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Contemporary Investments: Chapter 6 Chapter 6 INVESTOR PARTICIPATION IN THE FINANCIAL MARKETS How should investors choose a broker? What are the various.

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Presentation on theme: "Contemporary Investments: Chapter 6 Chapter 6 INVESTOR PARTICIPATION IN THE FINANCIAL MARKETS How should investors choose a broker? What are the various."— Presentation transcript:

1 Contemporary Investments: Chapter 6 Chapter 6 INVESTOR PARTICIPATION IN THE FINANCIAL MARKETS How should investors choose a broker? What are the various types of orders placed by investors? What is cyber trading? What are block trades and program trading? Who regulates the financial markets and protects investors?

2 Contemporary Investments: Chapter 6 Choosing a broker Types of brokerage firms Full service firms Discount firms Deep discount firms Cyber (electronic) brokers Buying securities without a broker

3 Contemporary Investments: Chapter 6 Dividend reinvestment plans No-load stock purchase programs

4 Contemporary Investments: Chapter 6 Types of orders Market order –Definition How it is executed on the NYSE How it is executed on Nasdaq Spreads and decimal pricing Clearing procedures Limit orders Stop (or stop-loss) orders

5 Contemporary Investments: Chapter 6 Margin transactions What is a margin transaction Initial and maintenance margin requirements Margin calls Risk/return characteristics of margin transactions Short sales

6 Contemporary Investments: Chapter 6 Figure 6.2 – Illustration of Cash versus Margin Purchase

7 Contemporary Investments: Chapter 6 Cyber trading History of cyber trading Advantages and disadvantages of cyber trading Low cost Easy, 24 hour access Delays in order execution –Margin calls are not required Day trading

8 Contemporary Investments: Chapter 6 Block trades and program trading Block trades Definition The creation of block houses and the third market

9 Contemporary Investments: Chapter 6 Program trading Wall Street definition Index arbitrage Circuit breakers employed by NYSE

10 Contemporary Investments: Chapter 6 Investor protection Importance of investor confidence Government regulation in the United States The Securities & Exchange Commission Regulatory philosophy Full and fair disclosure Prospectus Insider trading State regulation

11 Contemporary Investments: Chapter 6 Securities regulation in other countries Modeled on U.S. regulation Japan Canada Industry self regulation Professional rules of conduct NASD rules AIMR standards Arbitration and discipline procedures Market surveillance

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