1、2023-1-23ofSecuritiesMarkets中文4证券市场组织与运作图ofSecuritiesMarkets中中文文4证券市场组织与运作证券市场组织与运作图图ofSecuritiesMarkets中文4证券市场组织与运作图Chapter 4 Organization and Functioning of Securities MarketsQuestions to be answered:What is the purpose and function of a market?What are the characteristics that determine the quali
2、ty of a market?What is the difference between a primary and secondary capital market and how do these markets support each other?ofSecuritiesMarkets中文4证券市场组织与运作图Chapter 4 Organization and Functioning of Securities Markets What are the national exchanges and how are the major security markets becomin
3、g linked(what is meant by“passing the book”)?What are the regional stock exchanges and the over-the-counter(OTC)market?What are the alternative market-making arrangements available on the exchanges and the OCT market?ofSecuritiesMarkets中文4证券市场组织与运作图Chapter 4 Organization and Functioning of Securitie
4、s Markets What are the major types of orders available to investors and market makers?What are the major functions of a specialist on the NYSE and how does the specialist differ from the central market maker on other exchanges?What are the major factors that have caused the significant changes in ma
5、rkets around the world in the past 10 to 15 years?ofSecuritiesMarkets中文4证券市场组织与运作图Chapter 4 Organization and Functioning of Securities Markets What are some of the major changes in world capital markets expected over the next decade?ofSecuritiesMarkets中文4证券市场组织与运作图What is a market?Brings buyers and
6、sellers together to aid in the transfer of goods and services Does not require a physical location Both buyers and sellers benefit from the marketofSecuritiesMarkets中文4证券市场组织与运作图Characteristics of a Good Market Availability of past transaction information must be timely and accurate Liquidity market
7、ability price continuity depth Low Transaction costs Rapid adjustment of prices to new informationofSecuritiesMarkets中文4证券市场组织与运作图Organization of the Securities Market Primary markets Market where new securities are sold and funds go to issuing unit Secondary markets Market where outstanding securit
8、ies are bought and sold by investors.The issuing unit does not receive any funds in a secondary market transactionofSecuritiesMarkets中文4证券市场组织与运作图Government Bond Issues 1.Treasury Bills negotiable,non-interest bearing securities with original maturities of one year or less 2.Treasury Notes original
9、maturities of 2 to 10 years 3.Treasury Bonds original maturities of more than 10 yearsofSecuritiesMarkets中文4证券市场组织与运作图Municipal Bond Issues Sold by three methods Competitive bid Negotiation Private placement Underwriters sell the bonds to investors Origination Risk-bearing DistributionofSecuritiesMa
10、rkets中文4证券市场组织与运作图The Underwriting Function The investment banker purchases the entire issue from the issuer and resells the security to the investing public.The firm charges a commission for providing this service.For municipal bonds,the underwriting function is performed by both investment banking
11、 firms and commercial banks ofSecuritiesMarkets中文4证券市场组织与运作图Corporate Bond and Stock IssuesNew issues are divided into two groupsSeasoned new issues-new shares offered by firms that already have stock outstandingInitial public offerings(IPOs)-a firm selling its common stock to the public for the fir
12、st timeofSecuritiesMarkets中文4证券市场组织与运作图Underwriting Relationships with Investment Bankers1.Negotiated Most common Full services of underwriter2.Competitive bids Corporation specifies securities offered Lower costs Reduced services of underwriter3.Best-efforts Investment banker acts as brokerofSecuri
13、tiesMarkets中文4证券市场组织与运作图Introduction of Rule 415 Allows firms to register securities and sell them piecemeal over the next two years Referred to as shelf registrations Great flexibility Reduces registration fees and expenses Allows requesting competitive bids from several investment banking firms Mo
14、stly used for bond salesofSecuritiesMarkets中文4证券市场组织与运作图Private Placements and Rule 144A Firms sells to a small group of institutional investors without extensive registration Lower issuing costs than public offeringofSecuritiesMarkets中文4证券市场组织与运作图Why Secondary Financial Markets Are Important Provid
15、es liquidity to investors who acquire securities in the primary market Results in lower required returns than if issuers had to compensate for lower liquidity Helps determine market pricing for new issuesofSecuritiesMarkets中文4证券市场组织与运作图Secondary Bond Market Secondary market for U.S.government and mu
16、nicipal bonds U.S.government bonds traded by bond dealers Banks and investment firms make up municipal market makers Secondary corporate bond market Traded through an OTC marketofSecuritiesMarkets中文4证券市场组织与运作图Financial FuturesBond futures are traded in Chicago Board of Trade(CBOT)Chicago Mercantile
17、Exchange(CME)ofSecuritiesMarkets中文4证券市场组织与运作图Secondary Equity Markets1.Major national stock exchanges New York,American,Tokyo,and London stock exchanges2.Regional stock exchanges Chicago,San Francisco,Boston,Osaka,Nagoya,Dublin,Cincinnati3.Over-the-counter(OTC)market Stocks not listed on organized e
18、xchangeofSecuritiesMarkets中文4证券市场组织与运作图Trading Systems Pure auction market Buyers and sellers are matched by a broker at a central location Price-driven market Dealer market Dealers provide liquidity by buying and selling shares Dealers may compete against other dealersofSecuritiesMarkets中文4证券市场组织与运
19、作图Call Versus Continuous Markets Call markets trade individual stocks at specified times to gather all orders and determine a single price to satisfy the most orders Used for opening prices on NYSE if orders build up overnight or after trading is suspended In a continuous market,trades occur at any
20、time the market is openofSecuritiesMarkets中文4证券市场组织与运作图National Stock Exchanges Large number of listed securities Prestige of firms listed Wide geographic dispersion of listed firms Diverse clientele of buyers and sellersofSecuritiesMarkets中文4证券市场组织与运作图New York Stock Exchange(NYSE)Largest organized
21、securities market in United States Established in 1817,but dates back to the 1792 Buttonwood Agreement by 24 brokers Over 3,000 companies with securities listed Total market value over$13 trillionofSecuritiesMarkets中文4证券市场组织与运作图American Stock Exchange(AMEX)Started by a group who traded unlisted stoc
22、ks at the corner of Wall and Hanover Streets in New York as the Outdoor Curb Market Emphasis on foreign securities Doesnt trade stocks listed on NYSE Merged with the NASDAQ IN 1998 although they continued to operate as separate markets Warrants traded on AMEX years before NYSE listed anyofSecurities
23、Markets中文4证券市场组织与运作图Tokyo Stock Exchange(TSE)Largest of the eight exchanges in Japan Dominates the Japanese market Established in 1878 and reorganized in 1943,1947,and 1949 Price-drive system Domestic and foreign stocks listed Approximately 1700 stocks listed with a total market value of$2.4 trillio
24、n Most active 150 stocks are traded on floor,others by computerofSecuritiesMarkets中文4证券市场组织与运作图London Stock Exchange(LSE)Largest securities market in the United Kingdom Trades listed and unlisted securities More than 2,600 companies listed Largest listing of foreign stocks on any exchange Total mark
25、et value of more than$561billion Pricing system by competing dealers via computers similar to NASDAQ system in U.S.ofSecuritiesMarkets中文4证券市场组织与运作图Trends New exchanges in emerging economies such as Russia,Poland,China,Hungary,Peru,Sri Lanka Consolidation of existing exchanges in developed countries
26、Global twenty-four-hour market made possible by advances in technologyofSecuritiesMarkets中文4证券市场组织与运作图Recent Consolidations In 1995,Germanys three largest exchanges merged into the one in Frankfurt NASD merged with AMEX Philadelphia Stock Exchange merged with NASD/AMEX CBOE merged with Pacific Excha
27、nge The Amsterdam,Brussels and Paris exchanges formed an alliance The Stockholm,Copenhagen,and Oslo exchanges formed an alliance called the Nordic Country AllianceofSecuritiesMarkets中文4证券市场组织与运作图The Global Twenty-four Hour Market Investment firms“pass the book”around the world to maintain nearly con
28、tinuous trading by utilizing markets at Tokyo,London,and New York THE TRADING DAY Local TimeESTTSE09:00-11:00 23:00-01:0013:00-15:0003:00-05:00LSE08:15-16:1502:15-10:15NYSE 09:30-16:0009:30-16:00ofSecuritiesMarkets中文4证券市场组织与运作图Regional Exchanges Stocks not listed on a formal exchange Listing require
29、ments vary Listed stocks Allow brokers that are not members of a national exchange access to securities Regional Exchanges in United States Chicago,Boston,Cincinnati,Pacific,PhiladelphiaofSecuritiesMarkets中文4证券市场组织与运作图Over-the-Counter(OTC)Market Not a formal organization Largest segment of the U.S.s
30、econdary market Unlisted stocks and listed stocks(third market)Lenient requirements for listing on OTC 5,000 issues actively traded on NASDAQ NMS(National Association of Securities Dealers Automated Quotations National Market System)1,000 issues on NASDAQ apart from NMS 1,000 issues not on NASDAQofS
31、ecuritiesMarkets中文4证券市场组织与运作图Operation of the OTC Any stock may be traded as long as it has a willing market maker to act a dealer OTC is a negotiated marketofSecuritiesMarkets中文4证券市场组织与运作图The NASDAQ System Automated electronic quotation system Dealers may elect to make markets in stocks All dealer
32、quotes are available immediately Three levels of quotations provided Level 1 provides a single median representative quote for the stocks on NASDAQ Level 2 shows quotes by all market makers Level 3 is for OTC market makers to change their quotes shownofSecuritiesMarkets中文4证券市场组织与运作图Listing Requireme
33、nts for NASDAQ Two lists National Market System(NMS)Regular NASDAQ Four sets of requirements Initial listing-least stringent Automatic NMS inclusion-up to the minute Alternative 1 for profitable companies with limited assets Alternative 2 for large but less profitableofSecuritiesMarkets中文4证券市场组织与运作图
34、Third Market OTC trading of shares listed on an exchange Mostly well known stocks GM,IBM,AT&T,Xerox Competes with trades on exchange May be open when exchange is closed or trading suspendedofSecuritiesMarkets中文4证券市场组织与运作图Fourth Market Direct trading of securities between two parties with no broker i
35、ntermediary Usually both parties are institutions Can save transaction costs No data are available regarding its specific size and growthofSecuritiesMarkets中文4证券市场组织与运作图Detailed Analysis ofExchange Markets Exchange Membership Major Types of Orders Exchange Market MakersofSecuritiesMarkets中文4证券市场组织与运
36、作图Exchange Membership Specialist Commission brokers Employees of a member firm who buy or sell for the customers of the firm Floor brokers Independent members of an exchange who act as broker for other members Registered traders Use their membership to buy and sell for their own accountsofSecurities
37、Markets中文4证券市场组织与运作图Major Types of Orders Market orders Buy or sell at the best current price Provides immediate liquidity Limit orders Order specifies the buy or sell price Time specifications for order may vary Instantaneous-“fill or kill”,part of a day,a full day,several days,a week,a month,or go
38、od until canceled(GTC)ofSecuritiesMarkets中文4证券市场组织与运作图Major Types of Orders Short sales Sell overpriced stock that you dont own and purchase it back later(at a lower price)Borrow the stock from another investor(through your broker)Can only be made on an uptick trade Must pay any dividends to lender
39、Margin requirements applyofSecuritiesMarkets中文4证券市场组织与运作图Major Types of Orders Special Orders Stop loss Conditional order to sell stock if it drops to a given price Does not guarantee price you will get upon sale Market disruptions can cancel such orders Stop buy order Investor who sold short may wa
40、nt to limit loss if stock increases in priceofSecuritiesMarkets中文4证券市场组织与运作图Margin Transactions On any type order,instead of paying 100%cash,borrow a portion of the transaction,using the stock as collateral Interest rate on margin credit may be below prime rate Regulations limit proportion borrowed
41、Margin requirements are from 50%up Changes in price affect investors equityofSecuritiesMarkets中文4证券市场组织与运作图Margin TransactionsBuy 200 shares at$50=$10,000 positionBorrow 50%,investment of$5,000If price increases to$60,position Value is$12,000 Less -$5,000 borrowed Leaves$7,000 equity for a$7,000/$12
42、,000=58%equity position ofSecuritiesMarkets中文4证券市场组织与运作图Margin TransactionsBuy 200 shares at$50=$10,000 positionBorrow 50%,investment of$5,000If price decreases to$40,position Value is$8,000 Less -$5,000 borrowed Leaves$3,000 equity for a$3,000/$8,000=37.5%equity positionofSecuritiesMarkets中文4证券市场组织
43、与运作图Margin Transactions Initial margin requirement at least 50%.Set up by the Fed.Maintenance margin Requirement proportion of equity to stock Protects broker if stock price declines Minimum requirement is 25%Margin call on undermargined account to meet margin requirement If margin call not met,stoc
44、k will be sold to pay off the loanofSecuritiesMarkets中文4证券市场组织与运作图Exchange Market MakersU.S.Markets Specialist is exchange member assigned to handle particular stocks Has two roles:Broker to match buyers and sellers Dealer to maintain fair and orderly market Specialist has two income sources Broker
45、commission,without risk Dealer trading income from profit,with riskofSecuritiesMarkets中文4证券市场组织与运作图Exchange Market MakersTokyo Stock Exchange(TSE)Regular members Several employees allowed on trading floor Trading clerks for customers accounts Buy and sell for own accounts Saitori member Hundreds of
46、employees on trading floor Intermediary clerks Brokers among members Maintain limit ordersofSecuritiesMarkets中文4证券市场组织与运作图TSE Membership Membership requires corporate license Four types of license are available and may be combined 1.Trade securities as a dealer 2.Trade as a broker 3.Underwrite new s
47、ecurities on secondary offerings 4.Handle retail distribution of securities Capital requirements vary by licenseofSecuritiesMarkets中文4证券市场组织与运作图London Stock Exchange Brokers trade on behalf of their customers Jobbers buy and sell as principals Membership based on experience and competence Membership
48、 fee 1%of gross revenuesofSecuritiesMarkets中文4证券市场组织与运作图Changes in the Securities Markets Since 1965,the growth of trading by large financial institutions has had many effects Negotiated(competitive)commission rates Influence on block trades Impact on stock price volatility Development of National M
49、arket System(NMS)ofSecuritiesMarkets中文4证券市场组织与运作图Negotiated Commission Rates NYSE minimum commission schedule prohibited price cutting since 1792 No price break for large orders Initial reaction was“give-ups”paid to a designated firm-soft dollars paid for market research Third market competed with f
50、lexible commissions and grew Fostered development of the fourth marketofSecuritiesMarkets中文4证券市场组织与运作图Negotiated Commission Rates In 1970 SEC began phasing in negotiated commissions Commission rates have fallen Discount brokerage firms compete openly Many brokerage and research firms have merged or
