chapter 17 – markets for common stock ba 543 financial markets and institutions
TRANSCRIPT
Chapter 17 – Markets for Common Stock
BA 543 Financial Markets and Institutions
Chapter 17 – Common Markets
Where Stocks Trade First Market – Trading on an Exchange
Physical Floor and Membership Examples: NYSE and AMEX
Second Market – Trading of non-listed Stocks Via Dealer Markets
Third Market – Trading of listed stocks through OTC (over-the-counter)
Fourth Market – Direct Trading between buyers and sellers (Institutions)
Chapter 17 – Common Markets
NYSE (New York Stock Exchange) Founded in 1792 Membership (Trade between Members Only) 1,366 Seats
Buy and Sell like any asset $2 million last transaction, record $2.65 million
3,000 plus listed stocks Listing Requirements Specialist System for Trading 17 Posts
Chapter 17 – Common Markets
Trading Agents at the NYSE Commission Brokers (largest group)
Execute customer orders 500 Members
Floor Brokers $2 Brokers – handle overflow of commission
brokers Floor Traders
Independent traders for their own accounts Specialists – One assigned to each stock
Chapter 17 – Common Markets
OTC – NASD or NASDAQ Telecommunications Network
Links Market-Makers across the Nation 4,700 different common shares
Tiers NNM – NASDAQ National Market
Largest capitalized stocks 3,800 stocks
Small Capitalization Market, 900 shares OTHER OTCs –
Bulletin Board – 5,500 securities Pink Sheets
Chapter 17 – Common Markets
Mapping of a trade NYSE
Market Order Limit Order
NASDAQ Three screens Order Execution Dealer Requirements
Which System is Better? Specialist Charge to Maintain Orderly Market
Chapter 17 – Common Markets
Trading at the NYSE Market Order
Immediate execution at the best available price Routed to Specialist (Post) Auction Process
Limit Order Execution only at requested or better price Awaits execution at the Post in the Limit Order
Book Priority of Limit Order Book
Chapter 17 – Common Markets
Third Market Listed on both an Exchange and OTC market Originally Dealers separate from NYSE
Allowed negotiation of commissions prior to 1975 Specifically for Institutional Trading
Repeal of Rule 390 Members of NYSE must trade with other
members of NYSE CQS (Consolidate Quotation System)
Via NASD
Chapter 17 – Common Markets
The Fourth Market – ECNs and Crossing Networks Electronic Trading Networks
Broker-dealer owned system Anonymous way to enter trade requests Postings for buying and selling (like e-Bay) Subscription prices for trading
Crossing Networks Batching networks (call market system) Anonymous trading
Chapter 17 – Common Markets
Trades Buying on Margin
Broker Firm loans part of the cost to buy Short Selling
Selling first, buying later Block Trades
10,000 shares or $200,000 (upstairs) Program Trades
Simultaneous trading of different stocks
Chapter 17 – Common Markets
Stock Market Indices Price-Weighted Value Weighted Equally Weighted