Chap003HowSecuritiesAreTraded金融工程南开大学

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1、McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-1How Securities Are TradedChapter 3McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-2Primary vs.Secondary Security SalesnPrimary-New issue-Key factor:issuer receives the proce

2、eds from the sale.nSecondary-Existing owner sells to another party.-Issuing firm doesnt receive proceeds and is not directly involved.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-3Investment Banking ArrangementsnUnderwritten vs.“Best Efforts”-Underwritten:fi

3、rm commitment on proceeds to the issuing firm.-Best Efforts:no firm commitment.nNegotiated vs.Competitive Bid-Negotiated:issuing firm negotiates terms with investment banker.-Competitive bid:issuer structures the offering and secures bids.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,

4、Inc.All rights reserved.3-4Public OfferingsnPublic offerings:registered with the SEC and sale is made to the investing public.-Shelf registration(Rule 415,since 1982)nInitial Public Offerings(IPOs)-Evidence of underpricing-PerformanceMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.A

5、ll rights reserved.3-5Private PlacementsnPrivate placement:sale to a limited number of sophisticated investors not requiring the protection of registration.nDominated by institutions.nVery active market for debt securities.nNot active for stock offerings.McGraw-Hill/IrwinCopyright 2001 by The McGraw

6、-Hill Companies,Inc.All rights reserved.3-6Organization of Secondary MarketsnOrganized exchangesnOTC marketnThird marketnFourth marketMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-7Organized ExchangesnAuction markets with centralized order flow.nDealership fu

7、nction:can be competitive or assigned by the exchange(Specialists).n Securities:stock,futures contracts,options,and to a lesser extent,bonds.nExamples:NYSE,AMEX,Regionals,CBOE.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-8OTC MarketnDealer market without cen

8、tralized order flow.nNASDAQ:largest organized stock market for OTC trading;information system for individuals,brokers and dealers.nSecurities:stocks,bonds and some derivatives.-Most secondary bonds transactionsMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-9Th

9、ird MarketnTrading of listed securities away from the exchange.nInstitutional market:to facilitate trades of larger blocks of securities.nInvolves services of dealers and brokersMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-10Fourth MarketnInstitutions tradin

10、g directly with institutionsnNo middleman involved in the transactionnOrganized information and trading systemsnECN DevelopmentMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-11International Market StructuresnLondon Stock Exchange-Dealer market similar to NASDA

11、Q-Stock Exchange Automated Quotation-Greater AnonymitynTokyo Stock Exchange-No market making service-Sartori provides bookkeeping service-Feature a floor and electronic tradingnGlobal Market AlliancesMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-12Costs of Tr

12、adingnCommission:fee paid to broker for making the transactionnSpread:cost of trading with dealer-Bid:price dealer will buy from you-Ask:price dealer will sell to you-Spread:ask-bidnCombination:on some trades both are paidMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights re

13、served.3-13Types of OrdersnInstructions to the brokers on how to complete the ordernMarketnLimitnStop lossMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-14nUsing only a portion of the proceeds for an investment.nBorrow remaining component.nMargin arrangements

14、differ for stocks and futures.Margin TradingMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-15nMaximum margin-Currently 50%-Set by the FednMaintenance margin-Minimum level the equity margin can benMargin call-Call for more equity fundsStock Margin TradingMcGraw

15、-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-16X Corp$7050%Initial Margin40%Maintenance Margin1000Shares PurchasedInitial PositionStock$70,000 Borrowed$35,000 Equity$35,000Margin Trading-Initial ConditionsMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companie

16、s,Inc.All rights reserved.3-17Margin Trading-Maintenance MarginStock price falls to$60 per shareNew PositionStock$60,000 Borrowed$35,000 Equity 25,000Margin%=$25,000/$60,000=41.67%McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-18Margin Trading-Margin CallHow f

17、ar can the stock price fall before a margin call?(1000P-$35,000)*/1000P=40%P=$58.33*1000P-Amount Borrowed=EquityMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-19Short SalesnPurpose:to profit from a decline in the price of a stock or security.MechanicsBorrow st

18、ock through a dealer.Sell it and deposit proceeds and margin in an account.Closing out the position:buy the stock and return to the party from which it was borrowed.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-20Short Sale-Initial ConditionsZ Corp100 Shares5

19、0%Initial Margin30%Maintenance Margin$100Initial PriceSale Proceeds$10,000Margin&Equity 5,000Stock Owed 10,000McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-21Short Sale-Maintenance MarginStock Price Rises to$110Sale Proceeds$10,000Initial Margin 5,000Stock Ow

20、ed 11,000Net Equity 4,000Margin%(4000/11000)36%McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-22Short Sale-Margin CallHow much can the stock price rise before a margin call?($15,000*-100P)/(100P)=30%P=$115.38 *Initial margin plus sale proceedsMcGraw-Hill/Irwin

21、Copyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-23Regulation of Securities MarketsnGovernment RegulationnSelf-Regulation nCircuit BreakersnInsider TradingnECNs and FragmentationMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-24How Securiti

22、es Are TradedChapter 3McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-25Primary vs.Secondary Security SalesnPrimary-New issue-Key factor:issuer receives the proceeds from the sale.nSecondary-Existing owner sells to another party.-Issuing firm doesnt receive pro

23、ceeds and is not directly involved.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-26Investment Banking ArrangementsnUnderwritten vs.“Best Efforts”-Underwritten:firm commitment on proceeds to the issuing firm.-Best Efforts:no firm commitment.nNegotiated vs.Comp

24、etitive Bid-Negotiated:issuing firm negotiates terms with investment banker.-Competitive bid:issuer structures the offering and secures bids.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-27Public OfferingsnPublic offerings:registered with the SEC and sale is

25、made to the investing public.-Shelf registration(Rule 415,since 1982)nInitial Public Offerings(IPOs)-Evidence of underpricing-PerformanceMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-28Private PlacementsnPrivate placement:sale to a limited number of sophistic

26、ated investors not requiring the protection of registration.nDominated by institutions.nVery active market for debt securities.nNot active for stock offerings.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-29Organization of Secondary MarketsnOrganized exchange

27、snOTC marketnThird marketnFourth marketMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-30Organized ExchangesnAuction markets with centralized order flow.nDealership function:can be competitive or assigned by the exchange(Specialists).n Securities:stock,futures

28、contracts,options,and to a lesser extent,bonds.nExamples:NYSE,AMEX,Regionals,CBOE.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-31OTC MarketnDealer market without centralized order flow.nNASDAQ:largest organized stock market for OTC trading;information system

29、 for individuals,brokers and dealers.nSecurities:stocks,bonds and some derivatives.-Most secondary bonds transactionsMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-32Third MarketnTrading of listed securities away from the exchange.nInstitutional market:to faci

30、litate trades of larger blocks of securities.nInvolves services of dealers and brokersMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-33Fourth MarketnInstitutions trading directly with institutionsnNo middleman involved in the transactionnOrganized information

31、and trading systemsnECN DevelopmentMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-34International Market StructuresnLondon Stock Exchange-Dealer market similar to NASDAQ-Stock Exchange Automated Quotation-Greater AnonymitynTokyo Stock Exchange-No market making

32、 service-Sartori provides bookkeeping service-Feature a floor and electronic tradingnGlobal Market AlliancesMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-35Costs of TradingnCommission:fee paid to broker for making the transactionnSpread:cost of trading with d

33、ealer-Bid:price dealer will buy from you-Ask:price dealer will sell to you-Spread:ask-bidnCombination:on some trades both are paidMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-36Types of OrdersnInstructions to the brokers on how to complete the ordernMarketnL

34、imitnStop lossMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-37nUsing only a portion of the proceeds for an investment.nBorrow remaining component.nMargin arrangements differ for stocks and futures.Margin TradingMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hi

35、ll Companies,Inc.All rights reserved.3-38nMaximum margin-Currently 50%-Set by the FednMaintenance margin-Minimum level the equity margin can benMargin call-Call for more equity fundsStock Margin TradingMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-39X Corp$70

36、50%Initial Margin40%Maintenance Margin1000Shares PurchasedInitial PositionStock$70,000 Borrowed$35,000 Equity$35,000Margin Trading-Initial ConditionsMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-40Margin Trading-Maintenance MarginStock price falls to$60 per s

37、hareNew PositionStock$60,000 Borrowed$35,000 Equity 25,000Margin%=$25,000/$60,000=41.67%McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-41Margin Trading-Margin CallHow far can the stock price fall before a margin call?(1000P-$35,000)*/1000P=40%P=$58.33*1000P-Am

38、ount Borrowed=EquityMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-42Short SalesnPurpose:to profit from a decline in the price of a stock or security.MechanicsBorrow stock through a dealer.Sell it and deposit proceeds and margin in an account.Closing out the p

39、osition:buy the stock and return to the party from which it was borrowed.McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-43Short Sale-Initial ConditionsZ Corp100 Shares50%Initial Margin30%Maintenance Margin$100Initial PriceSale Proceeds$10,000Margin&Equity 5,00

40、0Stock Owed 10,000McGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-44Short Sale-Maintenance MarginStock Price Rises to$110Sale Proceeds$10,000Initial Margin 5,000Stock Owed 11,000Net Equity 4,000Margin%(4000/11000)36%McGraw-Hill/IrwinCopyright 2001 by The McGraw

41、-Hill Companies,Inc.All rights reserved.3-45Short Sale-Margin CallHow much can the stock price rise before a margin call?($15,000*-100P)/(100P)=30%P=$115.38 *Initial margin plus sale proceedsMcGraw-Hill/IrwinCopyright 2001 by The McGraw-Hill Companies,Inc.All rights reserved.3-46Regulation of Securities MarketsnGovernment RegulationnSelf-Regulation nCircuit BreakersnInsider TradingnECNs and Fragmentation