View
223
Download
0
Category
Preview:
Citation preview
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Stock Exchanges
Exists to bring buyer and seller together in a two sided auction.
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Auction
Buyers Bid . . . . . 10 @ $50.40 1 @ $50.35 10 @ $50.30 90 @ $50.25 120 @ $50.20
Sellers Ask 60 @ $50.65 10 @ $50.60 95 @ $50.55 50 @ $50.50 . . . . . .
Bid Ask Spread =10₵
Tick =5 ₵
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Discovery Café
Over The Counter NASDAQ NYSE
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
OTC: Over The Counter
Stocks not listed on an exchange trade over-the-counter.
OTC stocks are generally smaller companies that trade infrequently
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
OTC
John Q. Investor goes to his broker to buy 1000 shares of Discovery Café.
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
OTC
The Pink Sheets brings buyers and sellers together by providing a contact of the dealers in the stock.
http://www.OTCmarkets.com/home
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NASD
National Association of Securities Dealers self regulating organization oversees the OTC market administers rules of fair practice and governs
the rules of how securities are traded, delivered, and settled.
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NASDAQ
National Association of Securities Dealers Automated Quotation
Began as a computerized network to link traders of OTC issues that traded more frequently.
Filed for status as an exchange under the name NASDAQ
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NASDAQ
Has no trading floor network of computer and telephone lines
that link the members of the NASD Works through a system of competing
Market Makers
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Brokers, Dealers, Market Makers
Suppose that Bill Gates writes a book entitled "The Secrets of My Success - The Microsoft Story".
Bill is a good friend* and I can get copies of this book autographed by the author.
*Actually, Bill doesn’t know me from Eve
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Broker
Agent When you want to buy a book I can buy it for
you. I charge you what I paid for the book (plus commission).
When you want to sell a book I can sell it for you. I give you what I get for the book (minus commission).
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Dealer
Manages an Inventory When you want to buy a book I sell it to you
from my inventory of books. I charge you my quoted ask price plus a small markup for handling.
When you want to sell a book I buy it from you for my inventory of books. I pay you my quoted bid price less a small markup for handling.
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Market Maker
Must always stand ready to buy/sell When you want to buy a book, whenever you
want to buy a book, I must sell you one from my inventory of books.
When you want to sell a book, whenever you want to sell a book, I must buy it from you.
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Market Maker
Bid $50 If you want to sell a
book, I will buy it from you for $50
Ask $53 If you want to buy a
book, I will sell it to you for $53
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
Market Maker
Bid $40 Discourage book
sellers by lowering the price to $40
Ask $42 Encourage book
buying by lowering the price at which I sell to $42
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NASDAQ: Example
Discovery Café applies for listing in NASDAQ Assigned the ticker symbol CAFE (all
NASDAQ stocks have 4 character symbols – or they used to anyway.)
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NASDAQ
John Q. Investor goes to his broker to buy 1000 shares of Discovery Café
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NASDAQ
NASDAQ does not bring buyers and sellers together; it uses a system of wholesellers to ensure that you can always buy and sell
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NYSE
Has a trading floor Uses a specialist system
Specialist: one and only market maker for a particular stock.
The specialist is situated at one of the seventeen specialist posts on the floor of the exchange. There are 482 Specialists employed by 21 firms.
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NYSE: Example
Discovery Café decides to list its shares on the NYSE
Our ticker symbol must change DVC
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NYSE
John Q. Investor goes to his broker to buy 1000 shares of Discovery Café
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NYSE: Example
Specialist Bid $50 Broker Joe gets $1 per share more for his shares
Specialist Ask $52 John’s broker can buy
directly from the specialist at $52ohn pays $1 per share less
Chapter 7: Secondary Equity Markets © Oltheten & Waspi 2012
NYSE:
The specialist system brings buyers and sellers together by bringing everyone to the same place on the floor of the exchange
If there is an insufficiency of buyers then there is a market maker at hand
Specialist keeps the limit order book
Gosh, I can hardly wait to find out what a limit order is…. maybe I’ll read chapter 8
Recommended