EQUITY MARKETS Sokolova Ksenia

EQUITY MARKETS: DEFINITION  The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also is known as the stock market, it’s one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.

EQUITY MARKETS  Stock exchange is a place, whether physical or electronic, where stocks, bonds, and/or derivatives in listed companies are bought and sold.  Over-the-counter (OTC) markets or off-exchange trading is done directly between two parties, without any supervision of an exchange  Primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).  Secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.

TRADING ON EQUITY MARKETS  Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders.  The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

WORLD MAJOR STOCK EXCHANGES  The New York Stock Exchange (NYSE) is a physical exchange, also referred to as a listed exchange – only stocks listed with the exchange may be traded, with a hybrid market for placing orders both electronically and manually on the trading floor.  The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched.

MARKET PARTICIPANT  Individual retail investors;  Institutional investors: - mutual funds; - pension funds; - banks; - insurance companies; - hedge funds; - other financial institutions.

PURPOSE OF STOCK MARKET  Stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange affords the investors gives them the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. Some companies actively increase liquidity by trading in their own shares.

QUESTIONS 1. What is the difference between stock exchange and over-the-counter market (OTC market)? 2. What are the main benefits for companies to use equity markets?

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