1. Chapter 12
Securities Markets

2. Securities Markets
Securities—stocks and bonds—are issued by corporations to raise money.
Securities Markets—a place where you buy and sell securities—primary and secondary markets.
After the initial issue, securities are traded among investors.

3. Primary Markets Place where new securities are traded
Initial public offering (IPO)
Seasoned new issues
Investment Banker
Underwriter
Tombstone advertisement
Prospectus

4. Secondary Markets—Stocks
Markets in which previously issued securities are traded.
Organized exchange—a physical location where stocks trade.
Over-the-counter market—transactions conducted over phone or computer.
Regional stock exchanges

5. Secondary Markets - Stocks
New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
Over-the-Counter (OTC) Market
Bid price
Ask price

6. Secondary Markets - Bonds
Tend to be for smaller, individual investors.
Some bonds trade at the NYSE, most trading by bond dealers deal directly with large financial institutions.
Small investors access bond dealers through broker.
Volume of trading for government bonds is enormous dominated by Federal Reserve, commercial banks, financial institutions.

7. Regulation of the Securities Markets
Aimed at protecting investors so that all have a fair chance of making money.
Securities and Exchange Commission (SEC)
Self-regulation
Insider trading and market abuses
churning

8. Order Characteristics
Order Size
Odd lots <100 shares
Round lots
Time Period for Which the Order Will Remain Outstanding
Day orders
Open orders or Good-till-cancelled (GTC) orders
Discretionary account

9. Types of Orders
Market Orders—buy or sell immediately at the best price available.
Limit Orders—trade is to be made only at a certain price or better.
Stop Orders or Stop-Loss Order—order to sell if the price drops below a specified level or to buy if the price climbs above a specified level.

10. Short Selling
Short selling—the more the price drops, the more money your make.
Borrow stock from the broker and then sell it.
Margin requirement—collateral
Sell high and later buy low and return stock to broker.
If price increases, you buy back for more than the sold price, and lose money.

11. Figure 12.3 Profits from Purchasing Versus Selling Short

12. Types of Brokers
Full-Service Brokers or Account Executive— paid commissions based on sales volume.
Discount and Online Brokers—execute trades but do not provide advice.
Premium discount brokers
Deep discount brokers

13. Cash Versus Margin Accounts
Cash Accounts
Margin Accounts
Margin or Initial Margin
Maintenance margin
Margin call

14. The Cost of Trading Sales commission to buy stock
Commission to sell stock
Transaction fee
Annual fee for inactive accounts
Use discount broker for large purchases

15. Online Trading
Day traders—trade, generally on internet, with a very short-term time horizon.
Be prepared to suffer severe financial losses.
Don’t confuse day trading with investing.
Don’t believe claims of easy profits.
Watch out for “hot tips” or “expert advice.”

16. Table 12.3 Great Sources of Investment Information on the Web