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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

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chapter 17 markets for common stock

Chapter 17 – Markets for Common Stock

BA 543 Financial Markets and Institutions

chapter 17 common markets
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 markets1
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 markets2
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 markets3
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 markets4
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 markets5
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 markets6
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 markets7
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
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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
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Chapter 17 – Common Markets
  • Stock Market Indices
    • Price-Weighted
    • Value Weighted
    • Equally Weighted
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