ofSecuritiesMarkets中文4证券市场组织与运作(1)ppt课件

1、Lecture Presentation Software to accompanyInvestment Analysis and Portfolio ManagementSeventh Editionby Frank K. Reilly & Keith C. BrownChapter 4.Chapter 4 Organization and Functioning of Securities MarketsQuestions to be answered:What is the purpose and function of a market?What are the characteris

2、tics that determine the quality of a market?What is the difference between a primary and secondary capital market and how do these markets support each other?.Chapter 4 Organization and Functioning of Securities MarketsWhat are the national exchanges and how are the major security markets becoming l

3、inked (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?.Chapter 4 Organization and Functioning of Securities MarketsWhat are the major typ

4、es 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 markets around the world in the pa

5、st 10 to 15 years?.Chapter 4 Organization and Functioning of Securities MarketsWhat are some of the major changes in world capital markets expected over the next decade?.What is a market?Brings buyers and sellers together to aid in the transfer of goods and servicesDoes not require a physical locati

6、onBoth buyers and sellers benefit from the market.Characteristics of a Good MarketAvailability of past transaction informationmust be timely and accurateLiquiditymarketabilityprice continuitydepthLow Transaction costsRapid adjustment of prices to new information.Organization of the Securities Market

7、Primary marketsMarket where new securities are sold and funds go to issuing unit Secondary marketsMarket where outstanding securities are bought and sold by investors. The issuing unit does not receive any funds in a secondary market transaction.Government Bond Issues1. Treasury Bills negotiable, no

8、n-interest bearing securities with original maturities of one year or less2. Treasury Notes original maturities of 2 to 10 years3. Treasury Bonds original maturities of more than 10 years.Municipal Bond IssuesSold by three methodsCompetitive bidNegotiationPrivate placementUnderwriters sell the bonds

9、 to investorsOriginationRisk-bearingDistribution.The Underwriting FunctionThe 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 perfo

10、rmed by both investment banking firms and commercial banks .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 th

11、e first time.Underwriting Relationships with Investment Bankers1. NegotiatedMost commonFull services of underwriter2. Competitive bidsCorporation specifies securities offeredLower costsReduced services of underwriter3. Best-effortsInvestment banker acts as broker.Introduction of Rule 415Allows firms

12、 to register securities and sell them piecemeal over the next two yearsReferred to as shelf registrationsGreat flexibilityReduces registration fees and expensesAllows requesting competitive bids from several investment banking firmsMostly used for bond sales.Private Placements and Rule 144AFirms sel

13、ls to a small group of institutional investors without extensive registrationLower issuing costs than public offering.Why Secondary Financial Markets Are ImportantProvides liquidity to investors who acquire securities in the primary marketResults in lower required returns than if issuers had to comp

14、ensate for lower liquidityHelps determine market pricing for new issues.Secondary Bond MarketSecondary market for U.S. government and municipal bondsU.S. government bonds traded by bond dealersBanks and investment firms make up municipal market makersSecondary corporate bond marketTraded through an

15、OTC market.Financial FuturesBond futures are traded inChicago Board of Trade (CBOT)Chicago Mercantile Exchange (CME).Secondary Equity Markets1. Major national stock exchangesNew York, American, Tokyo, and London stock exchanges2. Regional stock exchangesChicago, San Francisco, Boston, Osaka, Nagoya,

16、 Dublin, Cincinnati3. Over-the-counter (OTC) market Stocks not listed on organized exchange.Trading SystemsPure auction marketBuyers and sellers are matched by a broker at a central locationPrice-driven marketDealer marketDealers provide liquidity by buying and selling sharesDealers may compete agai

17、nst other dealers.Call Versus Continuous MarketsCall markets trade individual stocks at specified times to gather all orders and determine a single price to satisfy the most ordersUsed for opening prices on NYSE if orders build up overnight or after trading is suspendedIn a continuous market, trades

18、 occur at any time the market is open.National Stock ExchangesLarge number of listed securitiesPrestige of firms listedWide geographic dispersion of listed firmsDiverse clientele of buyers and sellers.New York Stock Exchange (NYSE)Largest organized securities market in United StatesEstablished in 18

19、17, but dates back to the 1792 Buttonwood Agreement by 24 brokersOver 3,000 companies with securities listedTotal market value over $13 trillion.American Stock Exchange (AMEX)Started by a group who traded unlisted stocks at the corner of Wall and Hanover Streets in New York as the Outdoor Curb Marke

20、tEmphasis on foreign securitiesDoesnt trade stocks listed on NYSEMerged with the NASDAQ IN 1998 although they continued to operate as separate marketsWarrants traded on AMEX years before NYSE listed any.Tokyo Stock Exchange (TSE)Largest of the eight exchanges in JapanDominates the Japanese marketEst

21、ablished in 1878 and reorganized in 1943, 1947, and 1949Price-drive systemDomestic and foreign stocks listedApproximately 1700 stocks listed with a total market value of $2.4 trillionMost active 150 stocks are traded on floor, others by computer.London Stock Exchange (LSE)Largest securities market i

22、n the United KingdomTrades listed and unlisted securitiesMore than 2,600 companies listedLargest listing of foreign stocks on any exchangeTotal market value of more than $561billionPricing system by competing dealers via computers similar to NASDAQ system in U.S.TrendsNew exchanges in emerging econo

23、mies such as Russia, Poland, China, Hungary, Peru, Sri LankaConsolidation of existing exchanges in developed countriesGlobal twenty-four-hour market made possible by advances in technology.Recent ConsolidationsIn 1995, Germanys three largest exchanges merged into the one in FrankfurtNASD merged with

24、 AMEX Philadelphia Stock Exchange merged with NASD/AMEXCBOE merged with Pacific ExchangeThe Amsterdam, Brussels and Paris exchanges formed an allianceThe Stockholm, Copenhagen, and Oslo exchanges formed an alliance called the Nordic Country Alliance.The Global Twenty-four Hour MarketInvestment firms

25、 “pass the book around the world to maintain nearly continuous 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 - 16:00.Regional ExchangesStocks not li

26、sted on a formal exchangeListing requirements varyListed stocksAllow brokers that are not members of a national exchange access to securitiesRegional Exchanges in United StatesChicago, Boston, Cincinnati, Pacific, Philadelphia.Over-the-Counter (OTC) MarketNot a formal organizationLargest segment of

27、the U.S. secondary marketUnlisted stocks and listed stocks (third market)Lenient requirements for listing on OTC5,000 issues actively traded on NASDAQ NMS (National Association of Securities Dealers Automated Quotations National Market System) 1,000 issues on NASDAQ apart from NMS1,000 issues not on

28、 NASDAQ.Operation of the OTCAny stock may be traded as long as it has a willing market maker to act a dealerOTC is a negotiated market.The NASDAQ SystemAutomated electronic quotation systemDealers may elect to make markets in stocksAll dealer quotes are available immediatelyThree levels of quotation

29、s provided Level 1 provides a single median representative quote for the stocks on NASDAQLevel 2 shows quotes by all market makersLevel 3 is for OTC market makers to change their quotes shown.Listing Requirements for NASDAQTwo listsNational Market System (NMS)Regular NASDAQFour sets of requirementsI

30、nitial listing - least stringentAutomatic NMS inclusion - up to the minuteAlternative 1 for profitable companies with limited assetsAlternative 2 for large but less profitable.Third MarketOTC trading of shares listed on an exchangeMostly well known stocksGM, IBM, AT&T, XeroxCompetes with trades on e

31、xchangeMay be open when exchange is closed or trading suspended.Fourth MarketDirect trading of securities between two parties with no broker intermediaryUsually both parties are institutionsCan save transaction costsNo data are available regarding its specific size and growth.Detailed Analysis ofExc

32、hange MarketsExchange MembershipMajor Types of OrdersExchange Market Makers.Exchange MembershipSpecialistCommission brokersEmployees of a member firm who buy or sell for the customers of the firmFloor brokersIndependent members of an exchange who act as broker for other membersRegistered tradersUse

33、their membership to buy and sell for their own accounts.Major Types of OrdersMarket ordersBuy or sell at the best current priceProvides immediate liquidityLimit ordersOrder specifies the buy or sell priceTime specifications for order may varyInstantaneous - “fill or kill, part of a day, a full day,

34、several days, a week, a month, or good until canceled (GTC).Major Types of OrdersShort salesSell 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 tradeMust pay any dividends to le

35、nderMargin requirements apply.Major Types of OrdersSpecial OrdersStop lossConditional order to sell stock if it drops to a given priceDoes not guarantee price you will get upon saleMarket disruptions can cancel such ordersStop buy orderInvestor who sold short may want to limit loss if stock increase

36、s in price.Margin TransactionsOn any type order, instead of paying 100% cash, borrow a portion of the transaction, using the stock as collateralInterest rate on margin credit may be below prime rateRegulations limit proportion borrowedMargin requirements are from 50% upChanges in price affect invest

37、ors equity.Margin TransactionsBuy 200 shares at $50 = $10,000 positionBorrow 50%, investment of $5,000If price increases to $60, positionValue is $12,000Less - $5,000 borrowed Leaves $7,000 equity for a$7,000/$12,000 = 58% equity position .Margin TransactionsBuy 200 shares at $50 = $10,000 positionB

38、orrow 50%, investment of $5,000If price decreases to $40, positionValue is $8,000Less - $5,000 borrowed Leaves $3,000 equity for a$3,000/$8,000 = 37.5% equity position.Margin TransactionsInitial margin requirement at least 50%. Set up by the Fed.Maintenance marginRequirement proportion of equity to

39、stockProtects broker if stock price declinesMinimum requirement is 25%Margin call on undermargined account to meet margin requirementIf margin call not met, stock will be sold to pay off the loan.Exchange Market MakersU.S. MarketsSpecialist is exchange member assigned to handle particular stocksHas

40、two roles:Broker to match buyers and sellersDealer to maintain fair and orderly marketSpecialist has two income sourcesBroker commission, without riskDealer trading income from profit, with risk.Exchange Market MakersTokyo Stock Exchange (TSE)Regular membersSeveral employees allowed on trading floor

41、Trading clerks for customers accountsBuy and sell for own accountsSaitori memberHundreds of employees on trading floorIntermediary clerksBrokers among membersMaintain limit orders.TSE MembershipMembership requires corporate licenseFour types of license are available and may be combined1. Trade secur

42、ities as a dealer2. Trade as a broker3. Underwrite new securities on secondary offerings4. Handle retail distribution of securitiesCapital requirements vary by license.London Stock ExchangeBrokers trade on behalf of their customersJobbers buy and sell as principalsMembership based on experience and

43、competenceMembership fee 1% of gross revenues.Changes in the Securities MarketsSince 1965, the growth of trading by large financial institutions has had many effectsNegotiated (competitive) commission ratesInfluence on block tradesImpact on stock price volatilityDevelopment of National Market System

44、 (NMS).Negotiated Commission RatesNYSE minimum commission schedule prohibited price cutting since 1792No price break for large ordersInitial reaction was “give-ups paid to a designated firm - soft dollars paid for market researchThird market competed with flexible commissions and grewFostered develo

45、pment of the fourth market.Negotiated Commission RatesIn 1970 SEC began phasing in negotiated commissionsCommission rates have fallenDiscount brokerage firms compete openlyMany brokerage and research firms have merged or liquidated.The Impact of Block TradesNumber and size of block trades has increa

46、sedThis strains the exchange specialist systemCapital - 10,000 share or larger blocksCommitment - large risk with large blocksContacts - Rule 113 prohibited direct contact to offer blocks to another institution.The Impact of Block TradesBlock houses are investment firms that help institutions locate

47、 other institutions interested in buying or selling blocks of stockA good block house hasThe capital required to position a large blockThe willingness to commit this capital to a block transaction, andContacts among institutions.Institutions and Stock Price VolatilityEmpirical studies have not suppo

48、rted the theory that institutional trading increases price volatilityWhere trading is dominated by institutions, actively involved institutions may provide liquidity for one another and noninstitutional investors.National Market Systems (NMS)NMS has been advocated by financial institutions to provid

49、e greater efficiency, competition, and lower cost of transactionsNMS is expected to have:1. Centralized reporting of all transactions2. Centralized quotation system3. Centralized limit order book (CLOB)4. Competition among all qualified market makers.1. Centralized ReportingShould record all transac

50、tions of a stock, regardless of locationNYSE started a central tape in June 1975 covering all NYSE stocks traded on other exchanges and OTC.2. Centralized Quotation SystemList quotes for a stock from all market makers on the national exchanges, regional exchanges, and OTCBrokers would complete trade

51、s on the market with the best quoteIntermarket Trading System (ITS) developed by American, Boston, Chicago, New York, Pacific, and Philadelphia Stock Exchanges and NASD.3. Centralized Limit Order BookShould contain all limit orders from all marketsShould be visible to all tradersAll market makers an

52、d traders could fill orders on itTechnology exists, but NYSE specialists fill most limit orders and oppose CLOB because they do not want to share this lucrative business.4. Competition Among All Qualified Market Makers (Rule 390)Market makers compete on OTC marketCompetition reduces bid-ask spread N

53、YSE opposes competition and argues that central auction results in best market and executionNYSE Rule 390 requires members to obtain permission of the exchange before trading a listed stock off the exchange, forcing transactions to the exchange to create a central market.New Trading SystemsDaily tra

54、ding volume has increased from 5 million shares to over a billion sharesNYSE routinely handles days with volume over a billion sharesTechnology has allowed the market process to keep pace.Super DOTElectronic order-routing systemMember firms transmit market and limit orders in NYSE securities to trad

55、ing posts or member firms boothReport of execution returned electronically85% of NYSE market orders enter through Super DOT system.Display BookElectronic workstation that keeps track of all limit orders and incoming market orders, including incoming Super Dot limit orders.Opening Automated Report Se

56、rvice (OARS)Pre-opening market orders for Super Dot systemOARS automatically and continuously pairs buy and sell ordersPresents imbalance to the specialist prior to the opening of a stockHelps determine opening price and potential need for preopening call market.Market Order ProcessingSuper Dots pos

57、topening market order system is designed to accept member firms postopening market orders up to 3 million sharesRapid execution and reporting of market ordersIn 2000, orders executed and reported in 15-16 seconds on average.Limit Order ProcessingElectronically files orders to be executed when and if a specific price is reachedUpdates the Specialists Display BookGood-until-cancelled orders that are not executed are stored until executed or cancelled.Global Market ChangesNYSE Off-hours tradingCrossing Se