Chapter 4 - Lecture Presentation Software to accompany...

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Unformatted text preview: Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Eighth Edition by Frank K. Reilly & Keith C. Brown Chapter 4 Chapter 4 Organization and Functioning of Securities Markets Questions to be answered: • What is the purpose and function of a market? • What are the characteristics that determine the quality of a market? • What is the difference between a primary and secondary capital market and how do these markets support each other? Chapter 4 Organization and Functioning of Securities Markets • What are Rules 415 and 144A and how do they affect corporate security underwriting? • What are call markets and when are they typically used in U.S. markets? • How are the national exchanges around the world linked and what is meant by “passing the book”? • What is the third market? • What are Electronic Communication Networks (ECNs) and alternative trading systems (ATSs) and how do they differ from the primary listing markets? Chapter 4 Organization and Functioning of Securities Markets • What are the major types of orders available to investors and market makers? • What new trading systems on the NYSE and on the NASDAQ have made it possible to handle the growth in U.S. trading volume? • What are the three recent innovations that contribute to competition within the U.S. equity market? • What are Rule 390 and the trade-through rule and what is their effect regarding competition on the U.S. equity market? What is a market? • Brings buyers and sellers together to aid in the transfer of goods and services • Does not require a physical location • Both buyers and sellers benefit from the market Characteristics of a Good Market • Availability of past transaction information – must be timely and accurate • Liquidity – marketability – price continuity – depth • Low Transaction costs • Rapid adjustment of prices to new information Decimal Pricing • Prior to the initiation of changes in late 2000 that were completed in early 2001, common stocks in the United States were always quoted in fractions • Now U.S. equities are priced in decimals (cents), so the minimum spread can be in cents Decimal Pricing Reasons for decimal pricing: It is now easy for investors to understand the prices It saves investors money since it reduces the size of the bid-ask spread It is likely to make U.S. markets more competitive on a global basis Organization of the Securities Market • Primary markets – Market where new securities are sold and funds go to issuing unit • Secondary markets – Market where outstanding securities are bought and sold by investors. The issuing unit does not receive any funds in a secondary market transaction Primary Capital Markets • Government Bond Issues • Municipal Bond Issues • Corporate Bond Issues • Corporate Stock Issues Government Bond Issues • 1. Treasury Bills – negotiable, non-interest bearing securities with original maturities of one year or...
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This note was uploaded on 08/29/2009 for the course BUS Invt taught by Professor Yost during the Spring '09 term at W. Florida.

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Chapter 4 - Lecture Presentation Software to accompany...

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