CHAPT18 Commo Stock Market

8/2/2019 CHAPT18 Commo Stock Market

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Chapter 18COMMON

STOCK

MARKETS: THEUS &

BANGLADESH


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Characteristics of Common Stock

Equity securities represent an ownership

interest in a corporation.Common stockholders are the residual owners.

Right to income

Right to assets

Preferred Stockholders have preference overcommon stockholders. Right to fixed dividend


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Trading Locations

Stock Exchanges Electronic auction system

Trading floors auction system Central auction specialist system

Over-The-Counter Market

no trading floor negotiated system

multiple market maker system

Independent Electronic Network Trading

Systems


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Stock Exchanges

In USA

l

Major Stock Exchanges NYSE or Big Board AMEX or ASE or Curb

Regional Stock Exchanges Boston, Chicago, Cincinnati,

San Francisco, Philadelphia

OTC Market NASDAQ

In Bangladesh

Dhaka Stock Exchange

Chittagong Stock Exchange


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Major Governing Rules

Securities Act of 1920 and Securities

Exchange Ord, 1969Public Issue Rule 2006

Companies Act 1994

Dhaka Stock Exchange Listing RegulationsDirect Listing Regulation 2006


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Categories of traded securities:

exchange listed common stocks,

bonds, debentures T Bonds. listed mutual funds .

Stock and Index based future contracts

special types of derivatives now very popularin India and Pakistan, Hopefully it will be

introduced by the end of 2008 in

Bangladesh.


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Types of Markets in USA

First Market trading on exchanges of stocks listed on an exchange

Second Market trading in OTC market of stocks not listed on an exchange

Third Market trading in OTC market of stocks listed on an exchange

Fourth Market private transactions between institutional investors


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Stock Exchanges

Types of Formal organizations approved andregulated by the SEC (regulators) to providetrading facilities for eligible securities at auction

Members/Shareholders can only trade listed stocks

must buy a seat on the exchange Listing requirements

minimum capitalization, shareholder equity, averageclosing share price, etc.


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US Market: NYSE

Centralized continuousauction market

Exchange participants: single specialist

commission brokers

independent floor brokers

registered traders

SuperDot

Major roles of NYSE-specialist Dealer

Agent

Catalyst

Auctioneer

Commissions


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US Market: OTC Market

Trading unlisted stocks

Listing requirements

NASDAQ stock market

NASDAQ market tiers NASDAQ National Market

Small CapitalizationMarket

NASDAQ market makers

Other OTC markets OTC Bulletin Board

Pink Sheets


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US Market: Third Market

Listed stocks traded in OTC market

NYSE Rule 390Commission

Network of broker-dealers


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US Market: Fourth Market

Direct trading of stocks between two customers

CommissionsAlternative trading systems (ATS)

electronic communications networks

crossing networks


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Other Types of Common Stock

Trading in USA

Offshore Trading

US Rule 144A Securities

American Depository Receipts (ADR)


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US Market: Role and Regulation ofDealers in Exchange and OTC Market

Regulatory Issues

fragmented marketNASDAQ Pricing Controversy

SEC Cost Study

Decimalization

Regulation FD

SuperMontage


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US Market: Trading Mechanisms

Types of Orders market order

limit order

Short Selling

Margin Transactions initial margin

maintenance margin

Transactions Costs explicit costs

implicit costs


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US Market: Trading Arrangements

for Institutional Investors

Block Trading

Trades of 10,000 shares or more of a givenstock or trades with a market value of $200,000or more.

Program Trading

Simultaneous purchase or sale of shares in alarge number of different stocks, which iscomputer-assisted.


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US Market: Price Limits and Collars

Stock Market Crash of 1987

Trading or Price Limits

Rule 80B or Circuit Breakers

Rule 80A or Trading Collar


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US Market: Stock Market Indicators

Dow Jones Industrial Average

S&P 500NYSE Composite

AMEX

NASDAQ CompositeValue Line Composite Average


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Pricing Efficiency of the Stock

Market

Forms of Efficiency

Weak form Semistrong form

Strong form

Implications for Investing in Common Stock Active strategies Passive strategies

Documents

CHAPT18 Commo Stock Market