1. Learning Objectives Explain the role of brokerage firms and stockbrokers. Explain how shares in public companies are “traded” Know different types of buy and sell orders Be able to calculate the P&L with commission when going long (= buy low…sell high!) How Securities Are Traded Chpt. 5 Practice: p. 148,rev Q #8,10,13; prb#1; p. 52 Q#4,5,13,17,18,24,27

2. STOCK p.43-49 publicly owned firms issue divide their ___________ many shares _______________ a share is a promise by a company to the owner for a ______________________________ shares allow the owner to __________________ of the company through the election of directors shares can be bought or sold on ________________ (TSX, TSX Canadian Venture Ex., NYSE, Nasdaq) or over the counterTSX  IN THIS CONTEST, ONLY STOCKS TRADED ON THE TSX and DERIVATIVES ON THE MX CAN BE TRADEDCONTEST

3. STOCK p.43-49 Common Stock: Preferred Stock:

4. FACTORS EFFECTING STOCK PRICE  supply and demand  profit and dividend outlook  general economic conditions  capital market conditions  speculators  industry & company outlook  fashion in stocks  management  world events

5. Fees and Costs p. 122-129 only licensed individuals associated with companies that have a seat (member) on the stock exchange can buy and sell securities you pay a ____________ every time you ____and ____ a security  ______________  ____________ offers significantly ____________ rates to individual investors In 1992 E*TRADE became the first brokerage service to offer on-line trading (SEE COMMISSIONS IN YOUR CONTEST RULES; ex: p. 125 of text)

6. less than $1 per share - commissions are $20 plus 0.005 per share more than $1, less than or equal to $3 - commissions are $20 plus 0.01 per share more than $3, less than or equal to $10 - commissions are $20 plus 0.02 per share more than $10 - commissions are $20 plus 0.03 per share Stock commissions charged for both buying and selling in the WLU contest:

7. Brokerage Operations p. 122-129 Brokerage firms earn commissions on trades, profit from securities sold from inventory, and administrative account fees Full-service brokers Discount brokers

8. Brokerage Account Types Cash account: Margin account:

9. STOCKS: Trading Terms p. 129-132 board lot: day orders: market order: limit order: stop order:  stop sell -  stop buy -

10. Dealers are ready to either buy or sell  Bid price is the highest offer price to buy  Ask price is the lowest price willing to sell Ask price - Bid price >0 (dealer spread)  Dealer “makes a market” in the security  More than one dealer for each security in over- the-counter markets Orders in OTC Markets

11. Settlement dates for stocks are three business days after the trade date  Legal ownership transferred and financial arrangements settled with brokerage firm Transfer of securities and funds between exchange members facilitated by a clearinghouse: The Canadian Depository for Securities (CDS) Clearing Procedures

12. Exchanges set minimum required deposits of cash or securities Investor pays part of investment cost, borrows remainder from broker  Margin is the percent of total value that cannot be borrowed from broker Margin call occurs when the actual margin declines below the margin requirement Margin Accounts

13. Investor borrows stock from a third party Borrowed security sold in open market, to be repurchased later at an expected price lower than sale price  Investor liable for declared dividends  Short sale proceeds held by broker  Investor responsible for borrowed shares Short Sales

14. Self-Regulatory Organizations (SROs) regulate their own activities Canadian Investor Protection Fund (CIPF) was established to protect investors Investment Dealers Association of Canada (IDA) is the national trade association for the investment industry Canadian Securities Institute (CSI) is the national education body of the Canadian securities industry Canadian Regulatory Environment