The New York Stock Exchange

• Stock is bought and sold on stock exchanges.

• The largest and most prestigious is the New York Stock Exchange, abbreviated NYSE.

• The “Big Board,” as it is called is located on Wall Street in New York City.

The Origins of the NYSE

• In the 1700’s an informal gathering took place for merchants and traders to buy and sell stocks of banks and insurance companies.

• In 1792, they decided to meet at the same time every day under an old sycamore tree on Wall Street to take orders to buy and sell stocks.

On the Floor of the NYSE

• At 9:30 a.m. EST every business day, the world’s most fascinating financial drama begins and ends at 4:00 p.m.

• The trading floor is the size of a football field and five stories high.

• The floor is described as “organized chaos.”• It is noisy and crowded as brokers, clerks and

messengers dart about (no running is allowed) the four rooms that make up the trading floor.

• All 3,000 people who work here buy and sell stock for customers at the best possible price.

Other Exchanges

• The American Stock Exchange – abbreviated ASE or AMEX.– Formed 60 years after the NYSE.

• The National Association of Securities Dealers Automated Quotation System– NASDAQ, an automated communications system lists

about 5,000 companies.– This is the Over-the-Counter market, OTC, and offers

shares of smaller, younger companies.– Almost all new issues trade here before graduating to

the NYSE or AMEX.

High-Tech Trading

• One of the strengths of the system is fairness; an order for 100 shares from a factory worker in Detroit competes equally with an order for a million shares from the nation’s largest pension fund.

• Thousands of electronic devices on the trading floor practically eliminate paperwork and processing errors.

• Every trade on the NYSE floor is recorded on the stock ticker, an electronic device that reports transactions shortly after they occur.

• An order placed in Los Angeles can be processed in New York within 30 seconds.

Buy Low, Sell High…

• When you decide to buy stock, the first person you want to talk to is a stockbroker.

• Stockbrokers work for a stock brokerage, or brokerage house.

• They buy and sell for you, and for this service, they earn a commission or fee.

CharlesSchwab

Orders to Buy, Orders to Sell

• When a stockbroker buys or sells stock for a customer, it is called “placing an order”.

• There are different types of orders:– A market order is an order to buy or sell immediately

at the best price available.– Buying “at the market” is the most common form of

trading.– A limit order specifies a price;

• Example: You tell the broker to buy 100 shares of Nike at $50.25 per share, but the price has climbed to $50.75 by the time your order reaches the floor, no sale will take place.

Round Lots and Odd Lots

• Stock orders can be placed in either round lots or odd lots– A round lot is 100

shares,– Any order less than

100 shares is considered an odd lot.

What Causes the Market to

• Ups and downs in the stock market are perfectly normal; the bear and the bull balancing each other.

• When many people rush to sell their shares, the balance is thrown off and gets out of kilter.

• In stock market terms…IT CRASHES.• The greatest crash to date occurred in 1929,

thereafter known as Black Thursday.

What Happened on Black Thursday

• Stock prices plummeted as investors suddenly decided to sell their stocks for a profit.

• As other investors saw stock prices begin to fall, they too hurried to sell.

• The frenzy of selling activity had a negative impact on the country for years afterward.

• With nobody investing money in the stock market, businesses could not grow.

• When businesses failed, people lost their jobs, and without paychecks they could not buy goods and services.

• Still more businesses failed and there was a tremendous economic decline lasting about 12 years.

Takeovers, Mergers and Tender Offers

• A merger is the acquisition of one company by another.– It occurs when one company purchases

enough shares of another company’s stock in order to have a controlling interest.

– Mergers must be approved by the company’s board of directors and shareholders.

• If the merger does not have the cooperation of the target company’s board, it is called a …takeover

Takeovers

• A takeover is accomplished in one of three ways:– By buying up a company’s stock on the open market,– Buying its stock through private transactions,– Or issuing a tender offer to the company’s board of directors.

• A tender offer is an offer to buy a company’s stock at a stated price and by a stated time.

• To gain control of the target company, the tender offer price is usually above the current market price.

– A takeover becomes hostile when the target seriously objects to being acquired and nothing, not even a higher price, is likely to change the board’s mind.