Secondary Securities Markets

After securities have been issued, they are frequently traded in the secondary markets. Securities can be traded on organized national and local stock exchanges, in the over-the-counter market, and directly between buyers and sellers, often using the services of an electronic network.

Stock Exchanges:

In the United States, there are 3 major national stock exchanges—the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the NASDAQ—which list most of the major companies—and numerous local exchanges, which list smaller, local companies. The New York Stock Exchange is the largest exchange, followed closely by NASDAQ, while AMEX is a distant third. However, AMEX lists many new types of securities, such as exchange-traded funds. The local exchanges include the following:

• Boston Stock Exchange
• Philadelphia Stock Exchange
• National Stock Exchange (formerly the Cincinnati Stock Exchange)
• Chicago Stock Exchange
• Pacific Stock Exchange

All exchanges have initial listing requirements that companies must satisfy before they can be listed on a particular exchange. Since an exchange makes money by charging commissions or fees on trades, most requirements are designed to ensure that a certain amount of trading will occur in the company’s shares. In most cases, larger companies have more trading activity, and so several requirements are related to ensure a minimum size. The most common requirements are a minimum market value, a minimum income and revenue, a minimum number of shares outstanding, and a minimum number of holders of public stock.

Although most stocks listed on an exchange are listed stocks for that exchange, an exchange can list the securities of any other exchange, if it so chooses. To increase pricing competition, the Securities and Exchange Act of 1934 contains a provision referred to as unlisted trading privileges (UTP) that allows any exchange to list any securities listed on any other exchange.

Only members of an exchange may list and execute trades at the exchange. When a retail investor wants to trade an exchange-listed stock, he must go to a broker. If the broker is a member of the exchange where the stock is listed, then she can send her client’s order to a representative of her firm, who will then execute the trade. However, if her firm is not a member, then she will have to send the order to another broker or dealer who is a member of the exchange or to their representative at the exchange.

Buy or sell limit orders are entered into the system and crossed with matching orders. If there are no matching orders, then they are queued, first by price, then by date, as a bid or offer price. The list of all bids and offers constitutes the order book, and the current market quote is the best bid and offer.

Requirements For Listing On The London Stock Exchange:

Becoming listed on the LSE is a complicated process. The London Stock Exchange listing rules that must be fulfilled before a company can 'go public' follow.

The process of floating a company and their ongoing regulation is controlled by the UKLA (UK Listing Authority) which is a part of the FSA. The UKLA's listing requirements include:

- Directors must sign a listing agreement which commits the board to high standards of behaviour and reporting levels to shareholders.

• The directors must prepare a prospectus (known as listing particulars) to potential investors.

• At least 25% of the share capital must be in the hands of the public so that the shares can be actively traded and remain reasonably liquid.

• The company should have at least three years of accounts.

• The company needs a sponsor (bank, stockbroker or other professional adviser) to guide and advise and to reassure the UKLA that the company is of sufficient quality.

Once listed on the London Stock Exchange, the company and directors have continuing obligations, which include: 

• Giving the market any price sensitive information as quickly as possible.

• To undertake to disclose information fully and accurately.

• The directors must follow strict guidelines relating to the buying and selling of their own shares in the company.

These are just a few main rules and they show you what is required of companies hoping to list on the main market.

One of the attractions of the Alternative Investment Market, AIM, is that these requirements are significantly less onerous and therefore costly. This helps to attract younger and more rapidy growing companies to market.

How The LSE Information System Works And What Are The Two Main Groups Of Stocks

The London stock exchange is actually divided into two parts. The first part is the main market, for which companies need at least three years of audited accounts to become members. The second part of the exchange is the Alternative Investment Market, otherwise known as AIM.

AIM offers a market for those shares that either cannot obtain or do not want a full listing on the main market (also known as the Stock Exchange's Official List). AIM is targetted at smaller companies with fewer costs and formalities in obtaining a listing. This often attracts younger and fast growing companies.

The Alternative Investment Market started on the London Stock Exchange in June 1995 and at the end of 1996 it replaced the Unlisted Securities Market.

In the early days, AIM was viewed as a 'high tech' home for UK stocks, rather like the NASDAQ in America. However, this was in part due to the massive rise in technology stocks (TMT) in the late 1990s that became the 'Internet bubble'. 

AIM now hosts a wide range of small companies in almost every imaginable area - including a number of companies that are not even UK companies but wanted a UK listing.

It goes without saying that in many of the companies listed on AIM, liquidity is lower than might be the case elsewhere on the LSE. This is in large part due to the smaller relative size of AIM companies, but also because not all stockbrokers deal in AIM stocks.

How The London Stock Exchange Information System Works?

The London Stock Exchange is the oldest major financial market in the world but it is now no longer the largest. In March 2005 there were over 2500 companies quoted on the London Stock Exchange market including over 300 from outside the UK.

To be granted permission to be listed on the stock exchange companies must satisfy certain conditions and then others on an ongoing basis. One of the conditions is that companies must have a trading record of at least three years before they can obtain a listing. 

There are currently two different trading systems:

SEAQ is the Stock Exchange Automated Quotation System and is a quote-driven system. Market makers compete, transacting amongst themselves and dealing with the public through brokers (also known as dealers). Trading is done by phone.
 

SETS is the Stock Exchange Electronic Trading Service and is an order-driven system. It allows brokers to post orders and trade automatically through an electronic order book. This eliminated the market makers role. SETS is limited to FTSE 100 stocks and some FTSE 250 shares. 

London Stock Exchange Information System - SEAQ:

SEAQ stands for Stock Exchange Automated Quotation System.

Now there are more then 1500 listed companies whose bid and offer prices are quoted on SEAQ. SEAQ is essentially a price-information service and not a trading system. It can be accessed through a number of screen based information services. Trades are therefore carried out either by phone or online. SEAQ provides:

- prices quoted by market makers

- the number of trades reported (above £1,000 in value)

- the best bid/offer prices with upto three market makers prepared to deal

- an automatic trade execution service

If you need more informations please go to SEAQ 

London Stock Exchange Information System - SETS:

The basis of SETS was launched by the London Stock Exchange in 1997. It was designed to cater for FTSE 100 firms and the largest of the FTSE 250 companies. Since then the system has (as ever) undergone significant change. The main points of the SETS system are:

- London Stock Exchange SETS deals go through brokers. 

- The brokers enter buy and sell orders through an electronic order book. 

- Market makers have no role in the transaction - thus removing an added layer of costs.

There is no minimum order size. This is very useful to the private investor. The arrival of PEPs and ISAs (both tax advantaged investment plans which effectively hold shares in a nominee type account) meant that many private investors might own a portfolio of shares but never receive annual company accounts. SETS makes it easier to purchase small holdings (many investors now own a number of shares in their tax wrapper and just one share in their own name to ensure that corporate documentation arrives). 

Orders may be matched against more than one opposite trade in the order book. The Stock Exchange Electronic Trading System operates on a T+3 basis which means that the financial aspects must be completed on the third working day after the trade.

London Stock Exchange SETS orders are either:

- At best which means the trade is carried out at the best possible overall prices

- Execute and eliminate is also known as immediate execution. Any amount of an order that can be completed at a set price is done - everything else is discarded.

- Fill or kill involves the trade being done at exactly the terms specified in the correct volume - or nothing is done at all.

- Limit orders remain on the SETS screen. They are set for prices that are 'no worse than' and may be filled slowly over time. An expiry date (max of 90 days) prevents these orders running for too long.

If you need more informations please go to SETS

Now let's go and see what requirements a company has to meet, before it can be listed on the London Stock Exchange!

Seats On The New York Stock Exchange

What Is The Seat On The New York Stock Exchange?

A seat on the New York Stock Exchange represent both an equity interest in the Exchange as well as the right to access the trading facilities of the market.

A Membership on the NYSE is traditionally referred to as a 'seat' because in the early year of its existence, Members sat in assigned chairs in the hall where the Exchange’s daily roll call of stocks was conducted.

After a post-Civil War boom in stock trading, the Exchange adopted a system of continuous trading, replacing calls of stocks at set times with simultaneous trading of all listed stocks on a large open trading floor.

The term 'seat' lost its literal meaning with the advent of continuous trading in 1871. Trading was then conducted at trading posts on a large open floor. The seats that the brokers had occupied were gone. Owning or leasing a seat on the Exchange enabled qualified and licensed professionals to buy and sell securities on the floor.

In 1868 the Exchange established a fixed number of Memberships and revised its rules to allow Members to sell their seats. After selling for as little as $4,000 in the late 1860s and early 1870s, Memberships reached $80,000 by the turn of the century, reaching a high of $625,000 during the bull market of 1929 before reaching new highs of over $1 million during the 1980s stock market boom.

In 1990, a seat sold for $250,000. The highest price ever paid for a seat was $4 million on Dec. 1, 2005, followed by several seat sales at the same price.

Since the late 1970s, NYSE Members have been permitted to lease seats and their assigned trading rights to qualified individuals. 

New York Stock Exchange In Modern Times:

At the close of the market on December 30, 2005, member seat sales on the New York Stock Exchange officially ended, in anticipation of the NYSE’s plans to become a publicly traded company by way of merger with Archipelago Holdings Inc.

In 2005, NYSE seat prices have reached an historic high, quadrupling from a low of $975,000 on Jan. 11 to reach a new all-time high of $4 million in early December.That is an increase of 310%! The most recent seat sale, on Dec. 29, was for $3,505,000.

On Wednesday, Jan. 4, 2006, the NYSE conducted a Dutch auction for trading licenses. This gave Members and Member organizations the right to access the trading facilities of the NYSE market.

Until 2006, members could only join by purchasing existing seats, which were limited to a total of 1,366. In April 2006, the NYSE went both electronic and public, by merging with the already publicly traded Archipelago electronic stock exchange. The new merged company is called the NYSE Group, Inc., and the seats of the NYSE translated into shares of stock. 

Now let's go to the London Stock Exchange or LSE, better know as the City of London!

History Of The New York Stock Exchange: 1792-2011

As you can see, the New York Stock Exchange was formed in 1792! To put things in the perspective, while in Europe were Napoleonic wars, in New York city a group of 24 out of 64 traders made an agreement on 17th May 1792 and formed New York Stock & Exchange Board. The agreement was signed under a buttonwood tree. In 1863 the name of the exchange was shortened to "New York Stock Exchange" - the name it still holds today.

As the 20th century dawned, the NYSE was firmly established as one of America’s preeminent financial institutions. Trading in listed stocks had tripled between 1896 and 1899 and would nearly double again by 1901.

More space was clearly needed, the market was expanding. So the Exchange invited eight of New York City’s leading architects to join in a competition to design a grand new building.

The Exchange chose the neoclassic design of architect George B. Post. Today, the Exchange building is considered one of Post’s masterpieces and is a New York City and American national landmark.

Of course, one of the most important events in the New York Stock Exchange history happened in 1929 when the 'Great Depression' and stock market crash occurred. It is a subject about which I have done quite a lot of reading and find fascinating.

 

The Great Depression And The New York Stock Exchange:

Stock prices fell sharply on October 24 1929, Black Thursday, with record volume of nearly 13 million shares. Five days later, the market crashes on volume of over 16 million shares which is a level not to be surpassed for 39 years. On September 3 1929, the Dow Jones Industrial Average reaches its 1929 peak of 381.17.

On October 29, Black Tuesday, prices fall sharply and the stock market crashes. This crash produces a record volume of nearly 16 million shares. The Dow Jones Industrial Average falls more than 11 percent.

Other important facts about members and member firms throughout NYSE history:
-Highest price paid for a membership: $4,000,000 on December 01, 2005
-Lowest price paid for a membership: $2,750 in 1871
-First member firm to incorporate: Woodcock, Hess & Co., Inc., 1953
-First member firm to go public: Donaldson, Lufkin & Jenrette, 1970
-First member firm to be listed on the NYSE: Merrill Lynch, 1971

Until 2006, members could only join by purchasing existing seats, which were limited to a total of 1,366. In April 2006, the NYSE went both electronic and public, by merging with the already publicly traded Archipelago electronic stock exchange. The new merged company is called the NYSE Group, Inc., and the seats of the NYSE translated into shares of stock.

Now let's go and see how the NYSE seat system worked in the Seats On The New York Stock Exchange.

What Is The New York Stock Exchange (NYSE), Better Known As "Wall Street"?

The New York Stock Exchange or NYSE is a physical exchange, located at Wall Street, also knows as referred as a listed exchange – where only stocks that can be traded are one that are listed on the exchange.

NYSE is the world's largest equity market. On an average trading day there are 1.46 billion shares traded that worth around 46 billion US dollars.

NYSE listed companies are one of the world’s biggest and best. They range from 'blue-chip' companies that have been trading for decades, to young high-growth ones. At the time of the writing there are around 2800 listed companies.

The NYSE has a status called 'members'. A member firm is a company or individual who owns or leases a "seat". Only these member firms are allowed to buy and sell securities on the trading floor. The member firms must must meet rigorous professional standards set by the Exchange.

The number of seats is 1366 since 1953. Since 1868 it has been possible for members to sell or lease their seats after a change in the rules of the exchange.

Customers orders are sent by brokers to the floor brokers, who are members of the exchange. Then, floor brokers send the order to the specialist’s trading post where order is finally get executed.

Specialist who is also known as a market maker, as the name imply, specialize in one security only and his job is to make a market for it. So the specialist's job is to match buy and sell orders using open outcry. If there is a spread between bid and offered price and the trade can’t be executed in that moment, the specialist comes in with his own money or stock to close the difference. In other words – to make the market.

When trade is executed, details are reported on the tape and sent back to the brokerage house, who then notifies the customer that his trade was executed and at what price. That's the report that You and I get when we buy or sell a stock.

Now let's go to the history of New York Stock Exhange in the History Of The New York Stock Exchange.

What Is A Stock Market Or A Stock Exchange

A stock or equity market is first of all a place where buyers meet sellers to exchange their goods, in this case - stocks, also known as securities for the money. In modern times, those places where trading is done and where securities are listed are actually a companies, just like the ones that are traded on the exchanges. The whole world stock market was estimated to be around 36 trillion US dollars based on the data from 2008.

The stock market or stock exchange, as we said, is a place where stocks are listed and traded. In former days, those stocks were just a pieces of paper that represented a part of the ownership in company. Today, those pieces of paper, also known as stock certificates, are in electronic form and can be issued in paper form only on the request.

The largest stock exchange in the world, by market capitalization based by stocks listed on them, is New York Stock Exchange better known as NYSE. Other exchanges in the United States are American Stock Exchange or AMEX and NASDAQ. 

Other important stock exchanges are in England where is the London Stock Exchange is located. In Asia we have Tokyo Stock Exchange, in Canada there is the Toronto Stock Exchange, in Paris the Paris Bourse, in Germany the Deutsche Borse (former Frankfurt Stock Exchange).


Importance Of Stock Exchanges: 

The stock market is one of the most important ways for companies to raise money to expand and grow their businesses. This allows businesses to be publicly traded and to raise additional capital for expansion by selling shares to the general public. Liquidity that exchanges provide give an investors a possibility to quickly buy and sell securities and with less risk. 

It’s wide known that if the stock market is on the rise it is considered that economy is up and booming. That’s the reason why is it considered stocks market to be a leading indicator of a country's economic strength and development.

Rising share prices, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. For that reason, Central banks, which I’al cover in the future posts, keep an eye to the stock market prices and if prices rise to much as in ’90s, it can lead to the stock market crash.

Stock exchanges are also the clearinghouses for each transaction, which means that they collect and deliver the shares and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty cannot make the payment.
 

Let's go now to the New York Stock Exchange Or NYSE...

Welcome To My Stock Market & Forex Blog!

Who Am I And What Is This Blog About?

Hi, my name is Dusan Kovacevic and welcome to my blog! I became interested in the markets since 2004, and since then I'we been trading in stocks, forex, CFDs and spread-betting. Also, I have a BA degree in Finance and worked as a junior broker, so I think I have  a solid understanding about financial markets. My intention with this blog is to help people with little or no formal education about financial markets to learn how global financial system works, what is the difference between investing and trading and how to use both to achieve your financial goals.

Here is a list of the main subjects, that in my opinion, are really important to understand before we can move to real trading stuff. Here is the list:

- What is stock market?

- What stock exchanges exist today and how they work?

- Macroeconomic and why is it important to understand?

- Cycles, recession and prosperity.

- Meaning of inflation and deflation.

- What are interest rates

- What is yield curve

- Feds and Fed's chairmen

- Indexes and averages and what are they telling me?

- Types of trading instruments

- Type of stocks

- Bonds, what are they and are they really alternative to stocks?

- Derivatives, what they are and differences and similarities between them

- Options, calls, puts and the greeks

- Futures, forwards warrants and swaps

- Mutual funds and the differences between them

- ETFs and why are they important for investors to achieve their goals?

- Hedge funds

- Trading vs. Investing? What's better?

- Trading strategies

- Investing strategies

- News. Are they important or not, and how to know when are news already priced into the price of   underlying instrument.

- Fundamental and technical analysis.

So let's start with definition of what the is a Stock Market...