ofSecuritiesMarkets(资产定价-上海交大蔡明超).pptx

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1、Lec 4 Organization and Functioning of Securities Markets饭吃饭吃8分，获利分，获利8成成Chapter 4 Organization and Functioning of Securities Marketsa) describe the characteristics of a well-functioning securities market;b) competitive bids, negotiated sales, and private placements for issuing bonds;c) compare and c

2、ontrast the secondary markets for U.S. government/municipal bondswith the secondary markets for corporate bonds;d) primary and secondary capital markets, explain how secondary support primary ,e) distinguish between call and continuous markets;f) compare and contrast the structural differences among

3、 national stock exchanges,regional stock exchanges, and the over-the-counter (OTC) markets;Chapter 4 Organization and Functioning of Securities Marketsg) compare and contrast major characteristics of exchange markets, includingexchange membership, types of orders, and market makers;h) process of sel

4、ling a stock short and discuss an investors motivation for short;i) discuss the technical points affecting short sales;j) describe the process of buying a stock on margin;k) compute the rate of return on a margin transaction;l) define maintenance margin and determine the stock price of a margin call

5、;m) discuss major effects of the institutionalization of securities markets.LOS a: Describe the characteristics of a well-functioning securities market.1. Provide timely and accurate information on the price and volume of past transactions and on the supply of and demand for current goods and servic

6、es. 2. Provide liquidity. Liquidity requires marketability, price continuity, and depth. 3. Internal efficiency, which means getting the lowest possible transactions cost. 4. Informational or external efficiency, which means prices rapidly adjust to new information so that the prevailing market pric

7、e reflects all available information regarding the asset. LOS b: Distinguish between competitive bids, negotiated sales, and private placements for issuing bonds Government bond issues are sold at public auction by the Federal Reserve. Small purchasers can submit noncompetitive bids where they are g

8、uaranteed securities at the average of the accepted competitive bids. Government securities include: bills 1 to 12 months; notes 2 to 10 years, and bonds 10 years and up.LOS b: Distinguish between competitive bids, negotiated sales, and private placements for issuing bondsMunicipal bond issues are b

9、rought to market by a local government unit through: Competitive bidding with the underwriter. This means the underwriter will help originate the issue, bear the price risk, and sell the securities for a competitively determined fee. A negotiated underwriting. Here the underwriter helps originate th

10、e issue, bear the price risk, and distribute the issue for a negotiated fee. A private placement where the governmental unit sells the issue directly to the investor without the help of an underwriter.LOS c: the secondary markets for U.S. government/municpal bonds with the corporate bonds. secondary

11、 market for treasuries is through the 35 major treasury dealers. Agency securities and municipal bonds are traded through the major banks and investment firms. The secondary corporate bond markets are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and over-the-counter (OTC).

12、You should know that the bulk of all bond trading takes place in the OTC market.LOS d: Distinguish between primary and secondary capital markets and explain how secondary support primary. Primary capital markets relate to the sale of new issues of bonds and securities by government units, municipali

13、ties, or firms to obtain new capital. Secondary financial markets are where securities trade after their initial offering. Secondary markets are important because they give investors liquidity. Liquidity enables investors to sell quickly. The greater the liquidity securities have, the more willing i

14、nvestors are to buy securities. Liquid secondary markets also provide investors with continuous information about the market price of their securities. The better the secondary market, the easier it is for firms to raise external capital.Service provided by underwriter Underwriters sell the bonds to

15、 investors Origination Risk-bearing DistributionThe Underwriting Function The investment banker purchases the entire issue from the issuer and resells the security to the investing public. The firm charges a commission for providing this service. For municipal bonds, the underwriting function is per

16、formed by both investment banking firms and commercial banks Corporate Bond and Stock IssuesNew issues are divided into two groups1.Seasoned new issues - new shares offered by firms that already have stock outstanding2.Initial public offerings (IPOs) - a firm selling its common stock to the public f

17、or the first timeIntroduction of Rule 415 Allows firms to register securities and sell them piecemeal over the next two years Referred to as shelf registrations Great flexibility Reduces registration fees and expenses Allows requesting competitive bids from several investment banking firms Mostly us

18、ed for bond salesPrivate Placements and Rule 144A Firms sells to a small group of institutional investors without extensive registration Lower issuing costs than public offeringLOS e:Call Versus Continuous Markets Call markets trade individual stocks at specified times to gather all orders and deter

19、mine a single price to satisfy the most orders Used for opening prices on NYSE if orders build up overnight or after trading is suspended In a continuous market, trades occur at any time the market is open, The price is set by either the auction process or by dealer bid-ask quotes. Secondary Financi

20、al Markets Provides liquidity to investors who acquire securities in the primary market Results in lower required returns than if issuers had to compensate for lower liquidity Helps determine market pricing for new issuesSecondary Bond Market Secondary market for U.S. government and municipal bonds

21、U.S. government bonds traded by bond dealers Banks and investment firms make up municipal market makers Secondary corporate bond market Traded through an OTC marketSecondary Equity Markets1. Major national stock exchanges New York, American, Tokyo, and London stock exchanges2. Regional stock exchang

22、es Chicago, San Francisco, Boston, Osaka, Nagoya, Dublin, Cincinnati3. Over-the-counter (OTC) market Stocks not listed on organized exchangeLOS f: the structural differences among national stock exchanges, regional stock exchanges, and (OTC) markets. The major national exchanges trade shares for a l

23、arge number of prestigious firms that are geographically dispersed to a diverse clientele. Regional exchanges serve smaller local firms within various countries. The listing requirements for regional exchanges are usually much less stringent than large national exchanges. The over-the-counter (OTC)

24、market includes the trading in all securities not listed on one of the registered exchanges. If any registered dealer is willing to make a market in a security, it can trade in the OTC market. The OTC market is a negotiated market where investors negotiate directly with the dealers. LOS g: market st

25、ructure characteristics1. When buyers and sellers submit their bid and ask prices to a central location and transactions are matched by brokers who do not have a position in the stock, you have a system called a pure auction market. An auction market is a price-driven market. 2. When the buyer and s

26、eller submit their orders to dealers, who either buy the stock for their own inventory or sell the stock from their own inventory, this order driven system is called a dealer market. New York Stock Exchange (NYSE) Largest organized securities market in United States Established in 1817, but dates ba

27、ck to the 1792 Buttonwood Agreement by 24 brokers Over 3,000 companies with securities listed Total market value over $13 trillionAmerican Stock Exchange (AMEX) Started by a group who traded unlisted stocks at the corner of Wall and Hanover Streets in New York as the Outdoor Curb Market Emphasis on

28、foreign securities Doesnt trade stocks listed on NYSE Merged with the NASDAQ IN 1998 although they continued to operate as separate markets Warrants traded on AMEX years before NYSE listed anyTokyo Stock Exchange (TSE)Largest of the eight exchanges in JapanDominates the Japanese marketEstablished in

29、 1878 and reorganized in 1943, 1947, and 1949Price-drive systemDomestic and foreign stocks listedApproximately 1700 stocks listed with a total market value of $2.4 trillionMost active 150 stocks are traded on floor, others by computerLondon Stock Exchange (LSE) Largest securities market in the Unite

30、d Kingdom Trades listed and unlisted securities More than 2,600 companies listed Largest listing of foreign stocks on any exchange Total market value of more than $561billion Pricing system by competing dealers via computers similar to NASDAQ system in U.S.Regional Exchanges Stocks not listed on a f

31、ormal exchange Listing requirements vary Listed stocks Allow brokers that are not members of a national exchange access to securities Regional Exchanges in United States Chicago, Boston, Cincinnati, Pacific, PhiladelphiaOver-the-Counter (OTC) Market Not a formal organization Largest segment of the U

32、.S. secondary market Unlisted stocks and listed stocks (third market) 5,000 issues actively traded on NASDAQ NMS (National Association of Securities Dealers Automated Quotations National Market System) 1,000 issues on NASDAQ apart from NMS 1,000 issues not on NASDAQOperation of the OTC Any stock may

33、 be traded as long as it has a willing market maker to act a dealer OTC is a negotiated marketListing Requirements for NASDAQAutomated electronic quotation systemDealers may elect to make markets in stocksAll dealer quotes are available immediatelyTwo lists National Market System (NMS) Regular NASDA

34、QFour sets of requirements Initial listing in Nasdaq Continued in Nasdaq Initial listing in NMS Alternative 1 for profitable companies with limited assets Alternative 2 for large but less profitable Continued in NMSThird Market* OTC trading of shares listed on an exchange Mostly well known stocks GM

35、, IBM, AT&T, Xerox Competes with trades on exchange May be open when exchange is closed or trading suspendedFourth Market* Direct trading of securities between two parties with no broker intermediary Usually both parties are institutions Can save transaction costs No data are available regarding its

36、 specific size and growthLOS g: Major Types of OrdersMarket orders Buy or sell at the best current price Provides immediate liquidityLimit orders Order specifies the buy or sell price Time specifications for order may vary Instantaneous - “fill or kill”, part of a day, a full day, several days, a we

37、ek, a month, or good until canceled (GTC)LOS g: Exchange Membership Specialist Commission brokers Employees of a member firm who buy or sell for the customers of the firm Floor brokers Independent members of an exchange who act as broker for other members Registered traders Use their membership to b

38、uy and sell for their own accountsExchange Market MakersU.S. Markets Specialist is exchange member assigned to handle particular stocks Has two roles: Broker to match buyers and sellers Dealer to maintain fair and orderly market Specialist has two income sources Broker commission, without risk Deale

39、r trading income from profit, with riskLOS g: Major Types of Orders Short sales Sell overpriced stock that you dont own and purchase it back later (at a lower price) Borrow the stock from another investor (through your broker) Can only be made on an uptick trade Must pay any dividends to lender Marg

40、in requirements applyLOS g: Major Types of Orders Special Orders Stop loss Conditional order to sell stock if it drops to a given price Does not guarantee price you will get upon sale Market disruptions can cancel such orders Stop buy order Investor who sold short may want to limit loss if stock inc

41、reases in priceLOS h: Describe the process of selling a stock short and discuss an investors likely motivation for selling short. Short sales are orders to sell securities that the seller does not own. Short-sale procedures: The seller must borrow the securities from a broker before selling them. Th

42、e seller must inform their broker that the order is a short sale before the transaction is placed. The seller must return the securities at the request of the lender or when the short sale is closed out. Why would anyone ever want to sell securities short? The seller thinks the current price is too

43、high and that it will fall in the future. So, the seller is selling high and then buying low.LOS i: Discuss the technical points affecting short sales.following three rules (apply to short selling: The uptick rule states stocks can only be shorted in an up market. Thus, a short sale can only trade a

44、t a price higher than the previous trade. Zero ticks, where there is no price change, keep the sign of the previous order. The short seller must pay all dividends due to the lender of the security. The short seller must also deposit margin money to guarantee the eventual repurchase of the security.

45、LOS j: Describe the process of buying a stock on margin Margin transactions involve buying securities with borrowed money. Brokerage firms can lend their customers money and keep the securities as collateral. In the U.S., margin lending limits are set by the Federal Reserve Board under Regulations T

46、 and U. The required equity position is called the margin requirement. The initial margin requirement is currently 50 percent. This means the borrower must provide 50 percent of the funds in the trade. After the trade, the price of the stock will change, causing the balance of the margin account to

47、fluctuate. Should the stock price go up, the customers profits accumulate at a faster pace than a 100 percent equity position. This is the benefit of margin trading leverage.LOS k: Compute the rate of return on a margin transaction Assume that an investor purchases 100 shares of a stock for $75 per

48、share (total cost of $7,500). If the stock is then sold for $150 per share (total value of $15,000), the investor would have had a 100 percent return on her initial investment (15,000/7,500) -1 x100. Now, assume she purchased the same 100 shares with an initial margin of 50 percent. The cost of her

49、investment would be only $3,750. The other $3,750 of the purchase will be borrowed from the brokerage firm. If the shares were then sold at $150 per share, her position would be worth $11,250 (i.e., 15,000-3,750). In this situation, the investor would have had a 200% return on her investment (11,250

50、/3,750) -1 x 100. This calculated return is before commission costs and interest paid on the loan.LOS l: Define maintenance margin and determine the stock price at which the investor would receive a margin call A maintenance margin is the required fraction of an investors equity compared to the tota