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INTRODUCTION
Location: New York City, United States Founded: February 4, 1971
No of listings: 2,872
Market capitalization: US $4.72 trillion Volume: US$982 billion
Indexes: NASDAQ composite
NASDAQ-100
NASDAQ biotechnology index
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HISTORY
1971- Founded by National Association of
Securities Dealers 1987- NASDAQ replaced the old telephonic
trading system with the most efficient smallOrder Execution System(SOES)
1992- Joined the London Stock Exchange toform the 1st intercontinental linkage ofsecurities markets.
2000- Went public and was renamed asNASDAQ Stock Market Inc.
2006-Changed from stock market to licensedNational Exchange.
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TRADING SCHEDULE
7.00AM-9.30AM- Pre Market trading session
9.30AM-4.00PM- Normal trading session
4.00PM-8.00PM- Post market session
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QUOTE AVAILABILITY
NASDAQ quotes are available at three levels: Level 1 shows the highest bid and lowest
offerthe inside quote.
Level 2 shows all public quotes of marketmakers together with information of marketdealers wishing to sell or buy stock andrecently executed orders.
Level 3 is used by the market makers andallows them to enter their quotes and executeorders.
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An electronic stock exchange based in Indiathat is comprised of small- and medium-sizedfirms looking to gain access to the capital
markets. Over the counter means trading across the
counter in scrips.
The counter refers to the location of themember or dealer of the OTCEI where thedeal or trade takes place.
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The first electronic OTC stock exchange in India. OTCEIwas incorporated in October 1990 under Section 25 ofthe Companies Act, 1956. with the objective ofproviding a market for the Cos, that could not afford
the listing fees of the large exchanges and did not fulfillthe minimum capital requirement for listing
It is recognised as a stock exchange under Section 4 ofthe Securities Contracts (Regulations) Act, 1956
The promoters are as follows: UTI, ICICI, IDBI, IFCI, GIC,SBI Capital Markets, Canbank Financial Services, LIC
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Ringless and Screen-based Trading
Sponsorship
Transparency of Transactions
Liquidity through Market Making
Listing of Small and Medium-sized Companies
Technology
Nation-wide Listing
Bought-out Deals
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Need for OTCEI
Who would find OTCEI helpful?
High-technology enterprisesCompanies with high growth potential
Companies focused on new product
development.Entrepreneurs seeking finance for specific
business projects
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Benefits of getting listed on OTCEI
The OTCEI encourages entrepreneurship.
Small and medium closely-held companies can
go public.
Companies can get the money before the issue in
cases of Bought-out-deals.
It is more cost-effective to come with an issue of
OTCEI.
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Easy issue marketing by using the nation-wide OTCEI dealer network.
Nation-wide trading by listing at just one
exchange.
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Benefits of Trading on OTCEI for
Investors
The OTCEI trading counters are easily
accessible by any investors.
The OTCEI provides greater confidence to
investors because of complete transparency in
deals.
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The OTCEI ensures security, liquidity by
offering two-way quotes.
The OTCEI is an investor friendly exchange
with Single Window Clearance for all investor
requests.
At the OTCEl, the transactions are fast and
are completed quickly.
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TRADING ON OTCEI
fully computerised set-up through a network
of computers which are connected to a central
computer at OTCEI, Mumbai.
Initial allotment
Buying Process in the Secondary Market
Selling Process in the Secondary Market
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The OTCEI Composite Index:
The OTCEI composite index has been
introduced. as a broad parameter for investors
and analysts. It acts as an indicator of the
market movement. The base date for the OTCComposite Index is 23rd July, 1993 when the
index was 100. The scrips included in the
OTCEl composite index are only listed equities.
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Market Makers on OTCEI
A market maker on the OTCEI is somewhat akin to a jobber on
the regular stock exchange.
Their job is to provide two-way-buy and sell-quotes for scrip
and provide liquidity.
The market makers analyze the companies and provide
information .
The market makers are required to give quotes for a minimum
depth of three market lots.
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Bought-out-deals on the OTCEI:
Floating public issue in the primary market involves a lot of
formalities and a time lag .
In case, where a company wants to get money earlier, it can find
a member of the OTCEI, who would be interested in acting as a
Sponsor for the Company to get it listed on the OTCEI. The
member would later sell the shares of the company to the
public through an offer for sale. This method of getting listed
on OTCEI is also called a Bought-out-Deals.
Sponsors can be authorised members of the OTCEI or aMerchant Banker. Thus, sponsors act as an important
intermediary in mobilisation of savings.
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Benefits to an OTCEI Member:
Sponsor can buy the shares of the company and sell
it at a later time at a premium
At the time of the issue, the sponsor need not
appoint underwritersThe sponsor can time the issue and come in the
market
There is no restriction on the holding period.For good projects, the sponsor can help the company
to get premium in the market.
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How do I buy an over-the-counter stock?
Process differs from NASDAQ & NYSE
STEPS TO OPEN AN ACCOUNT WITH BROKER
make a market buy order for an OTC stock
the broker must contact the security's respective
market maker. The market maker then will quote the broker
the ask price
The broker, then, will transfer the necessary fundsto the market maker's account and issubsequently credited with the respectivesecurities.
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If the investor wishes to do so they canplace limit or stop orders for OTCsecurities in order to implement pricelimits.A similar process is carried out when an
investor decides to sell an OTC security.A word of caution:Although investing in OTC securitiesseems very simple, they are riskier than
stocks listed on exchanges. OTC stocks are often from companiesthat are extremely small, with marketscaps around $50 million or smaller.
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DIFFERENCE BETWEEN
NASDAQ AND NYSE
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Nasdaq market maker
and a NYSE specialist
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NASDAQis determine as a high-techmarket
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Nasdaq is cost effective
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Nyse is a typical market
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NASDAQ is considered to have high
volatility.
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NASDAQ
National Association for
Securities Dealers
Automated Quotation
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ADVANTAGES OF NASDAQIt is now the largest firm in the world, as for average trades per
day.A big chunk of its stock technology related, as compared to otherstock exchanges.
It has its own sets of indices.
Various other sectors are taken care by several other indicesclubbed together by NASDAQ.A beginners to the stock trade should not be under theimpression that these indices are the guiding starts to profits.Indices just indicates; they just impel. They do not compel you toinvest in a particular share of the company.As compared to NYSE, the NASDAQ rules and regulation forlisting in stock exchange are liberal.It provides the facility of pre market trading.With NASDAQ , the need for jobbers and other market makersare eliminate as the traders can trade directly online
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DISADVANTAGES OF NASDAQ
Currency risk
Taxation
Co-relation between Nifty and Nasdaq
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MEANING
The small order execution system (SOES) was a
system to facilitates clearing trades of low
volume on NASDAQ.
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ESTABLISHMENT OF SOES
SOES was first introduced in December 1988 for 25
stocks.
The lack of liquidity after the 1987 market crash ledNASDAQ to implement a mandatory system (since June 1988) to
provide automatic order execution for individual traders with
orders less than or equal to 1000 shares. (For stocks with low
volume, it may be less than 200 shares).
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RULES
Trades may not be in excess of 1000 shares for a
particular stock.
SOES does not allow trades in stocks that are trading at
prices greater than $250 per share.
Once a trader receives an execution through SOES,they must wait 10 minutes to place a trade on the same
side of the market in the same stock.
Institutions and stock brokers are not allowed to place
orders for their own accounts through SOES, but theycan for a client's account.
Market makers must honor their advertised bid/ask
prices to SOES orders, provided that they are for the
amount that the market maker is looking for.
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INITIAL REACTION
Initially, when SOES was mandatory, it was met with heavy
pessimism from NASDAQ member firms because it forced them to
execute all SOES trades that met the market maker's advertised price.
There were also significant limitations implemented to prevent day
traders from exploiting the system and taking advantage of old prices
quoted by market makers.
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TYPES OF ORDER
1. MARKET ORDER: market order is an order to buy and sell a
stock at the current market price
2. LIMIT OEDER: A limit order is an order to buy or sell asecurities at a specific price
3. STOP ORDER: A stop order is a order to buy or sell a stock once
the price of the stock reaches a specified price (the stop price)
4. STOP-LIMIT ORDER: A stop limit order is a order to buy or sell
a stock that combines the features of a stop order or limit order.5. MARKET-ON-OPEN(MOO) ORDER:A market-on-open order is
a order to buy or sell a stock at a market opening price.
6. MARKET-ON-CLOSE(MOC) ORDER:A market-on-close order
is a order to buy or sell a stock at a market closing price.
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7. TRAILING STOP: A trailing stop order is an order that allows
a trail on your stop price
8. LOGICAL ORDER: A logical order is an order that will be
submitted based on a set of criteria you define when entering the
order, allowing for greater customization.
9. EXTENDED HOURS LIMIT ORDER: Extended Hours
Trading is available outside of market hours from 7AM9:30AM ET and from 4PM8PM ET
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THE WORKING OF NASDAQ
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The working of NASDAQ can be studied in three
stages:
1. The interface - The place where broker dealers and
market makers gain access to the system.
2. The matching engine - A computer that connects
buyers and sellers when their prices match.
3. Quote services - Data feeding the buy and sell price
quotes that NASDAQ provides.
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Matching Engines Matching Engine, on the NASDAQ exchange, is a single,
highly reliable computer. It's where the actual trading takes
place.
This machine, match buy order with a sell order from
someone else.
If it can find a match, stock trade will take place. If not, trade
will sit on the exchange waiting for a matching order.
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Example on the working of Matching
Engines
ABC company limited
Let's say three people want to sell their shares
of stock in the ABC company.
Customer 1: sell 50 shares for $15.40
Customer 2: sell 200 shares for $15.25
Customer 3: sell 100 shares for $15.20
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Now imagine that there are four people who
want to buy shares of the ABC company.
Customer A: buy 100 shares for $15.15
Customer B: buy 200 shares for $15.10
Customer C: buy 150 shares for $15.00
Customer D: buy 75 shares for $14.95
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Customer 1: sell 50 shares for $15.40
Customer 2: sell 200 shares for $15.25
Customer 3: sell 100 shares for $15.20
Customer A: buy 100 shares for $15.15
Customer B: buy 200 shares for $15.10
Customer C: buy 150 shares for $15.00
Customer D: buy 75 shares for $14.95
The difference between the lowest selling price and the highest
buying price is called the spread.
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OVER THE COUNTER EXCHANGE OFINDIA
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Now let's imagine that Customer A wants to buy 50 shares for
$15.25.
Customer 1: sell 50 shares for $15.40
Customer 2: sell 200 shares for $15.25
Customer 3: sell 100 shares for $15.20
The 100 shares available at the $15.20 sale price will be split -
50 shares will remain in the list, while the other 50 will
complete the transaction.
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Quote Services Under quote services, NASDAQ provides up-to-the-
minute price quotes through its computers
It provides Data about the buy and sell price quotes
that NASDAQ provides.
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ROLE OF NASDAQ
Location, Location, Location
Dealer vs. Auction Market
Traffic Control
Perception and Cost