2. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Chapter 3 Security Markets

3. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Market Makers - Security Dealers - Specialists Offer to buy and sell for their own account The spread - the bid and ask prices Market makers –do not set the level of prices –facilitate security transactions

4. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Security Markets Organized exchanges –NYSE and the AMEX –the listing of securities Over-the-counter markets (Nasdaq)

5. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Security Markets The reporting of transactions

6. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Security Markets The reporting of transactions

7. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Security Markets Composite reporting Third and fourth markets

8. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Buying and Selling Securities The role of brokers –full service brokerage firms –discount brokers –electronic trading The difference between a broker and a security dealer

9. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Bulls and Bears The long (bullish) position –anticipating prices rising The short (bearish) position –anticipating prices falling

10. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Types of Orders Market orders Limit orders Stop orders

11. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Settlement Confirmation statements T + 3: Settlement date Delivery versus holding securities in street name

12. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Cash versus Margin Accounts Leveraging the position Increased potential return Increased risk

13. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Margin Requirements Initial margin requirement Maintenance margin Margin call

14. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Cost of Investing Commissions The spread Any price concessions

15. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Short Sale Premised on security prices declining Sale of borrowed securities The uptick rule Short-interest ratio

16. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Short Sale The flow of securities and cash: Establishing the position

17. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Flow of Securities and Cash: Closing the Position

18. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Foreign Securities Foreign stocks traded in American markets American Depository Receipts (ADRs) –avoids the problem of language –expressed in dollars and not the local currency –registered with the SEC

19. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Regulation - The Federal Security Laws Full disclosure laws: importance of information The federal security acts –Security Act of 1933 –Security Exchange Act (1934) –Public Holding Company Act of 1940 –Investment Advisors Act

20. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Securities and Exchange Commission (SEC) Registration of securities Enforcement of the federal security laws Suspension of trading

21. Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Securities Investor Protection Corporation Insures accounts against failure by brokerage firms Similar to FDIC