OBJECTIVES
- Know the international stock market, its way of trading and its conditions. Adequately interpret the indices given by the NYSE, previously knowing its origins. Acquire previous knowledge for the management of information and infrastructure of the NYSE.
NEW YORK STOCK EXCHANGE
1. ENVIRONMENT.
Wall Street is a street, an address in New York City, that runs exactly from Roosevelt Drive near the East River, to the old Trinity Church. But it is not the street they are referring to when someone asks "how does Wall Street work?" or "Who says Wall Street?" This Wall Street is a market.
Specifically, it is a marketplace where broker-dealers and clients meet to sell and buy stocks and bonds. They are made up of all individual sites and the entire community of interests that unites them and which is closely monitored by the Securities and Exchange Commission (SEC). In this way, it is a short and convenient way to refer to the stock exchange where the securities are traded in an auction process: the New York Stock Exchange - New York Stock Exchange (NYSE), the American Stock Exchange - American Stock Change (AMEX) and the regional stock exchanges.
It also includes the national broker / dealer chain known as the Over the Counter Market (OTC), brokerage firms and their employees, and a wide variety of individual and institutional investors. Wall Street must also be defined more precisely according to its two most important functions: providing a primary market and a secondary market.
2. HISTORY.
The dirt road got its name Wall Street, due to a brick wall built of brick built along it, shortly after NY was founded as a Dutch trading center in 1609. The wall, later improved with a wooden fence, was built to keep cows inside and Indians outside. Little about his success with cows.
2.1 HISTORICAL SUMMARY
The first merchants did a lot of business. They bought and sold products from the agricultural sector: such as furs, molasses and tobacco; They traded foreign currencies, insured with merchandise, and speculated on land. However, they did not formally invest in stocks and bonds, since until the possession of George Washington, Wall Street had no Stock Exchange.
3. OPERATION OF THE STOCK EXCHANGE.
The NYSE is a non-profit organization, chaired by a Board of Directors made up of ten representatives of the broker's public and a president, working all the time. Public representatives come from all directions, and currently comprise company directors, faculty members, a former diplomat, and the director of the retirement pension fund. Representatives of professional traders cover a wide range of activities on or off the exchange and even outside of New York.
It is the members of the Management Committee who are responsible for establishing the activity programs and policies of the exchange. Senior staff is responsible for carrying out such programs and policies.
The NYSE membership is 1,366. Membership is acquired after professional justification, by purchasing a seat from a member who wishes to sell theirs. Of the 1,366 members, all belong except 140, who may not be members of the exchange, are nevertheless subject to the same surveillance as the members themselves: but they do not have access to the sessions, since they are not members. The new member is presented with possible types of activities:
- You can become a commission broker or "commission broker", executed in each session the sales or purchase orders transmitted by customers, you can become an expert, that is, responsible for organizing the market for certain securities, in a limited number so that Maintain accurate, correct and orderly quotes "Odd-lot-broker" can be done, which will sell and buy to the public, shares in numbers less than the normal transaction unit of a hundred called "round lot"; Can be done "floor broker" or “two dollar broker” that is limited to transmitting or executing orders on your behalf from the most important brokers: You can become a registered “dealer” who buys and sells in the session on your own account;You can finally become a "block positioner" by acting as a "dealer" but for the purchase and sale of particularly important title packages.
Of the 523 NYSE member companies, approximately 440 are related to the public. The remaining part deals with other "brokers" or "dealers". Many intermediary companies that have relationships that have relationships with the public are important, with a highly diversified internal organization allowing various financial operations to be carried out, including: the purchase of shares, or bonds, on behalf of individual or institutional investors; the guarantee of new issues, the sale of shares of mutual investment funds, the launch of the management of such Mutual Funds, operations in commodity exchanges, acting as a "dealer" for certain securities, for amounts often significant. However, some companies specialize in only one or two of these functions.
The NYSE is subject at the same time to the decisions of its Directors Committee and to the control of the SEC. Most of the NYSE members have offices in practically every minor city in the US Many of them have opened offices in Canada, Latin America, Europe and Asia, in fact an appreciable proportion of NYSE activity. comes from foreign orders.
4. NEGOTIATION CONDITIONS ON THE NYSE
A security may not be traded on the NYSE before it has been formally issued for listing on the stock exchange by the Directors' Committee. In order to admit their ordinary shares, companies have to respect several criteria in relation to the number of existing shares already in the hands of the public, the exchange value of said shares, the number of shareholders and profitability.
They must also undertake to regularly publish financial information, to grant voting rights to holders of ordinary shares, to accept delegations of powers and, finally, to provide all indications regarding events that could affect changes in the Titles.
Other different criteria apply to the listing of bonds and "Warrants". Any company that has been listed must continue to respect the commitments originally made regarding the number of shares in the hands of the public, their market value and the number of shareholders.
5. CONTRACTING MECHANISMS
As such, the exchange does not buy or sell securities and does not set prices. It is limited to facilitating the premises and the different services thanks to which millions of individual investors and institutions can buy and sell for the cause of the intermediaries called “Brokers”.
In practice, an investor orders an agent registered with the SEC, for his part associated with a company of broker-dealers, to sell or buy shares, whether it is the current market price or a stipulated price. The intermediary company sends the order by phone or electronically, to the partner who is in the bag. This partner then goes to the post of the Corro where the value is negotiated and contracts at that time with other brokers or with the expert. The stock exchange is, in fact, a market where permanent adjudication is carried out in both directions, confronting demands and offers in a competitive way. If the quote is considered satisfactory, said member of the exchange makes the transaction, by verbal agreement, with the other broker or with the expert.Although the transactions are transcribed, they are all supported by the mutual trust that each of the intermediaries have in the others: these transactions have reached millions of dollars in the same day. Each transaction is recorded on the tape of a tiker in a few seconds and then it is transmitted to the offices that the company has in all the States, in Canada and in Europe. The confirmation of the completion of the operation is sent by electronic means to the headquarters of the company that sends it by the means used to the buyer and the seller. This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.They are all supported by the mutual trust that each of the intermediaries have in the others: these transactions have reached millions of dollars in the same day. Each transaction is recorded on the tape of a tiker in a few seconds and then it is transmitted to the offices that the company has in all the States, in Canada and in Europe. The confirmation of the completion of the operation is sent by electronic means to the headquarters of the company that sends it by the means used to the buyer and the seller. This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.They are all supported by the mutual trust that each of the intermediaries have in the others: these transactions have reached millions of dollars in the same day. Each transaction is recorded on the tape of a tiker in a few seconds and then it is transmitted to the offices that the company has in all the States, in Canada and in Europe. The confirmation of the completion of the operation is sent by electronic means to the headquarters of the company that sends it by the means used to the buyer and the seller. This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.Each transaction is recorded on the tape of a tiker in a few seconds and then it is transmitted to the offices that the company has in all the States, in Canada and in Europe. The confirmation of the completion of the operation is sent by electronic means to the headquarters of the company that sends it by the means used to the buyer and the seller. This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.Each transaction is recorded on the tape of a tiker in a few seconds and then it is transmitted to the offices that the company has in all the States, in Canada and in Europe. The confirmation of the completion of the operation is sent by electronic means to the headquarters of the company that sends it by the means used to the buyer and the seller. This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.This procedure requires two to three minutes from the order received from the client until the confirmation is received from the headquarters.
The expert will only intervene in the transaction when supply and demand are unbalanced. If inside the bag, and with respect to a specific value, there are more sales orders than purchases, the specialist of said value makes the momentary balance, becoming a buyer of all or part of the amount of the offered value. Conversely, it would sell on its own when buyback orders were higher than sell orders.
5.1. The expert
The expert is a member of the stock exchange permanently installed in a specific place, always the same, in the Floor group where he simultaneously plays the role of Broker (Intermediary Agent) and Dealer (Main Actor).
As an Agent, it executes the orders to limit changes that do not necessarily correspond to the market change, on behalf of the public, orders that have been given by other members of the exchange. As a Dealer, he buys and sells on his own account to organize the market for the titles in which he is an expert.
5.1.1 Role of the Intermediary (Brokerage-Function)
In his capacity as intermediary, the expert mainly executes limit exchange orders that have been transmitted to him by pure intermediaries; This is the case in which a broker receives a limit order to buy a share at 55 which is contracted at 60. When executing this order from the moment the market change reaches the stipulated, the expert allows brokers to carry out other operations. in other posts. The specialist may also be in charge of executing orders when he deems it appropriate, his own judgment being considered as the best or when a limit exchange order has been annulled and transformed into a purchase or sale order at market change.
5.1.2. Dealer's Role
This second role of the expert consists of negotiating on his own account the securities whose market he organizes, allowing the most precise changes to be made in the orderly manner.
The expert thus makes smaller the differences in prices that result from the important differences between the sales orders and the purchase orders. In the same way, a continuity in fixing the changes is guaranteed, which would not be possible otherwise, thus contributing to the liquidity of the market. In this way, the expert allows the execution of investors' orders for the best changes when there is a momentary disparity between the offered and demanded changes.
In order to carry out his role, the expert will normally buy the share at a higher price than the market price and will sell it at a lower price, being the only one who can and should do it, however, to maintain an orderly market, the expert is sometimes obliged to sell and buy shares under other conditions. You are not required to oppose a relatively noticeable rise or fall.
6. SETTLEMENT AND COMPENSATION
After the execution of the transaction, the buyer of the seller has to proceed to its settlement within the following 5 business days.
The buyer has to supply the necessary funds to become the owner of the share, and the seller has to send the certificates representing the ownership of his shares to his broker. However, certain stocks can be bought in short, that is, a broker, or a bank, will grant a credit to a buyer to cover part of the purchase price. However, these overdraft operations are strictly regulated. Short sales are also authorized on the exchange.
When the broker to whom the seller has addressed receives a certificate of ownership of the action (endorsed by the seller), it sends it to the person responsible for the materialization of the transfers, generally a bank or trust company; This company draws up a new certificate with the name of the buyer.
The transfer of ownership of the securities between buyers and sellers involves the “physical” manipulation of a considerable volume of paper, thus causing certain risks, particularly errors. Consequently, the NYSE has created a specialized agency in this type of operations, the “depository trust company”, which have a considerable number of shares and share certificates deposited by brokers, dealers, banks and trust companies. In this way, transfers can be made electronically, thus reducing the number of transfers per manipulation.
All the shares listed on the stock exchange are registered in the books of the issuing companies with the name of the owner. Many obligations are also registered by name, but many also can be bearer obligations: then exporter is considered, without there being names that appear in a certificate or in the books of the company.
The buyer and the seller both pay a commission to the broker, on the occasion of these transactions. Commissions on the NYSE amount to just under 2% of the stock's trading value. This percentage is sometimes higher when the transactions refer to a large number of titles.
7. MARKET MARGIN OF THE QUOTE: OVER THE COUNTER MARKET.
The purchases and sales of the securities that are not listed on the regulatory exchanges are made in the Over the Counter Market (OTCM). This market does not have a specific headquarters, but is made up of a network of several thousand dollars installed throughout the United States, which buys and sells securities by telephone or teletypewriter, or by means of an electronic communication system, these dealers, called market makers they are willing to buy or sell securities, at the changes they indicate. Since the dealer operates on his own account, this change influences a supplementary remuneration that increases the price of a purchase. A dealer usually holds a certain stock of securities, so that he can deliver them to other dealers and brokers who operate on behalf of his clients, at retail.
The OTCM contracts the securities issued by any American company, whatever its size, legal form, merchandise and services produced; Whether these securities are issued by public utility concessionaires or chemical or pipeline companies, whether by transport companies, textile companies, breweries, department stores, producers of raw materials, etc. Most banks and insurance companies have their securities listed on the OCTM, and the same is true for a large number of foreign securities.
It is a professional association, the National Association of Segurity Dealer (NASD), which is responsible for the regulation of the OCTM. This self-regulatory body is registered with the SEC and works closely with that organization. It is therefore the responsibility of the SEC to monitor the operation of the exchanges and also that of the NASD, which have the power to take all necessary measures so that the exchanges are made under the fairest and most equitable conditions possible. Likewise, it can censure members who have violated its rules, impose fines, suspend or even expel them.
The NASD periodically controls the books and all the documents of the members of its association, without warning, if all the existing rules are observed and in particular the need for a minimum capital.
8. THE AUTOMATIC LISTING SYSTEM CREATED BY NASD
8.1. ORIGIN
This system is generally designated by the initials NASDAQ, which stands for National Association of Segurity Dealers Automatic Qotations Sistem. The NASDAQ is a computer recommunications system, which collects and preserves at your request, the prices of the sessions carried out by the dealer network, at the OTCM. Regarding the values that have been enabled to be integrated into said electronic system.
NASDAQ has been created to solve the problems posed by the extraordinary growth in trading volume in the OTCM. Previously, brokers were forced to consult several dealers by phone to find out what the best prices were, on order, purchase or sale. In the practice of a broker it was not safe to know exactly the best price. He did not have the possibility to consult all the dealers who negotiated the same value.
Requests for information and requests from companies wishing to see their titles appear on the OTCM became so numerous that the operation of this market began to be jeopardized.
9. FINANCIAL INDICATORS
DOW JONES Created in 1883 by journalists Charles Henry Dow and Eduard D. Jones. Initially, it was to take the 12 companies that made up the stock exchange at that time, add their trading values and divide by twelve, this average served to adapt the market, now the 30 companies listed on the stock are taken into account for the market average..
NASDAQ The largest electronic market in the world, in turn has three indicators Nasdaq Composite Index, Nasdaq 100 Index and Nasdaq 100 finantial Index.
S&P 500 Index that incorporates the average price behavior of 500 shares of the New York Stock Exchange.
CONCLUSIONS
Knowledge and good management of information, the interpretation given to it, is what gives management to the world stock market.
The integration of a centralized stock market allows its better management and control, giving us some certainty and security at the time of negotiations.
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