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1Chapter 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 contr

2、ast 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 national

3、stock exchanges,regional stock exchanges,and the over-the-counter(OTC)markets;2Chapter 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 selling a stock shor

4、t 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;m)discuss major effe

5、cts of the institutionalization of securities markets.3LOS 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 services.2.Provide liquidity.

6、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 price reflects all available informati

7、on regarding the asset.4LOS b:Distinguish between competitive bids,negotiated sales,and private placements for issuing bondsGovernment bond issues are sold at public auction by the Federal Reserve.Small purchasers can submit noncompetitive bids where they are guaranteed securities at the average of

8、the accepted competitive bids.Government securities include:bills 1 to 12 months;notes 2 to 10 years,and bonds 10 years and up.5LOS b:Distinguish between competitive bids,negotiated sales,and private placements for issuing bondsMunicipal bond issues are brought to market by a local government unit t

9、hrough: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 the issue,bear the price risk,and distribute the issu

10、e for a negotiated fee.A private placement where the governmental unit sells the issue directly to the investor without the help of an underwriter.6LOS c:the secondary markets for U.S.government/municpal bonds with the corporate bonds.secondary market for treasuries is through the 35 major treasury

11、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).You should know that the bulk of all bond trading takes place in

12、 the OTC market.7LOS 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,municipalities,or firms to obtain new capital.Secondary financial markets ar

13、e 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 investors are to buy securities.Liquid secondary markets also provide inv

14、estors 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.8Service provided by underwriterUnderwriters sell the bonds to investorsOriginationRisk-bearingDistribution9The Underwriting FunctionThe

15、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 performed by both investment banking firms and commercial banks 10Corporate Bond and

16、 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 for the first time11Introduction of Rule 415Allows firms to register securities and s

17、ell them piecemeal over the next two yearsReferred to as shelf registrationsGreat flexibilityReduces registration fees and expensesAllows requesting competitive bids from several investment banking firmsMostly used for bond sales12Private Placements and Rule 144AFirms sells to a small group of insti

18、tutional investors without extensive registrationLower issuing costs than public offering13LOS e:Call Versus Continuous MarketsCall markets trade individual stocks at specified times to gather all orders and determine a single price to satisfy the most ordersUsed for opening prices on NYSE if orders

19、 build up overnight or after trading is suspendedIn 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.14Secondary Financial MarketsProvides liquidity to investors who acquire securities in the primary marketResu

20、lts in lower required returns than if issuers had to compensate for lower liquidityHelps determine market pricing for new issues15Secondary Bond MarketSecondary market for U.S.government and municipal bondsU.S.government bonds traded by bond dealersBanks and investment firms make up municipal market

21、 makersSecondary corporate bond marketTraded through an OTC market16Secondary Equity Markets1.Major national stock exchangesNew York,American,Tokyo,and London stock exchanges2.Regional stock exchangesChicago,San Francisco,Boston,Osaka,Nagoya,Dublin,Cincinnati3.Over-the-counter(OTC)market Stocks not

22、listed on organized exchange17LOS f:the structural differences among national stock exchanges,regional stock exchanges,and(OTC)markets.The major national exchanges trade shares for a large number of prestigious firms that are geographically dispersed to a diverse clientele.Regional exchanges serve s

23、maller 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)market includes the trading in all securities not listed on one of the registered exchanges.If any registered dealer is w

24、illing 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.18LOS g:market structure characteristics1.When buyers and sellers submit their bid and ask prices to a central location and transactions are

25、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 seller submit their orders to dealers,who either buy the stock for their own inventory or sell the stock from their own inventory,

26、this order driven system is called a dealer market.19New York Stock Exchange(NYSE)Largest organized securities market in United StatesEstablished in 1817,but dates back to the 1792 Buttonwood Agreement by 24 brokersOver 3,000 companies with securities listedTotal market value over$13 trillion20Ameri

27、can 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 MarketEmphasis on foreign securitiesDoesnt trade stocks listed on NYSEMerged with the NASDAQ IN 1998 although they continued to operate as separate marketsW

28、arrants traded on AMEX years before NYSE listed any21Tokyo Stock Exchange(TSE)Largest of the eight exchanges in JapanDominates the Japanese marketEstablished in 1878 and reorganized in 1943,1947,and 1949Price-drive systemDomestic and foreign stocks listedApproximately 1700 stocks listed with a total

29、 market value of$2.4 trillionMost active 150 stocks are traded on floor,others by computer22London Stock Exchange(LSE)Largest securities market in the United KingdomTrades listed and unlisted securitiesMore than 2,600 companies listedLargest listing of foreign stocks on any exchangeTotal market valu

30、e of more than$561billionPricing system by competing dealers via computers similar to NASDAQ system in U.S.23Regional ExchangesStocks not listed on a formal exchangeListing requirements varyListed stocksAllow brokers that are not members of a national exchange access to securitiesRegional Exchanges

31、in United StatesChicago,Boston,Cincinnati,Pacific,Philadelphia24Over-the-Counter(OTC)MarketNot a formal organizationLargest segment of the U.S.secondary marketUnlisted stocks and listed stocks(third market)5,000 issues actively traded on NASDAQ NMS(National Association of Securities Dealers Automate

32、d Quotations National Market System)1,000 issues on NASDAQ apart from NMS1,000 issues not on NASDAQ25Operation of the OTCAny stock may be traded as long as it has a willing market maker to act a dealerOTC is a negotiated market26Listing Requirements for NASDAQAutomated electronic quotation systemDea

33、lers may elect to make markets in stocksAll dealer quotes are available immediatelyTwo listsNational Market System(NMS)Regular NASDAQFour sets of requirementsInitial listing in NasdaqContinued in NasdaqInitial listing in NMSAlternative 1 for profitable companies with limited assetsAlternative 2 for

34、large but less profitableContinued in NMS27Third Market*OTC trading of shares listed on an exchangeMostly well known stocksGM,IBM,AT&T,XeroxCompetes with trades on exchangeMay be open when exchange is closed or trading suspended28Fourth Market*Direct trading of securities between two parties with no

35、 broker intermediaryUsually both parties are institutionsCan save transaction costsNo data are available regarding its specific size and growth29LOS g:Major Types of OrdersMarket ordersBuy or sell at the best current priceProvides immediate liquidityLimit ordersOrder specifies the buy or sell priceT

36、ime specifications for order may varyInstantaneous-“fill or kill”,part of a day,a full day,several days,a week,a month,or good until canceled(GTC)30LOS g:Exchange MembershipSpecialistCommission brokersEmployees of a member firm who buy or sell for the customers of the firmFloor brokersIndependent me

37、mbers of an exchange who act as broker for other membersRegistered tradersUse their membership to buy and sell for their own accounts31Exchange Market MakersU.S.MarketsSpecialist is exchange member assigned to handle particular stocksHas two roles:Broker to match buyers and sellersDealer to maintain

38、 fair and orderly marketSpecialist has two income sourcesBroker commission,without riskDealer trading income from profit,with risk32LOS g:Major Types of OrdersShort salesSell overpriced stock that you dont own and purchase it back later(at a lower price)Borrow the stock from another investor(through

39、 your broker)Can only be made on an uptick tradeMust pay any dividends to lenderMargin requirements apply33LOS g:Major Types of OrdersSpecial OrdersStop lossConditional order to sell stock if it drops to a given priceDoes not guarantee price you will get upon saleMarket disruptions can cancel such o

40、rdersStop buy orderInvestor who sold short may want to limit loss if stock increases in price34LOS 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

41、:The seller must borrow the securities from a broker before selling them.The 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 w

42、ant to sell securities short?The seller thinks the current price is too high and that it will fall in the future.So,the seller is selling high and then buying low.35LOS i:Discuss the technical points affecting short sales.following three rules(apply to short selling:The uptick rule states stocks can

43、 only be shorted in an up market.Thus,a short sale can only trade at 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 margi

44、n money to guarantee the eventual repurchase of the security.36LOS j:Describe the process of buying a stock on marginMargin 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 limit

45、s are set by the Federal Reserve Board under Regulations T 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

46、change,causing the balance of the margin account to 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.37LOS k:Compute the rate of return on a margin transactionAssume that an inve

47、stor purchases 100 shares of a stock for$75 per 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 m

48、argin of 50 percent.The cost of her 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 o

49、n her investment(11,250/3,750)-1 x 100.This calculated return is before commission costs and interest paid on the loan.38LOS l:Define maintenance margin and determine the stock price at which the investor would receive a margin callA maintenance margin is the required fraction of an investors equity

50、 compared to the total value of the stock.The Federal Reserve has currently set the maintenance margin(the minimum equity portion of the account)at 25 percent on a stock purchase.If the customer抯 balance falls below the maintenance margin,the customer will get a margin call.The following formulas in