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Ch 3. Part 2. OTHER EXCHANGES. Regional exchanges. stocks may be listed on both NYSE and regional exchange 5 regional exchanges cheaper seat prices. REGIONAL EXCHANGES:. REGIONAL EXCHANGES: Boston Cincinnati Chicago Pacific Philadelphia. REGIONAL EXCHANGES:. For Options - PowerPoint PPT Presentation
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Ch 3
Part 2
OTHER EXCHANGES
2
Regional exchanges
• stocks may be listed on both NYSE and regional exchange
• 5 regional exchanges• cheaper seat prices
REGIONAL EXCHANGES:
• REGIONAL EXCHANGES:– Boston– Cincinnati– Chicago– Pacific– Philadelphia
4
REGIONAL EXCHANGES:
For Options • Chicago Board Options Exchange
– one of the largest
– For Futures• The Chicago Mercantile Exchange
– offers interest rate, commodities, and index futures contracts
5
AMEXNYSE Amex Equities, formerly known as the American Stock Exchange (AMEX).
• AMEX was a mutual organization owned by its members. • Until 1953, it was known as the New York Curb Exchange.• On January 17, 2008, NYSE Euronext announced it would acquire
the American Stock Exchange for $260 million in stock. • On October 1, 2008, NYSE Euronext completed acquisition of the
American Stock Exchange.• Before the closing of the acquisition, NYSE Euronext announced
that the Exchange would be integrated with the Alternext European small-cap exchange and renamed the NYSE Alternext U.S.
• In March 2009, NYSE Alternext U.S. was changed to NYSE Amex Equities.
OTC markets• NASDAQ is an OTC market:
It was created by the National Association of Securities Dealers (NASD)
• It is an American stock Exchange
• "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations".
• It is the 2nd largest stock exchange by market capitalization in the world, after NYSE
• As of January 13, 2011, there are 2,872 listings• The NASDAQ has more trading volume than any other
electronic stock exchange in the world.• ECNs (Electronic communication networks)• electronic network of dealers all over the world• more than one dealer per stock
Nasdaq
• Not the only OTC system, but the largest• over 4000 companies listed
– mkt. value $2 trillion (2/28/03)
• leader in daily share volume• over 500 dealers• listing requirements
TOKYO STOCK EXCHANGE
– Has introduced major reforms:• introduced CORES (Computer-Assisted Order Routing and
Execution System)• introduced FORES (Floor Order Routing and Execution
System)• Saitori System of Trading • follows IYATOSE Method at market open similar to a call
market– Zaraba used where orders are processed continuously
10
TORONTO STOCK EXCHANGE
– Uses CATS (Computer-Assisted Trading System)– Similar to IYATOSE trading in Tokyo
11
REGULATION OF SECURITIES MARKETS
• THE FOUR PILLARS OF SECURITY REGULATION:– The Securities Act of 1933– The Securities Exchange Act of 1934– The Investment Company Act of 1940– The Investment Advisors Act of 1940
12
Member
• They perform various activities at the exchange• The president, Chairperson and director may be
out of the members• They are allowed to execute trade by using the
facilities provided by the exchange
Institutional trading
• vs. retail trades– institutional trades are larger– special execution– over 50% of NYSE share volume
block trades
• An order/trade submitted for sale or purchase of a large quantity of securities. Also known as "Block Order".
• large # shares in one stock• executed in “upstairs” market
– other firms directly take other side of trade
• remainder executed on trading floor or Nasdaq (downstairs)
Upstairs Market• “The trading of securities, such as stocks, that occurs
within a broker-dealer firm instead of at an exchange”.
Or • Between two broker-dealers in the over-the-counter
(OTC) market. • In an upstairs market transaction, the broker-dealer
typically represents both parties (buyer and seller).
Program trades• large # shares, different stocks• Usually consisting of baskets of fifteen stocks or
more• Computerized trading used by institutional
investors
• Used by mutual funds for asset allocation• want
– low commissions– prevent frontrunning
what is frontrunning?
“It is the illegal practice of a broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers”.
When orders previously submitted by its customers
will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage.
example• broker buys ahead of large buy order
– broker buys first– large buy order pushes up price– broker’s holdings increase in value
• result– frontrunning starts to push up price, so firm does
not get best price
LONDON STOCK EXCHANGE– The Exchange was founded in 1801 – As of December 2010, the Exchange had a market
capitalization of US$3.6 trillion, making it the 4th largest Stock Exchange in the world by this measurement (and the largest in Europe)
– ending fixed commissions• introduced SEAQ (Stock Exchange Automated Quotations)• attracted trading in non-UK stock
20
Global platform for global institutional investors
21
Global institutional
investor base
Local market
US Institutional
Investors
144A
Regional fundsand retail investors
USA Middle EastAsia Eastern EuropeEurope UK
London Stock Exchange - key statistics
22Source: London Stock Exchange statistics – December 2007
Total companiesDomestic: 2,550International: 675
Market capitalisation Main Market: UK listed: US$3,570bnInternational listed: US$4,398bnAIM: US$181bn
Turnover value (Jan-Dec 2007) Main Market: US$8,054bnAIM: US$150bn
London Stock Exchange
0
1000
2000
3000
4000
5000
6000
7000
Lond
on
New York
Bosto
n
Los A
ngeles
Paris
San F
rancis
co
Frank
furt
Chicago
Mun
ich
International
Domestic
23Source: IPREO 2007
More international equity assets under management
London has a far bigger international presence and weight. 45% of equity assets under management are invested in international markets.New York is a larger but mainly domestic market.
Equity assets under management by centre.
In US$ billions
0
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007 2008
London Stock ExchangeNasdaqNYSE
24
The platform of choice for international companies
In 2006: London Stock Exchange - 367 new companies joined in 2006. NYSE, Nasdaq & Hong Kong Stock Exchange had 332 IPOs in 2006.$104bn raised on the London Stock Exchange, $40bn on NYSE, and $29bn on Nasdaq
In 2007:London Stock Exchange - 252 new companies joined the London Stock Exchange, 142 new companies on Nasdaq, 67 on NYSE$88bn raised on the London Stock Exchange.
Source: London Stock Exchange and WFE – December 2007
Q1, 2008
Comparing UK and US as listing locations
London and New York exchanges offer optimal profile London has world’s highest reputation for regulation and governance Principles-based (UK) versus rule-based (US) approach
London has the most liquid equity market in Europe London has the world’s most successful growth market (AIM) London Stock Exchange offers world’s only location for liquid and transparent
trading of GDRs
London combines simple, flexible disclosure with high reputation of regulators
US disclosure regime more prescriptive, exacerbated by need to protect against opportunistic securities litigation
London offers rapid turnaround by regulators, and limits the time regulators can take to approve offer documents
US: SEC review periods longer, with no certainty on turnaround time AIM offers potentially shorter transaction timetable
25
Timing
Disclosure
Trading
Cost-benefit analysis favours London
Profile
Comparison of international listing locations
High profile
Rapid timing Simplified disclosure
Trading / liquidity
London Stock Exchange
NYSE / Nasdaq
Bovespa
26
Optimal Least suitable
Strategic financings from global companies will converge on London or New York
An intelligent approach to regulation
27
Balance Competing
Needs
Companies Investors
Minimise bureaucracy
and cost
Maximise protection
US
UKRanked first in corporate governance standards by GMI, Deminor and Davis Global Advisors
Increased cost of compliance and risk premium (Financial Executive & Korn Ferry Surveys)
Principles based - “comply or explain”
Rules based - prescriptive and expensive
Corporate governance: overall rating by country
3.34
4.20
4.73
5.08
5.61
5.85
6.15
6.40
7.25
7.31
7.39
7.40
0 1 2 3 4 5 6 7 8
China
Mexico
Spain
India
Switzerland
Norway
Germany
Finland
USA
Canada
Ireland
UK
28
Principles-based regulation: high standard, pragmatic application No equivalent to Sarbanes-Oxley section 404
An intelligent approach.
Most advanced regulation and governance
Source: Governance Metrics International, 2007
The world’s capital market
29
New York Listing• Higher cost• Slower to market• Higher risk• Sarbanes Oxley• Section 404• Class actions
London Listing• Access to global capital• Lower cost• Lower risk• Faster to market• Intelligent regulation
Understanding Stock Market
Investment
• Households earn income.• Income is payments received by a household by
selling or renting productive resources.• Households usually spend some of their income and
save some of it.• Saving is income not spent on consumption or taxes.• Some households use their savings to purchase
stocks.• Internationally stock trading is done by household
but in Pakistan?
The Stock Market and Stock Exchanges
• Stock market—a network of exchanges and brokers– Exchange—a physical marketplace
(NYSE, AMEX, regional exchanges)– Broker—individual whose job is to
assist people in buying and selling securities
• Work for brokerage firms• Members of stock exchange
Trading—The Role of Brokers• What brokers do…
– An investor will open an account with a broker and place trades via telephone or online
– Local broker will forward order to floor broker on trading floor of exchange
– Floor broker trades on the floor of the exchange• Each stock is traded in a particular spot on the
exchange floor using an auction-like process– Trading is supervised by a specialist
» Specialists make markets in designated securities
– Confirmation of trade is forwarded to local broker and investor
Schematic Representation of a Stock Market Transaction
Information about “The Stock” Market
Most newspaper and Online stock tables provide the following information:
• Price (of a share)• Volume (number of shares sold)• Dividend (profits paid to stockholders)• Price-earnings ratio
Online Stock Trading Model
Customer(trader)
Online Broker
Market-maker
Clearing-house
StockExchangecustomer’s
account
Online Trading in Pakistan
• Not really online as it is partial onlineFollowing steps are involved on Broker end:• Maintain Direct connection with iKATS (Internet Karachi
Automated Transaction System)– Backbone software of Karachi Stock Exchange
controlled by SECP (Securities & Exchange Commission of Pakistan)
• Maintain link account with Central Depository Company, controlled by SECP (Securities & Exchange Commission of Pakistan) to control online transfer of shares
• Transparent account Maintenance of clients• Maintain manual cash handling system• Secure interface to the clients• Efficient Support System
Steps required on Client End:• As cash involvement is handled off line, so bank
account is normally used• Send money from bank account with account
opening form to the chosen broker
• Broker on receiving money will verify the details and open account with him
• Get to know the online interface. Normally three types of interfaces working in Pakistan– Online Website– Software which connects to the web server on it’s
own– Through Short Messaging Service over Mobile
Phone
Online Stock Trading Model
Customer(trader)
Online Broker
iKATS
CDC
StockExchangecustomer’s
account
• Online Demonstration of one of the major online brokers (AKD Securities – Akeel Karim Deddy Securities )
www.akdtrade.com
After opening an account, you need to login through this interface
Note the secure server presence
After logging-in, it will display the following home window showing different options to go for
• The first & Basic thing is Research. All brokerage houses do conduct their own research and place them online for their users.
• Like in AKD Securities, they make two reports, one showing the last week’s trends in general and predicting the trend for next week and other daily report, which takes one sector and explores it. Sample is something like this
Other major important resources for the research are• Contacts • Hard to Believe but players don’t tell everything
ONLINE • Market Watch• Different TV Channels like Business Plus & Indus
Plus (Few Programs are really Excellent), Geo (Tezi Mandi)
• Different Newspapers & Magazines like Business Recorder, Dawn, Pakistan & Gulf Economics
• Different Websites, Business Recorder, KSE Official Website
• KSE Official Website has lots of material
Where as Business Recorder has lots of Organized Information
How to Trade?• Best option is
to read NOTICES everyday before start trading because they may have something which effects you today
Trading Section• You need to
place order
• If you are not sure about the company symbol, then you can search the symbol using following screen
• You can cancel the order if it’s not executed
• You can view the status of your order