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EQUITY MARKET (Equity Markets (Market Participants (Clearing Agencies,…
EQUITY MARKET
Equity Markets
Market Participants
Clearing Agencies
Broker-Dealers
Credit rating agencies
Electronic communications Networks
investment advisers
Securtites Exchanges
Self regula
transfer agents
Structures of equity markets
Primary markets
where issues new stocks on an exchange
IPO
Initial public offering of shares
seasoned
seasoned stock offering
issue facilitated by investment dealers
intermediaaries between issuer and investor
specialists in advice, design, and sales
three choices
public offering
rights offering
private placement
secondary markets
securities are traded after they have issued
role
providdes liquidity
provides continuous pricing mechanism
Organized exchanges
each market has a trading floor
Floor traders execute transactions in the secondary market
Listing requirements
Minimum number of shares issued, income level, minimum cash flow in the nearest period
overthe- counter markets
OTCBB
lists stock that have a price below $1/ per share
pink sheets
The OTC market has where even smaller stocks are traded
The stock is traded on the market OTCBB or pink sheets
Stock market indexes
The stock is traded on the secondary market
monitors the movement of a group of stocks
monitor and set up index funds
measure market rates of return
predicted fluctuations
DJIA
S$P 500 Composite index
Nikkei 225 Average
Main types of Orders
Limit Orders
time specifications for order may vary
Order specifies the buy or sell price
Market order
buy or sell at the besr current price
provides immediate liquidity
Other concepts
Short sales of stock
sell overpriced stock that you don't own and purchase it back later
borrow the stock from another investor
can only be made on an uptick trade
must pay any dividends to lender
margin requirements apply
geneeral market conditions
bull market
bear market
reading a stock table
Overview of Equity Markets
Private Equity
is a business that is privately held
The owners cannot sell their shares to the public
Some business owners hope to go public so that
can obtain financing
sell their original equity investment to others
Public Equity
company issue stock in primary markets
effects on the firms
it changes the firm's ownership structure
it changes the firm's capital markets
Stock markets are like other financial markets
Joint Stock Company
is a from of organization which is capable of mobilizing larger amount os capital
limited liability
Advantages
Large financial resources
Limited liability
Professional management
large-scale production
Contribution to society
Research and development
What are stocks
Stock is ownership in a publicly traded company
Stock is a claim on the company's assets and earnings
The company have two choices
Borrow the money
Raise it from investors by selling them a stake in the firm
Individual stock have a say in how things are done.
Types of stock
Common stock
Most common from of stock
Preferred Stock
Companies may customize other " classes" of stock
You own the stock
Owning a piece of property
Owning all assets
Type of Stock
Common stock
is the fundamental ownership claim
Dividends are discretionary and are thus not guaranteed
Stockholders have limited liability
Voting rights
Preferred stock
represents an equity interest
have fixed dividends
no significant voting rights
limited liability
higher priority claim
Convertible preferred stock
Dividends for preferred shareholders are fixed
Do not benefit from dividend or stock prices
able to convert