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Table of Contents
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Introduction to Securities &
Securities Market
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What is a Market?
A Platform/means by which buyers & sellers are brought together to trade goods &
services. It need not have a physical location and can deal in a variety of goods &
services. It does not necessarily own the goods or services involved
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What is a Security?
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Who issues a Security?
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What is a Security Market?
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Organization of the Capital Market
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Capital Market Structure
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Organization of the Capital Market
Price discovery,
liquidity,
lower borrowing costs,
impacts market efficiency & price volatility
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Primary Market - In Detail
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Primary Market – Role of IB
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Primary Market…Contd.
Munis – Issued by State and local Govt. (e.g. Orange County, California). Offers
competitive interest rates just like Corporate bonds because of the default risk
Corporate Bonds (Includes High Yield Bonds a.k.a Junk Bonds) – Almost always
sold by Companies through a Negotiated arrangement using an Investment Bank.
Has higher interest rates than Govt. bonds because of default risk
Rule 415 (a.k.a Shelf Registrations): Allows large firms to register security
issues and sell them piecemeal during the following two years. Beneficial for
Corporate because it offers greater flexibility, lowers registration fees and
expenses. Generally used for Straight Debentures.
Private Placements & Rule 144A: Allows corporate to place securities privately
with large, sophisticated institutional investors without extensive registration
documents. Also allows these securities to be traded among large sophisticated
investors (those with assets in excess of $100 million)
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Investing in Primary Market:
Disadvantages
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Secondary Market
Corporate Bonds
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Secondary Market…Contd
Equity Market – Trading Systems – Although stock exchanges are similar, there
can be difference in the trading systems. The two major trading systems:
Call and Continuous Markets – Operation of exchanges can also differ in terms
of when and how the stocks are traded. They are:
Call market – Used during an early stages of development of an exchange.
Market maker would call the roll of stocks and ask for interest in one stock at a
time. Based on the available buy and sell orders, exchange officials determine
a single price that will satisfy most of the orders, and all orders are transacted
at this price.
Continuous market – Trades occur at any time the market is open wherein
stocks are priced either by auction or by dealers.
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US Secondary Equity Markets:
Classification & Examples
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Capital Markets – Regulatory
Framework in US
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Securities and Exchange Commission
SEC
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