li>Intent of regulation </li></ul><ul><li>Market orders only </li></ul><ul><li>Sources of info </li></ul>