transcript19 - Financial Markets: Lecture 19 Transcript...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Financial Markets: Lecture 19 Transcript April 9, 2008 << back Professor Robert Shiller: What I want to talk about today is about places where stocks are exchanged--or bonds or other securities. It's another huge industry. I would say it's part of our information technology--our information network. What we have to do is find a national or international price for a security. The problem is that when securities are traded without a central market, different people will be getting different prices for the same thing. We have what's called--or maybe the term--what markets do for us is--the important term is "price discovery." That means that there is a market price that an asset would have if everybody in the whole world were free to buy and sell the asset on the same market and at the same time. But if you don't have an organized exchange, which is open and available to everybody without a lot of cost, then you don't have effective price discovery and that means that nobody knows what the asset is worth in the whole market. We take price discovery for granted but we have to realize that there's a technology that brought us that and it's the technology that we want to emphasize that has been improving over the years; it's not static. I wanted to start by just defining some important terms regarding exchange of securities. One important term is "broker"--and I'll put it over here--another one is "dealer." Those are the two kinds of people who trade securities. It's important to keep the concept, so one thing that's used to describe is to start with the letters BOAC --that sounds likes it's British Overseas Airways Corporation, but that's not what I mean. This is a mnemonic to remember broker. It says brokers act on Behalf or for Others as an Agent for which they earn a Commission . A broker goes between two people and the two people trade with each other. The broker makes it happen and the broker receives a fee called a commission for bringing these people together so that they could find each and make the deal--make the trade. For dealer, we have a different--it's DHPM . A Dealer acts for Herself or Himself as a Principal for a Markup ; that's the fundamental difference. In contrast to a broker, the dealer actually buys and sells himself or herself and that means the dealer has an inventory of whatever it is that--so that the dealer has something to sell. If you go to a dealer and buy a security, you're buying it from the dealer out of the dealer's inventory. If you sell through a dealer, you sell to the dealer. There's a fundamental diff--the markup is the difference between the price that the dealer buys and sells at; so, you see that there's a fundamental difference. Now, securities law says that you can never function as both a broker and a dealer in the same transaction.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 11

transcript19 - Financial Markets: Lecture 19 Transcript...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online