Securities Market
To purchase stocks, bonds, other investments you have to
work through a representative – stockbroker – will buy and sell for you in
primary or secondary market.
Primary Market –
market in which investor buys finan securities (via invest bank or other
representative) from the issuer of the securities. Invest bank – organization
that assists corporations in raising funds by selling securities issues. Sell
securities methods: 1. Use invest bank to sell new securities issued; used by
large corporations that need a lot of financing – analysts examine fin
condition of corpor and decide if it will be easy to sell the issue. If it is a
good risk bank buys the security and sells it to bank’s customer – commercial
banks. Insurance companies, pension funds, mutual funds, general public. Invest
bank charges 2-12 % of gross proceeds received by corpor issuing the
securities. Size of commission depends on quality and fin health of corpor and
size of the new security issue. Invest bank has a profit while guaranteeing the
financing. 2. Sell directly to current stockholders.
Secondary Market
– after securities are sold through the prim mark they are traded through the
second market – market for existing securities that are traded between
investors. Transactions performed through security exchange or over-the-counter
market. Security exchange – place where member brokers meet to but and
sell securities. Security must first be listed/ accepted for trading at a
particular exchange. Nationwide corpor trade securities in New York stock
exchange or American stock exchange. Securities of regional corpor are traded
at smaller regional exchanges: Chicago, San Francisco, Philadelphia,
Boston, other. Securities of very large corpor may be traded at more than one
of these exchanges. Securities of American firms that do business abroad may
also be listed on foreign securities exchanges. New York stock exchange
= big board – on wall street – 70% of all stocks bought and sold through
organized exchanges in US – 2250 securities listed with a total market value of
$3trillion. Trade 160 million shares per day. Criteria for listing at NYSE:
annual earnings before taxes 2.5 million; shares of stock held publicly 1 million;
market value of publicly held stock 9million; number of stockholders owning at
least 100 shares is 2000; value of tangible assets 18 million. AMEX
located in Manhattan – 500 full members and 400 associated, smaller companies
list – 10% of US stock transactions. Over=the-counter – sells and buys unlisted
securities, smaller companies – 5000 brokers trade by phone, and keep in
contact with each other.
