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CH 04

This document summarizes key aspects of securities markets. It discusses: 1) How new securities are issued in primary markets through investment bankers and how existing securities are traded in secondary markets like stock exchanges. 2) The roles of the major U.S. stock exchanges (NYSE, AMEX, NASDAQ) and over-the-counter markets, as well as important equity market indicators. 3) How bond markets operate primarily through dealers and exchanges, and how market developments like institutional trading and block trades have impacted market structure.

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Razafinandrasana
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107 views

CH 04

This document summarizes key aspects of securities markets. It discusses: 1) How new securities are issued in primary markets through investment bankers and how existing securities are traded in secondary markets like stock exchanges. 2) The roles of the major U.S. stock exchanges (NYSE, AMEX, NASDAQ) and over-the-counter markets, as well as important equity market indicators. 3) How bond markets operate primarily through dealers and exchanges, and how market developments like institutional trading and block trades have impacted market structure.

Uploaded by

Razafinandrasana
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Securities

Securities Markets
Markets

Chapter 4
Jones, Investments:
Analysis and Management

1
The
The Role
Role of
of Financial
Financial
Markets
Markets
 Help firms and governments
raise cash by selling claims
against themselves
 Provide a place where investors
can act on their beliefs
 Help allocate cash to where it is
most productive
 Help lower the cost of exchange 2
Markets
Markets in
in New
New
Securities
Securities
 New securities are issued in a
primary market
– Initial public offerings versus seasoned
new issues
 Issue facilitated by investment
banker
– Specialists in advice, design, and sales
– Intermediaries between issuer and
investor
3
Investment
Investment Banking
Banking
 Client advice includes type and
features of security, offer price, and
timing of sale
 Underwriting services: Risk of
selling to investors assumed from
issuer
 Coordinates marketing by helping
issuer register securities, issue
prospectus, and sell securities
4
Investment
Investment Banking
Banking
 Rule 415 (shelf rule) allows certain
issuers to sell new securities over
time after filing a single
registration
– Reduces issuance cost
 A private placement means new
securities are sold to a small group
of institutional investors
– Registration not required 5
Secondary
Secondary Markets
Markets
 Markets where investors trade
previously issued securities
 Auction markets involve bidding
in a specific physical location
– Brokers represent investors for a fee
– Others trade for their own account
 Negotiated markets consist of
decentralized dealer network
6
Stock
Stock Exchanges
Exchanges
 NYSE is a secondary auction market
for equity securities
– A member-owned organization
– Listing requirements for traded firms
– “Specialists” assigned to each traded
equity to make a market in that stock
 AMEX and regional exchanges list
smaller firms, have less volume
than NYSE
7
Over-the-counter
Over-the-counter
Markets
Markets
 Network of dealers standing
ready to either buy or sell
securities at specified prices
– Dealers profit from spread
between buy and sell prices
– Handle unlisted securities
 NASDAQ: Competing dealers
make markets in OTC stocks 8
Third
Third and
and Fourth
Fourth
Markets
Markets
 Third Market: Over-the-counter
transactions in securities listed on
organized exchanges
 Fourth market: Trading network
among investors interested in
buying and selling large blocks of
stock
– Brokers, dealers bypassed so costs low
– Electronic or telephone network 9
Foreign
Foreign Markets
Markets
 US equity markets account for a
third of world’s stock market
capitalization
– Many different equity markets exist
 Emerging markets
– Generally less regulation and
standardization of trading activity
– Risks: Illiquidity, lack of information,
political uncertainty 10
Equity
Equity Market
Market
Indicators
Indicators
 Provide a composite report of
market behavior on a given day
 Dow Jones Industrial Average
– Composed of 30 “blue-chip” stocks
– Price-weighted index: Essentially adds
the prices of 30 stocks, divides by 30
» Adjusted for stock splits, stock dividends
– Oldest, most well-known measure
11
Equity
Equity Market
Market
Indicators
Indicators
 Standard & Poor’s Composite Index
– Composed of 500 “large” firm stocks
– Expressed as index number relative to
a base index value of 10 (1941-43)
– Value-weighted index: Prices and
shares outstanding considered
» Indicates how much the average equity
value of the 500 firms in the index has
increased relative to the base period
12
Equity
Equity Market
Market
Indicators
Indicators
 NYSE and NASDAQ Composite
Indices
– Value-weighted indices of broad
markets
 Nikkei 225 Average
– Price-weighted index of 225
actively-traded stocks on the
Tokyo Stock Exchange
13
Bond
Bond Markets
Markets
 Secondary bond market is
primarily an over-the-counter
network of dealers
– Treasury and agency bonds actively
trade in dealer markets
» Municipal bonds less actively traded
 NYSE is the largest centralized
bond market of any exchange
– Mostly corporate bonds, thinly traded
14
Market
Market
Developments
Developments
 Growth of institutional trading
associated with:
– Block trading of stocks (transactions of
at least 10,000 shares)
» Affects market structure and operation
– Negotiated, not fixed, commissions
 Evolution of National Market System
– Centralized system for price and activity
reporting, order routing and sequencing

15

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