1 / 18

Chapter 18

Chapter 18. COMMON STOCK MARKETS IN THE UNITED STATES. Characteristics of Common Stock. Equity securities represent an ownership interest in a corporation. Common stockholders are the residual owners. Right to income Right to assets

muriel
Download Presentation

Chapter 18

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 18 COMMON STOCK MARKETS IN THE UNITED STATES

  2. Characteristics of Common Stock • Equity securities represent an ownership interest in a corporation. • Common stockholders are the residual owners. • Right to income • Right to assets • Preferred Stockholders have preference over common stockholders. • Right to fixed dividend

  3. Trading Locations • Stock Exchanges • trading floors • auction system • central auction specialist system • Over-The-Counter Market • no trading floor • negotiated system • multiple market maker system • Independent Electronic Trading Systems

  4. Major National Stock Exchanges NYSE or Big Board AMEX or ASE or Curb Regional Stock Exchanges Boston, Chicago, Cincinnati, San Francisco, Philadelphia OTC Market NASDAQ NASD Stock Exchanges

  5. Securities Act of 1934 • Categories of traded stocks: • exchange listed (national and regional exchanges) • NASDAQ listed OTC stocks • Non-NASDAQ OTC stocks

  6. Types of Markets • First Market • trading on exchanges of stocks listed on an exchange • Second Market • trading in OTC market of stocks not listed on an exchange • Third Market • trading in OTC market of stocks listed on an exchange • Fourth Market • private transactions between institutional investors

  7. Exchanges • Formal organizations approved and regulated by the SEC • Members • can only trade listed stocks • must buy a seat on the exchange • Listing requirements • minimum capitalization, shareholder equity, average closing share price, etc.

  8. Centralized continuous auction market Exchange participants: single specialist commission brokers independent floor brokers registered traders SuperDot Major roles of NYSE-specialist Dealer Agent Catalyst Auctioneer Commissions NYSE

  9. Trading unlisted stocks Listing requirements NASDAQ stock market NASDAQ market tiers NASDAQ National Market Small Capitalization Market NASDAQ market makers Other OTC markets OTC Bulletin Board Pink Sheets OTC Market

  10. Third Market • Listed stocks traded in OTC market • NYSE Rule 390 • Commission • Network of broker-dealers

  11. Fourth Market • Direct trading of stocks between two customers • Commissions • Alternative trading systems (ATS) • electronic communications networks • crossing networks

  12. Other Types of Common Stock Trading • Offshore Trading • Rule 144A Securities • American Depository Receipts (ADR)

  13. Role and Regulation of Dealers in Exchange and OTC Market • Regulatory Issues • fragmented market • NASDAQ Pricing Controversy • SEC Cost Study • Decimalization • Regulation FD • SuperMontage

  14. Types of Orders market order limit order Short Selling Margin Transactions initial margin maintenance margin Transactions Costs explicit costs implicit costs Trading Mechanisms

  15. Trading Arrangements for Institutional Investors • Block TradingTrades of 10,000 shares or more of a given stock or trades with a market value of $200,000 or more. • Program TradingSimultaneous purchase or sale of shares in a large number of different stocks, which is computer-assisted.

  16. Price Limits and Collars • Stock Market Crash of 1987 • Trading or Price Limits • Rule 80B or Circuit Breakers • Rule 80A or Trading Collar

  17. Stock Market Indicators • Dow Jones Industrial Average • S&P 500 • NYSE Composite • AMEX • NASDAQ Composite • Value Line Composite Average

  18. Pricing Efficiency of the Stock Market • Forms of Efficiency • Weak form • Semistrong form • Strong form • Implications for Investing in Common Stock • Active strategies • Passive strategies

More Related