Ch 3

1. Ch 3 Part 2

2. OTHER EXCHANGES

3. Regional exchanges • stocks may be listed on both NYSE and regional exchange • 5 regional exchanges • cheaper seat prices

4. REGIONAL EXCHANGES: • REGIONAL EXCHANGES: • Boston • Cincinnati • Chicago • Pacific • Philadelphia

5. REGIONAL EXCHANGES: For Options • Chicago Board Options Exchange • one of the largest • For Futures • The Chicago Mercantile Exchange • offers interest rate, commodities, and index futures contracts

6. AMEX NYSE Amex Equities, formerly known as the American Stock Exchange (AMEX). • AMEX was a mutual organization owned by its members. • Until 1953, it was known as the New York Curb Exchange. • On January 17, 2008, NYSE Euronext announced it would acquire the American Stock Exchange for $260 million in stock. • On October 1, 2008, NYSE Euronext completed acquisition of the American Stock Exchange. • Before the closing of the acquisition, NYSE Euronext announced that the Exchange would be integrated with the Alternext European small-cap exchange and renamed the NYSE Alternext U.S. • In March 2009, NYSE Alternext U.S. was changed to NYSE Amex Equities.

7. OTC markets • NASDAQ is an OTC market: It was created by the National Association of Securities Dealers (NASD) • It is an American stock Exchange • "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". •  It is the 2nd largest stock exchange by market capitalization in the world, after NYSE •  As of January 13, 2011, there are 2,872 listings •  The NASDAQ has more trading volume than any other electronic stock exchange in the world. • ECNs (Electronic communication networks) • electronic network of dealers all over the world • more than one dealer per stock

8. Nasdaq • Not the only OTC system, but the largest • over 4000 companies listed • mkt. value $2 trillion (2/28/03) • leader in daily share volume • over 500 dealers • listing requirements

10. TOKYO STOCK EXCHANGE • Has introduced major reforms: • introduced CORES (Computer-Assisted Order Routing and Execution System) • introduced FORES (Floor Order Routing and Execution System) • Saitori System of Trading • follows IYATOSE Method at market open similar to a call market • Zaraba used where orders are processed continuously

11. TORONTO STOCK EXCHANGE • Uses CATS (Computer-Assisted Trading System) • Similar to IYATOSE trading in Tokyo

12. REGULATION OF SECURITIES MARKETS • THE FOUR PILLARS OF SECURITY REGULATION: • The Securities Act of 1933 • The Securities Exchange Act of 1934 • The Investment Company Act of 1940 • The Investment Advisors Act of 1940

13. Member • They perform various activities at the exchange • The president, Chairperson and director may be out of the members • They are allowed to execute trade by using the facilities provided by the exchange

14. Institutional trading • vs. retail trades • institutional trades are larger • special execution • over 50% of NYSE share volume

15. block trades • An order/trade submitted for sale or purchase of a large quantity of securities. Also known as "Block Order". • large # shares in one stock • executed in “upstairs” market • other firms directly take other side of trade • remainder executed on trading floor or Nasdaq (downstairs)

16. Upstairs Market • “The trading of securities, such as stocks, that occurs within a broker-dealer firm instead of at an exchange”. Or • Between two broker-dealers in the over-the-counter (OTC) market.  • In an upstairs market transaction, the broker-dealer typically represents both parties (buyer and seller).

17. Program trades • large # shares, different stocks • Usually consisting of baskets of fifteen stocks or more • Computerized trading used by institutional investors • Used by mutual funds for asset allocation • want • low commissions • prevent frontrunning

18. what is frontrunning? “It is the illegal practice of a broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers”. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage.

19. example • broker buys ahead of large buy order • broker buys first • large buy order pushes up price • broker’s holdings increase in value • result • frontrunning starts to push up price, so firm does not get best price

20. LONDON STOCK EXCHANGE • The Exchange was founded in 1801 • As of December 2010, the Exchange had a market capitalization of US$3.6 trillion, making it the 4th largest Stock Exchange in the world by this measurement (and the largest in Europe) • ending fixed commissions • introduced SEAQ (Stock Exchange Automated Quotations) • attracted trading in non-UK stock

21. Global platform for global institutional investors 144A Local market USA Middle East Asia Eastern Europe Europe UK Regional funds and retail investors US Institutional Investors Global institutional investor base

22. London Stock Exchange London Stock Exchange - key statistics • Total companies • Domestic: 2,550 • International: 675 • Market capitalisation • Main Market: • UK listed: US$3,570bn • International listed: US$4,398bn • AIM: US$181bn • Turnover value (Jan-Dec 2007) • Main Market: US$8,054bn • AIM: US$150bn Source: London Stock Exchange statistics – December 2007

23. More international equity assets under management Equity assets under management by centre. In US$ billions London has a far bigger international presence and weight. 45% of equity assets under management are invested in international markets. New York is a larger but mainly domestic market. Source: IPREO 2007

24. The platform of choice for international companies Q1, 2008 In 2006: London Stock Exchange - 367 new companies joined in 2006. NYSE, Nasdaq & Hong Kong Stock Exchange had 332 IPOs in 2006. $104bn raised on the London Stock Exchange, $40bn on NYSE, and $29bn on Nasdaq In 2007: London Stock Exchange - 252 new companies joined the London Stock Exchange, 142 new companies on Nasdaq, 67 on NYSE $88bn raised on the London Stock Exchange. Source: London Stock Exchange and WFE – December 2007

25. Comparing UK and US as listing locations Profile • London and New York exchanges offer optimal profile • London has world’s highest reputation for regulation and governance • Principles-based (UK) versus rule-based (US) approach • London has the most liquid equity market in Europe • London has the world’s most successful growth market (AIM) • London Stock Exchange offers world’s only location for liquid and transparent trading of GDRs • London combines simple, flexible disclosure with high reputation of regulators • US disclosure regime more prescriptive, exacerbated by need to protect against opportunistic securities litigation • London offers rapid turnaround by regulators, and limits the time regulators can take to approve offer documents • US: SEC review periods longer, with no certainty on turnaround time • AIM offers potentially shorter transaction timetable Trading Disclosure Timing Cost-benefit analysis favours London

26. Comparison of international listing locations Optimal Least suitable Strategic financings from global companies will converge on London or New York

27. An intelligent approach to regulation Balance Competing Needs Companies Investors Minimise bureaucracy and cost Maximise protection UK Principles based - “comply or explain” Ranked first in corporate governance standards by GMI, Deminor and Davis Global Advisors US Rules based - prescriptive and expensive Increased cost of compliance and risk premium (Financial Executive & Korn Ferry Surveys)

28. Most advanced regulation and governance Corporate governance: overall rating by country Source: Governance Metrics International, 2007 Principles-based regulation: high standard, pragmatic application No equivalent to Sarbanes-Oxley section 404 An intelligent approach.

29. The world’s capital market • London Listing • Access to global capital • Lower cost • Lower risk • Faster to market • Intelligent regulation • New York Listing • Higher cost • Slower to market • Higher risk • Sarbanes Oxley • Section 404 • Class actions

30. Understanding Stock Market Investment

31. Households earn income. • Income is payments received by a household by selling or renting productive resources. • Households usually spend some of their income and save some of it. • Saving is income not spent on consumption or taxes. • Some households use their savings to purchase stocks. • Internationally stock trading is done by household but in Pakistan?

32. The Stock Market and Stock Exchanges • Stock market—a network of exchanges and brokers • Exchange—a physical marketplace (NYSE, AMEX, regional exchanges) • Broker—individual whose job is to assist people in buying and selling securities • Work for brokerage firms • Members of stock exchange

33. Trading—The Role of Brokers • What brokers do… • An investor will open an account with a broker and place trades via telephone or online • Local broker will forward order to floor broker on trading floor of exchange • Floor broker trades on the floor of the exchange • Each stock is traded in a particular spot on the exchange floor using an auction-like process • Trading is supervised by a specialist • Specialists make markets in designated securities • Confirmation of trade is forwarded to local broker and investor

34. Schematic Representation of a Stock Market Transaction

35. Information about “The Stock” Market Most newspaper and Online stock tables provide the following information: • Price (of a share) • Volume (number of shares sold) • Dividend (profits paid to stockholders) • Price-earnings ratio

36. Online Stock Trading Model Market- maker Online Broker Stock Exchange Customer (trader) customer’s account Clearing- house

37. Online Trading in Pakistan • Not really online as it is partial online Following steps are involved on Broker end: • Maintain Direct connection with iKATS (Internet Karachi Automated Transaction System) • Backbone software of Karachi Stock Exchange controlled by SECP (Securities & Exchange Commission of Pakistan) • Maintain link account with Central Depository Company, controlled by SECP (Securities & Exchange Commission of Pakistan) to control online transfer of shares

38. Transparent account Maintenance of clients • Maintain manual cash handling system • Secure interface to the clients • Efficient Support System Steps required on Client End: • As cash involvement is handled off line, so bank account is normally used • Send money from bank account with account opening form to the chosen broker

39. Broker on receiving money will verify the details and open account with him • Get to know the online interface. Normally three types of interfaces working in Pakistan • Online Website • Software which connects to the web server on it’s own • Through Short Messaging Service over Mobile Phone

40. Online Stock Trading Model iKATS Online Broker Stock Exchange Customer (trader) customer’s account CDC

41. Online Demonstration of one of the major online brokers (AKD Securities – Akeel Karim Deddy Securities ) www.akdtrade.com

42. After opening an account, you need to login through this interface Note the secure server presence

43. After logging-in, it will display the following home window showing different options to go for

44. The first & Basic thing is Research. All brokerage houses do conduct their own research and place them online for their users. • Like in AKD Securities, they make two reports, one showing the last week’s trends in general and predicting the trend for next week and other daily report, which takes one sector and explores it. Sample is something like this

46. Other major important resources for the research are • Contacts • Hard to Believe but players don’t tell everything ONLINE • Market Watch • Different TV Channels like Business Plus & Indus Plus (Few Programs are really Excellent), Geo (TeziMandi) • Different Newspapers & Magazines like Business Recorder, Dawn, Pakistan & Gulf Economics • Different Websites, Business Recorder, KSE Official Website • KSE Official Website has lots of material

48. Where as Business Recorder has lots of Organized Information

49. How to Trade? • Best option is to read NOTICES everyday before start trading because they may have something which effects you today

50. Trading Section • You need to place order