Understanding Primary and Secondary Markets, NYSE, NASDAQ, and Regulation in Securities, Slides of Fundamentals of E-Commerce

Download Understanding Primary and Secondary Markets, NYSE, NASDAQ, and Regulation in Securities and more Slides Fundamentals of E-Commerce in PDF only on Docsity! Chapter 12 Securities Markets Docsity.com Security Markets • The primary markets • Secondary markets -- stocks • Secondary markets -- bonds Docsity.com Secondary Markets: The Organized Exchanges • Are used to facilitate trading between investors • New York Stock Exchange (NYSE) • American Stock Exchange (AMEX) • Regional stock exchanges Docsity.com Regional Stock Exchanges • Pacific Stock Exchange • Chicago Stock Exchange • Philadelphia Stock Exchange • Cincinnati Stock Exchange • Intermountain Stock Exchange • Spokane Stock Exchange • Boston Stock Exchange Docsity.com Make-up of the New York Stock Exchange • Over 200 years old • Limited to 1,366 seats since 1953; highest price of a seat was $2.6 million. • Over 3,000 listed companies • $12.3 trillion (that’s 12 zeros) worth of shares • 80% of typical trading volume Docsity.com Secondary Markets: Over-the- Counter (OTC) Market • Consists of an electronic network of dealers used to execute trades Docsity.com Secondary Markets: Over-the- Counter (OTC) Market • Trades executed by: – “Pink sheets” – National Association of Securities Dealer Automated Quotations System (NASDAQ) – National Market System (NASDAQ/NMS) • Handles 35,000 smaller, less frequently traded securities with no listing requirements Docsity.com Secondary Markets -- Bonds • No organized secondary bond market, as little demand among individual investors. • Individual investors must work through a broker, who buys or sells with a bond dealer. • Government bond trading is dominated by investment houses, commercial banks, and the Federal Reserve. Docsity.com Regulation of the Securities Markets (cont’d) • Investment Advisors Act of 1940 – regulates advisor activity. • Investor Protection Act of 1970 -- (SIPC) provides investor insurance similar to FDIC bank deposit insurance. Docsity.com Self-Regulation • “Circuit breakers” -- triggers that momentarily stop trading to prevent disastrous market slides. • Insider trading and market abuses – insider trading -- use of non-public information for personal gain in the market – churning -- excessive trading without benefit to the client used to increase commissions. Docsity.com How Securities are Traded • Specialists • Buy and sell orders • Brokers • Brokerage services • Cash and margin accounts Docsity.com Order Sizes • Round lots -- orders of 100 shares • Odd lots -- orders of 1 to 99 shares • Discretionary account: Broker authorized to make trades for you. Exercise caution, or avoid. Docsity.com Time Period the Order Will Remain Outstanding • Day orders -- good until the end of the trading day. • Open orders (GTC) -- good until filled or canceled. • Fill or kill orders -- must be filled or canceled immediately. Docsity.com Order Types • Market orders -- an order to sell or buy a specific number of shares at the best available price. • Limit orders -- an order to sell or buy a specific number of shares at a certain price or better. Docsity.com Short Selling -- Sell High and Buy Low (cont’d) • Must meet margin requirement. • Because you sold the broker’s stock, you must repurchase the stock and you also must repay any dividends to the original owner. Docsity.com Dealing with Brokers • Brokerage accounts • Types of brokers; choosing one • Cash versus margin accounts • Registration: street name or your name • Joint accounts • Brokers and individual investors • The cost of trading • On-line trading Docsity.com Asset Management Account • Brokerage firm comprehensive financial services package: • Checking account • Credit card and loans • Money market mutual fund • Brokerage services Docsity.com Account Types (cont’d) • Automated Clearing House (ACH) Network -- electronic payment system among 14,000 financial institutions that can be linked to your brokerage firm. Cheap, convenient, fast payment. Docsity.com Accounts Types (cont’d) • Street name registration -- shares of stock remain in the broker’s custody. May be charged “maintenance fee” for dormant accounts. • Joint accounts -- shares owned with a spouse or partner – Joint tenancy with the right of survivorship – Tenancy-in-common Docsity.com Working With a Broker • Remember Axiom 12: The Agency Problem in Personal Finance. • Do your homework and take responsibility. • Keep transaction costs to a minimum. • Use a discount broker or consider mutual funds. • For bonds, go full service or buy direct. Docsity.com On-line Trading • Cheap, easy trading, but do your investment homework. • For fast moving stocks, use limit orders not market orders. Docsity.com On-line Trading (cont’d) • Make sure all cancellations were processed. • If your account falls below the maintenance margin requirement, your securities can be sold without a margin call. • No regulations govern the time for executing a trade. Docsity.com Day-trading Cautions • Be prepared for financial losses. • Don’t confuse day trading with investing – it’s speculating. • Don’t believe claims of easy profits. • Watch out for “hot tips” and “expert advice” for day traders. Docsity.com Summary (cont’d) • Securities market regulation • Order size, duration, and type – Round lots and odd lots – Day, GTC, or fill-or-kill orders – Market, limit, and stop orders • Cash or margin accounts Docsity.com Summary (cont’d) • Types of brokerage firms, services, and fees • Work with a broker or trade on-line? • Day trading cautions • Sources of investment information Docsity.com