Last updated: February 23, 2019
Topic: ArtBooks
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SouthUral State University

The Department of Economic and Management

Work on capable

The Student: Velichko O.S.

Group: E & A ; M-263

The Coach: Sergeeva L.M.




1. Market topographic point

2. Trading on the stock exchange floor

3. Securities. Categories of common stock

3.1 Growth stocks

3.2 Cyclic stocks

3.3 Particular state of affairss

4. Preferable stocks

4.1 Bonds-corporate

4.2 Bonds-U.S. authorities

4.3 Bonds-municipal

4.4 Convertible securities

4.5 Option

4.6 Rights

4.7 Warrants

4.8 Commodities and fiscal hereafters

5. Stock market norms reading the newspaper citations

5.1 The price-earnings ratio

6. European stock markets & # 8211 ; general tendency

6.1 New ways for old

6.2 Europe, meet electronics

7. New issues

8. Common financess. A different attack

8.1 Advantages of common financess

8.2 Load vs. No-load

8.3 Common stock financess

8.4 Other types of common financess

8.5 The day-to-day common fund monetary values

8.6 Choosing a common fund

1. Market Topographic point

The stock market. To some it & # 8217 ; s a mystifier. To others it & # 8217 ; s a beginning of net income and eternal captivation. The stock market is the fiscal nervus centre of any state. It reflects any alteration in the economic system. It is sensitive to involvement rates, rising prices and political events. In a really existent sense, it has its fingers on the pulsation of the full universe.

Taken in its broadest sense, the stock market is besides a control centre. It is the market topographic point where concerns and authoritiess come to raise money so that they can go on and use their operations. It is the market topographic point where giant concerns and establishments come to do and alter their fiscal committednesss. The stock market is besides a topographic point of single chance.

The phrase & # 8220 ; the stock market & # 8221 ; means many things. In the narrowest sense, a stock market is a topographic point where stocks are traded & # 8211 ; that is bought and sold. The phrase & # 8220 ; the stock market & # 8221 ; is frequently used to mention to the biggest and most of import stock market in the universe, the New York Stock Exchange, which is every bit good the oldest in the US. It was founded in 1792. NYSE is located at 11 Wall Street in New York City. It is besides known as the Big Board and the Exchange. In the mid-1980s NYSE-listed portions made up about 60 % of the entire portions traded on organized national exchanges in the United States.

AMEX stands for the American Stock Exchange. It has the 2nd biggest volume of trading in the US. Located at 86 Trinity Place in business district Manhattan, the AMEX was known until 1921 as the Curb Exchange, and it is still referred to as the Curb today. Early bargainers gathered near Wall Street. Nothing could halt those out-of-door agents. Even in the snow and rain they put up lists of stocks for sale. The gathering topographic point became known as the outdoor kerb market, therefore the name the Curb. In 1921 the Curb eventually moved indoors. For the most portion, the stocks and bonds traded on the AMEX are those of little to moderate-sized companies, as contrasted with the immense companies whose portions are traded on the New York Stock Exchange.

The Exchange is non-for-profit corporation run by a board of managers. Its member house are capable to a rigorous and elaborate self-regulatory codification. Self-regulation is a affair of opportunism for stock exchange members. It has built public assurance in the Exchange. It besides required by jurisprudence. The US Securities and Exchange Commission ( SEC ) administers the federal securities Torahs and supervises all securities exchange in the state. Whenever self-regulation doesn & # 8217 ; t do the occupation, the SEC is likely to step in straight. The Exchange doesn & # 8217 ; t purchase, sell or have any securities nor does it put stock monetary values. The Exchange simply is the market topographic point where the populace, moving through member agents, can purchase and sell at monetary values set by supply and demand.

It costs money it become an Exchange member. There are about 650 ranks or & # 8220 ; seats & # 8221 ; on the NYSE, owned by big and little houses and in some instances by persons. These seats can be bought and sold ; in 1986 the monetary value of a place averaged about $ 600,000. Before you are permitted to purchase a place you must go through a trial that purely scrutinizes your cognition of the securities industry every bit good as a cheque of experience and character.

Apart from the NYSE and the AMEX there are besides & # 8220 ; regional & # 8221 ; exchange in the US, of which the best known are the Pacific, Midwest, Boston and Philadelphia exchange.

There is one more market topographic point in which the volume of common stock trading begins to near that of the NYSE. It is merchandising of common stock & # 8220 ; nonprescription & # 8221 ; or & # 8220 ; OTC & # 8221 ; & # 8211 ; that is non on any organized exchange. Most securities other than common stocks are traded nonprescription. For illustration, the huge market in US Government securities is an nonprescription market. So is the money market & # 8211 ; the market in which all kinds of short-run debt duties are traded daily in enormous measures. Like-wise the market for long-and short-run adoption by province and local authoritiess. And the majority of trading in corporate bonds besides is complete nonprescription.

While most of the common stocks traded nonprescription are those of smaller companies, many ample corporations continue to be found on the & # 8220 ; OTC & # 8221 ; list, including a big figure of Bankss and insurance companies.

As there is no physical trading floor, nonprescription trading is accomplished through huge telephone and other electronic webs that link bargainers every bit closely as if they were seated in the same room. With the aid of computing machines, monetary value citations from traders in Seattle, San Diego, Atlanta and Philadelphia can be flashed on a individual screen. Dedicated telephone lines link the more active bargainers. Confirmations are delivered electronically instead than through the mail. Dealers 1000s of stat mis apart who are complete aliens execute trades in the 1000s or even 1000000s of dollars based on 30 seconds of telephone conversation and the cognition that each is a securities trader registered with the National Association of Securities Dealers ( NASD ) , the industry self-regulatory organisation that supervises OTC trading. No affair which manner market monetary values move later, each knows that the trade will be honoured.


When an person wants to put an order to purchase or sell portions, he contacts a securities firm house that is a member of the Exchange. A registered representative or & # 8220 ; RR & # 8221 ; will take his order. He or she is a trained professional who has passed an scrutiny on many affairs including Exchange regulations and manufacturers.

The single & # 8217 ; s order is relayed to a telephone clerk on the floor of the Exchange and by the telephone clerk to the floor agent. The floor agent who really executes the order on the trading floor has an exhausting and hard-hitting occupation. The trading floor is a larger than half the size of football field. It is dotted with multiple locations called & # 8220 ; trading posts & # 8221 ; . The floor agent returns to the station where this or that peculiar stock is traded and finds out which other agents have orders from clients to purchase or sell the stock, and at what monetary values. If the order the person placed is a & # 8220 ; market order & # 8221 ; & # 8211 ; which means an order to purchase or sell without hold at the best monetary value available & # 8211 ; the agent size up the market, decides whether to dicker for a better monetary value or to accept one of the orders being shown, and executes the trade & # 8211 ; all this happens in a affair of seconds. Normally portions are traded in unit of ammunition tonss on securities exchanges. A unit of ammunition batch is by and large 100 portions, called a unit of trading, anything less is called an uneven batch.

When you foremost see the trading floor, you might presume all agents are the same, but they aren & # 8217 ; t. There are five classs of market professionals active on the trading floor.

Commission Brokers,
normally floor agents, work for member houses. They use their experience, judgement and executing accomplishment to purchase and sell for the house & # 8217 ; s client for a committee.

Independent Floor Brokers
are single enterprisers who act for a assortment of clients. They execute orders for other floor agents who have more volume than they can manage, or for houses whose exchange members are non on the floor.

Registered Competitive Market Makers
hold specific duties to merchandise for their ain or their house & # 8217 ; s histories & # 8211 ; when called upon by an Exchange functionary & # 8211 ; by doing a command or offer that will contract the bing quotation mark spread or better the deepness of an bing quotation mark.

Competitive Traders
trade for their ain histories, under rigorous regulations designed to guarantee that their activities contribute to market liquidness.

And last, but non least, come Stock Specialists.
The Exchange attempts to continue monetary value continuity & # 8211 ; which means that if a stock has been merchandising at, say, 35, the following purchaser or marketer should be able to an order within a fraction of that monetary value. But what if a purchaser comes in when no other agent wants to sell near to the last monetary value? Or frailty versa for a marketer? How is monetary value continuity preserved? At this point enters the Specialist. The specializer is charged with a particular map, that of keeping continuity in the monetary value of specific stocks. The specializer does this by standing ready to purchase portions at a monetary value moderately near to the last recorded sale monetary value when person wants to sell and there is a deficiency of purchasers, and to sell when there is a deficiency of Sellerss and person wants to purchase. For each listed stock, there are one or more specialist houses assigned to execute this stabilising map. The specializer besides acts as a agent, put to deathing public orders for the stock, and maintaining a record of bound orders to be executed if the monetary value of the stock reaches a specified degree. Some of the specializer houses are big and assigned to many different stocks. The Exchange and the SEC are peculiarly interested in the specializer map, and trading by the specializers is closely monitored to do certain that they are giving precedency to public orders and assisting to stabilise the markets, non simply seeking to do net incomes for themselves. Since a specializer may at any clip be called on to purchase and keep significant sums of stock, the specialist houses must be good capitalized.

In today ‘s markets, where multi-million-dollar trades by establishments ( i. e. Bankss, pension financess, common financess, etc. ) have become common, the specializer can no longer absorb all of the big blocks of stock offered for sale, nor supply the big blocks being sought by institutional purchasers. Over the last several old ages, there has been a rapid growing in block trading by big securities firm houses and other houses in the securities industry. If an establishment wants to sell a big block of stock, these houses will carry on an expert and rapid hunt for possible purchasers ; if non adequate purchasing involvement is found, the block trading house will make full the spread by purchasing portions itself, taking the hazard of having the portions and being able to dispose of them later at a net income. If the establishment wants to purchase instead than sell, the procedure is reversed. In a sense, these houses are carry throughing the same map as the specializer, but on a much larger graduated table. They are stepping in to purchase and ain stock temporarily when offerings exceed demand, and frailty versa.

So the specializers and the block bargainers perform similar stabilizing maps, though the block bargainers have no official function and have no motivation other than to do a net income.


There is a batch to be said about securities. Security is an instrument that signifies ( 1 ) an ownership place in a corporation ( a stock ) , ( 2 ) a creditor relationship with a corporation or governmental organic structure ( a bond ) , or ( 3 ) rights to ownership such as those represented by an option, subsription right, and subsription warrant.

Peoples who own stocks and bonds are referred to as investors or, severally, shareholders ( stockholders ) and bondholders. In other words a portion of stock is a portion of a concern. When you hold a stock in a corporation you are portion proprietor of the corporation. As a cogent evidence of ownership you may inquire for a certification with your name and the figure of portions you hold. By jurisprudence, no 1 under 21 can purchase or sell stock. But bush leagues can have stock if kept in trust for them by an grownup. A bond represents a promise by the company or authorities to pay back a loan plus a certain sum of involvement over a definite period of clip.

We have said that common stocks are portions of ownership in corporations. A corporation is a separate legal entity that is responsible for its ain debts and duties. The single proprietors of the corporation are non apt for the corporation ‘s duties. This construct, known as limited liability, has made possible the growing of elephantine corporations. It has allowed 1000000s of shareholders to experience secure in their place as corporate proprietors. All that they have risked is what they paid for their portions.

A shareholder ( proprietor ) of a corporation has certain basic rights in proportion to the figure of portions he or she owns. A shareholder has the right to vote for the election of managers, who control the company and appoint direction. If the company makes net incomes and the managers decide to pay portion of these net incomes to stockholders as dividends, a shareholder has a right to have his proportionate portion. And if the corporation is sold or liquidates, he has a right to his proportionate portion of the returns.

What type of stocks can be found on stock exchanges? The inquiry can be answered in different ways. One manner is by industry groupings. There are companies in every industry, from aerospace to sweeping distributors. The oil and gas companies, telephone com & # 173 ; panies, computing machine companies, autocompanies and electric public-service corporations are among the biggest groupings in footings of entire net incomes and market value. Possibly a more utile manner to separate stocks is harmonizing to the qualities and values investors want.

3.1 Growth Stocks.

The phrase “ growing stock ” is widely used as a term to depict what many investors are looking for. Peoples who are willing to take greater-than-average hazards frequently invest in what is frequently called “ high-growth ” stocks & # 8212 ; stocks of companies that are clearly turning much faster than norm and where the stock commands a premium monetary value in the market. The principle is that the company ‘s net incomes will go on to turn quickly for at least a few more old ages to a degree that justifies the premium monetary value. An investor should maintain in head that merely a little minority of companies truly win in doing net incomes turn quickly and systematically over any long period. The possible wagess are high, but the stocks can drop in monetary value at unbelievable rates when net incomes do n’t turn as expected. For illustration, the companies in the picture game industry boomed in the early 1980s, when it appeared that the whole universe was about to turn into one huge picture arcade. But when public involvement shifted to personal computing machines, the companies found themselves stuck with 100s of 1000000s of dollars in picture game stock lists, and the stock collapsed.

There is less glamour, but besides less hazard, in what we will name & # 8212 ; for deficiency of a better phrase & # 8212 ; ” moderate-growth ” stocks. Typically, these might be stocks that do non sell at premium, but where it appears that the company ‘s net incomes will turn at a faster-than-average rate for its industry. The fast one, of class, is in calculating which companies truly will demo better-than-average growing ; but even if the prognosis is incorrect, the hazard should non be great, presuming that the monetary value was just to get down with.

There ‘s a wide class of stocks that has no peculiar name but that is attractive to many investors, particularly those who prefer to remain on the conservative side. These are stocks of companies that are non glamourous, but that grow in line with the economic system. Some illustrations are nutrient companies, drink companies, paper and packaging makers, retail shops, and many companies in miscellaneous consumer Fieldss.

Equally long as the economic system is healthy and turning, these companies are absolutely sensible investings ; and at certain times when everyone is interested in “ glamour ” stocks, these “ non-glamour ” issues may be neglected and available at deal monetary values. Their growing may non be rapid, but it normally is reasonably consistent. Besides, since these companies by and large do non necessitate to plough all their net incomes back into the concern, they tend to pay ample dividends to their shareholders. In add-on to the existent growing that these companies achieve, their values should set upward over clip in line with rising prices & # 8212 ; a general advantage of common stocks that is deserving reiterating.

3.2 Cyclic Stockss.

These are stocks of companies that do non demo any clear growing tendency, but where the stocks fluctuate in line with the concern rhythm ( prosperity and recession ) or some other recognizable form. Obviously, one can do money if he buys these near the underside of a monetary value rhythm and sells near the top. But the undersides and tops can be difficult to acknowledge when they occur ; and sometimes, when you think that a stock is near the underside of a rhythm, it may alternatively be in a procedure of long-run diminution.

3.3 Particular Situations

There & # 8217 ; s a type of investing that professionals normally refer to as & # 8220 ; particular state of affairss & # 8221 ; . These are instances where some peculiar corporate development & # 8211 ; possibly a amalgamation, alteration of control, sale of belongings, etc. & # 8211 ; seems likely to raise the value of a stock. Particular state of affairs investings may be less affected by general stock market motions than the mean stock investing ; but if the expected development doesn & # 8217 ; t happen, an investor may endure a loss, sometimes ample. Here the investor has to judge the odds of the expected development & # 8217 ; s really coming to go through.

4. Prefer STOCKS

A preferable stock is a stock which bears some resemblances to a bond ( see below ) . A preferable shareholder is entitled to dividends at a specified rate, and these dividends must be paid before any dividends can be paid on the company ‘s common stock. In most instances the preferable dividend is cumulative, which means that if it is n’t paid in a given twelvemonth, it is owed by the company to the preferable shareholder. If the corporation is sold or liquidates, the preferable shareholders have a claim on a certain part of the assets in front of the common shareholders. But while a bond is scheduled to be redeemed by the corporation on a certain “ adulthood ” day of the month, a preferable stock is normally a lasting portion of the corporation ‘s capital construction. In exchange for having an assured dividend, the preferable shareholder by and large does non portion in the advancement of the company ; the preferable stock is merely entitled to the fixed dividend and no more ( except in a little minority of instances where the preferable stock is “ take parting ” and receives higher dividends on some footing as the company ‘s net incomes grow ) .

Many preferable stocks are listed for trading on the NYSE and other exchanges, but they are normally non priced really beautifully for single purchasers. The ground is that for corporations wanting to put for fixed income, preferable stocks carry a revenue enhancement advantage over bonds. As a consequence, such corporations by and large bid the monetary values of preferable stocks up above the monetary value that would hold to be paid for a bond supplying the same income. For the single purchaser, a bond may frequently be a better bargain.

4.1 Bonds-Corporate

Unlike a stock, a bond is grounds non of ownership, but of a loan to a company ( or to a authorities, or to some other organisation ) . It is a debt duty. When you buy a corporate bond, you have bought a part of a big loan, and your rights are those of a loaner. You are entitled to involvement payments at a specified rate, and to refund of the full “ face sum ” of the bond on a specified day of the month. The fixed involvement payments are normally made biyearly. The quality of a corporate bond depends on the fiscal strength of the issuing corporation.

Chemical bonds are normally issued in units of $ 1,000 or $ 5,000, but bond monetary values are quoted on the footing of 100 as “ par ” value. A bond monetary value of 96 agencies that a bond of $ 1,000 face value is really selling at $ 960 And so on.

Many corporate bonds are traded on the NYSE, and newspapers carry a separate day-to-day tabular array demoing bond trading. The major trading in corporate bonds, nevertheless, takes topographic point in big blocks of $ 100,000 or more traded off the Exchange by agents and traders moving for their ain history or for establishments.

4.2 Bonds-U. S. Government

U.S. Treasury bonds ( long-run ) , notes ( intermediate-term ) and measures ( short-run ) , every bit good as duties of the assorted U. S. authorities bureaus, are traded off from the exchanges in a huge professional market where the basic unit of trading is frequently $ 1 million face value in sum. However, trades are besides done in smaller sums, and you can purchase Treasuries in tonss of $ 5,000 or $ 10,000 through a regular agent. U. S. authorities bonds are regarded as supplying investors with the ultimate in safety.

4.3 Bonds-Municipal

Chemical bonds issued by province and local authoritiess and governmental units are by and large referred to as “ municipals ” or “ tax-exempts ” , since the income from these bonds is mostly exempt from federal income revenue enhancement.

Tax-exempt bonds are attractive to persons in higher revenue enhancement brackets and to certain establishments. There are many different issues and the newspapers by and large list merely a little figure of actively traded municipals. The trading takes topographic point in a huge, specialised nonprescription market. As an beginning to the revenue enhancement advantage, involvement rates on these bonds are by and large lower than on U. S. authorities or corporate bonds. Quality is normally high, but there are fluctuations harmonizing to the fiscal soundness of the assorted provinces and communities.

4.4 Convertible Securities

A exchangeable bond ( or exchangeable unsecured bond ) is a corporate bond that can be converted into the company ‘s common stock under certain footings. Convertible preferable stock carries a similar “ transition privilege ” . These securities are intended to unite the decreased hazard of a bond or preferable stock with the advantage of transition to common stock if the company is successful. The market monetary value of a exchangeable security by and large represents a combination of a pure bond monetary value ( or a pure preferable stock monetary value ) plus a premium for the transition privilege. Many exchangeable issues are listed on the NYSE and other exchanges, and many others are traded nonprescription

4.5 Options

An option is a piece of paper that gives you the right to purchase or sell a given security at a specified monetary value for a specified period of clip. A “ call ” is an option to purchase, a “ put ” is an option to sell. In simplest signifier, these have become an highly popular manner to theorize on the outlook that the monetary value of a stock will travel up or down. In recent old ages a new type of option has become highly popular: options related to the assorted stock market norms, which let you theorize on the way of the whole market instead than on single stocks. Many trading techniques used by adept investors are built around options ; some of these techniques are intended to cut down hazards instead than for guess.

4.6 Rights

When a corporation wants to sell new securities to raise extra capital, it frequently gives its shareholders rights to purchase the new securities ( most frequently extra portions of stock ) at an attractive monetary value. The right is in the nature of an option to purchase, with a really short life. The holder can utilize ( “ exercising ” ) the right or can sell it to person else. When rights are issued, they are normally traded ( for the short period until they expire ) on the same exchange as the stock or other security to which they apply.

4.7 Warrants

A warrant resembles a right in that it is issued by a company and gives the holder the option of purchasing the stock ( or other security ) of the company from the company itself for a specified monetary value. But a warrant has a longer life & # 8212 ; frequently several old ages, sometimes without bound As with rights, warrants are negotiable ( intending that they can be sold by the proprietor to person else ) , and several warrants are traded on the major exchanges.

4.8 Commodities and Financial Futures

The trade good markets, where groceries and industrial trade goods are traded in huge measures, are outside the range of this text. But because the trade good markets deal in “ hereafters ” & # 8212 ; that is, contracts for bringing of a certain good at a specified hereafter day of the month & # 8212 ; they have besides become the centre of trading for “ fiscal hereafters ” , which, by any logical definition, are non trade goods at all.

Fiscal hereafters are comparatively new, but they have quickly zoomed in importance and in trading activity. Like options, the hereafters can be used for protective intents every bit good as for guess. Making the most headlines have been stock index hereafters, which permit investors to theorize on the future way of the stock market norms. Two other types of fiscal hereafters are besides of great importance: involvement rate hereafters, which are based chiefly on the monetary values of U.S. Treasury bonds, notes, and measures, and which fluctuate harmonizing to the degree of involvement rates ; and foreign currency hereafters, which are based on the exchange rates between foreign currencies and the U.S. dollar. Although, hereafters can be used for protective intents, they are by and large a extremely bad country intended for professionals and other expert inve & # 173 ; stors.


The fiscal pages of the newspaper are enigma to many people. But dramatic motions in the stock market frequently make the front page. In newspaper headlines, Television intelligence sum-ups, and elsewhere, about everyone has been exposed to the stock market norms.

In a securities firm house office, it & # 8217 ; s common to hear the inquiry & # 8220 ; How & # 8217 ; s the market? & # 8221 ; and reply, & # 8220 ; Up five dollars & # 8221 ; , or & # 8220 ; Down a dollar & # 8221 ; . With 1500 common stocks listed on the NYSE, there has to be some easy manner to show the monetary value tendency of the twenty-four hours. Market norms are a manner of sum uping that information.

Despite all competition, the popularity Crown still does to an norm that has some of the qualities of an old-timer & # 8211 ; the Dow Jones Industrial Average, an norm of 30 outstanding stocks dating back to the 1890s. This norm is named for Charles Dow & # 8211 ; one of the earliest stock market theoreticians, and a laminitis of Dow Jones & A ; Company, a taking fiscal intelligence service and publishing house of the Wall Street Journal

In the yearss before computing machines, an norm of 30 stocks was possibly every bit much as anyone could cipher on a practical footing at intervals throughout the twenty-four hours. Now, the Standard & A ; Poor & # 8217 ; s 500 Stock Index ( 500 taking stocks ) and the New York Stock Exchange Composite Index ( all stocks on the NYSE ) provide a much more accurate image of the entire market. The professionals are likely to concentrate their attending on these & # 8220 ; wide & # 8221 ; market indexes. But old wonts die easy, and person calls out, & # 8220 ; How & # 8217 ; s the market? & # 8221 ; and person else replies, & # 8220 ; Up five dollars, & # 8221 ; or & # 8220 ; Up five & # 8221 ; & # 8211 ; it & # 8217 ; s still the Dow Jones Industrial Average ( the & # 8220 ; Dow & # 8221 ; for short ) that they & # 8217 ; re speaking about.

The importance of day-to-day alterations in the norms will be clear if you view them in per centum footings. When the market is non altering quickly, the normal day-to-day alteration is less than & # 189 ; of 1 % . A alteration of & # 189 ; % is still moderate ; 1 % is big but non extraordinary ; 2 % is dramatic. From the market norms, it & # 8217 ; s a short measure to the 1000s of elaborate listings of stock monetary values and related informations that you & # 8217 ; ll happen in the day-to-day newspaper fiscal tabular arraies. These tabular arraies include complete studies on the old twenty-four hours & # 8217 ; s trading on the NYSE and other prima exchanges. They can besides give you a surprising sum of excess information.

Some newspapers provide more extended tabular arraies, some lupus erythematosus. Since the Wall
Street Journal
is available universe broad, we & # 8217 ; ll utilize it as a beginning of convenient illustrations. You & # 8217 ; ll happen a outstanding page headed & # 8220 ; New York Stock Exchange Composite Transactions & # 8221 ; . This tabular array covers the twenty-four hours & # 8217 ; s trading for all stocks listed on the NYSE. & # 8220 ; Composite & # 8221 ; means that it besides includes trades in those same stocks on certain other exchanges ( Pacific, Midwest, etc. ) where the stocks are & # 8220 ; dually listed & # 8221 ; . Here are some sample entries:

52 Weeks



Gross saless













52 7

37 5

Cons Ed





49 3

48 7

49 1


91 1

66 1

Gen El





91 3

89 5



41 3

26 1







40 1

40 7


Some of the brief company names in the listings can be a considerable mystifier, but you will acquire used to them.

While some of the columns incorporate longer-term information about the stocks and the companies, we ‘ll look foremost at the columns that really report on the twenty-four hours ‘s trading. Near the centre of the tabular array you will see a column headed “ Gross saless 100s ” . Stock trading by and large takes topographic point in units of 100 portions and is tabulated that manner ; the figures mean, for illustration, that 90,900 portions of Consolidated Edison, 1,192,400 portions of General Electric, and 1,571,300 portions of Mobil traded on January 8. ( Mobil really was the 12th “ most active ” stock on the NYSE that twenty-four hours, intending that it ranked 12th in figure of portions traded. )

The following three columns show the highest monetary value for the twenty-four hours, the lowest, and the last or “ shutting ” monetary value. The “ Net Chg. ” ( net alteration ) column to the far right shows how the shutting monetary value differed from the old twenty-four hours ‘s stopping point & # 8212 ; in this instance, January 7.

Monetary values are traditionally calibrated in eighths of a dollar. In instance you are n’t familiar with the equivalents, they are:

1/8 = $ .125

1/4= $ .25

3/8 = $ .375

1/2 = $ .50

5/8 = $ .625

3/4= $ .75

7/8 = $ .875

Con Edison traded on January 8 at a high of $ 49.375 per portion and a depression of $ 48 875, it closed at $ 49.25, which was a addition of $ 0.25 from the twenty-four hours before. General Electric closed down $ 1.00 per portion at $ 90 00, but it earned a “ u ” notation by trading during the twenty-four hours at $ 91 375, which was a new high monetary value for the stock during the most recent 52 hebdomads ( a new low monetary value would hold been denoted by a “ vitamin D ” ) .

The two columns to the far left show the high and low monetary values recorded in the latest 52 hebdomads, non including the latest twenty-four hours. ( Note that the high for General Electric is shown as 91 1
, non 91 3
. ) You will observe that while neither Con Edison nor Mobil reached a new high on January 8, each was near the top of its “ monetary value scope ” for the latest 52 hebdomads. ( Individual stock monetary value charts, which are published by several fiscal services, would demo the monetary value history of each stock in item. )

The other three columns in the tabular array give you information of usage in doing judgements approximately stocks as investings. Merely to the right of the name, the “ Div. ” ( dividend ) column shows the current one-year dividend rate on the stock & # 8212 ; or, if there ‘s no clear regular rate, so the existent dividend sum for the latest 12 months. The dividend rates shown here are $ 2.68 yearly for Con Edison, $ 2.52 for GE, and $ 2.20 for Mobil. ( Most companies that pay regular dividends pay them quarterly: it ‘s really $ 0.67 quarterly for Con Edison, etc. ) The “ Yid. ” ( Yield ) column relates tie one-year dividend to the latest stock monetary value. In the instance of Con Edison, for illustration, $ 2.68 ( one-year dividend ) / $ 49.25 ( stock monetary value ) ==5.4 % , which represents the current output on the stock.

5.1 The Price-Earnings Ratio

Finally, we have the “ P-E ratio ” , or price-earnings ratio, which represents a cardinal figure in judging the value of a stock. The price-earnings ratio & # 8212 ; besides referred to as the “ price-earnings multiple ” , or sometimes merely as the “ multiple ” & # 8212 ; is the ratio of the monetary value of a stock to the net incomes per portion behind the stock.

This construct is of import. In simplest footings ( and without taking possible perplexing factors into history ) , “ net incomes per portion ” of a company are calculated by taking the company ‘s net net incomes for the twelvemonth, and dividing by the figure of portions outstanding. The consequence is, in a really existent sense, what each portion earned in the concern for the twelvemonth & # 8212 ; non to be confused with the dividends that the company may or may non hold paid out. The board of managers of the company may make up one’s mind to plough the net incomes back into the concern, or to pay them out to stockholders as dividends, or ( more probably ) a combination of both ; but in any instance, it is the net incomes that are normally considered as the cardinal step of the company ‘s success and the value of the stock.

The price-earnings ratio tells you a great trade about how investors view a stock. Investors will offer a stock monetary value up to a higher multiple if a company ‘s net incomes are expected to turn quickly in the hereafter. The multiple may look excessively high in relation to current net incomes, but non in relation to expected future net incomes. On the other manus, if a company ‘s future looks uninteresting, and net incomes are non expected to turn well, the market monetary value will worsen to a point where the multiple is low.

Multiples besides change with the wide rhythms of the stock market, as investors become willing to pay more or less for certain values and potencies. Between 1966 and 1972, a period of enthusiasm and guess, the mean multiple was normally 15 or higher. In the late seventiess, when investors were by and large cautious and disbelieving, the mean multiple was below 10. However, note that these figures refer to average multiples & # 8211 ; whatever the mean multiple is at any given clip, the multiples on single stocks will run above and below it.

Now we can return to the tabular array. The P-E ratio for each stock is based on the latest monetary value of the stock and on net incomes for the latest reported 12 months. The multiples, as you can see, were 12 for Con Edison, 17 for GE, and 10 for Mobil. In January 1987, the mean multiple for all stocks was really approximately around 15. Con Edison is viewed by investors as a comparatively good-quality public-service corporation company, but one that by the nature if its concern can non turn much more quickly that the economic system as a whole. GE, on the other manus, is by and large given a premium evaluation as a company that is expected to outpace the economic system.

You ca n’t purchase a stock on the P-E ratio entirely, but the ratio tells you much that is utile. For stocks where no P-E ratio is shown, it frequently means that the company showed a loss for the latest 12 months, and that no P-E ratio can be calculated. Somewhere near the chief NYSE tabular array, you ‘ll happen a few little tabular arraies that besides relate to the twenty-four hours ‘s NYSE-Composite trading. There ‘s the tabular array demoing the 15 stocks that traded the greatest figure of portions for the twenty-four hours ( the “ most active ” list ) , a tabular array of the stocks that showed the greatest per centum of additions or diminutions ( low-cost stocks by and large predominate here ) ; and one demoing stocks that made new monetary value highs or depressions relative to the latest 52 hebdomads.

You ‘ll happen a big tabular array of “ American Stock Exchange Composite Transactions ” , which does for stocks listed on the AMEX merely what the NYSE-Composite tabular array does for NYSE-listed stocks. There are smaller tabular arraies covering the Pacific Stock Exchange, Boston Exchange, and other regional exchanges.

The tabular arraies demoing nonprescription stock trading are by and large divide

vitamin D into two or three subdivisions. For the major nonprescription stocks covered by the NASDAQ citation and coverage system, existent gross revenues for the twenty-four hours are reported and tabulated merely as for stocks on the NYSE and AMEX. For less active nonprescription stocks, the paper lists merely “ command ” and “ asked ” monetary values, as reported by traders to the NASD.

It is deserving going familiar with the day-to-day tabular array of monetary values of U.S. Treasury and bureau securities. The Treasury issues are shown non merely in footings of monetary value, but in footings of the output represented by the current monetary value. This is the simplest manner to acquire a panoramic position of the current involvement rate state of affairs & # 8212 ; you can see at a glimpse the current rates on long-run Treasury bonds, intermediate-term notes, and short-run measures.

Elsewhere in the paper you will besides happen a big table demoing monetary values of corporate bonds traded on the NYSE, and a little tabular array of selected tax-free bonds ( traded OTC ) . But unless you have a spe & # 173 ; cific involvement in any of these issues, the tabular array of Treasury monetary values is the best manner to follow the bond market.

There are other tabular arraies listed. These are by and large for more experi & # 173 ; enced investors and those interested in taking higher hazards. For illustration, there are tabular arraies demoing the trading on several different exchanges in listed options & # 8212 ; chiefly options to purchase or sell common stocks ( name options and set options ) . There are hereafters monetary values & # 8212 ; trade good hereafters and besides involvement rate hereafters, foreign currency hereafters, and stock index hereafters. There are besides options associating to involvement rates and options associating to the stock index hereafters.


Competition among Europe & # 8217 ; s securities exchanges is ferocious. Yet most investors and companies would prefer fewer, bigger markets. If the exchanges do non acquire together to supply them, electronic supplanters will.

How many stock exchanges does a Europe with a individual capital market demand? Cipher knows. But a part-answer is clear: fewer than it has today. America has eight stock exchanges, and seven hereafters and options exchanges. Of these merely the New York Stock Exchange, the American Stock Exchange, NASDAQ ( the nonprescription market ) , and the two Chicago hereafters exchanges have significant turnover and countrywide pretenses.

The 12 member states of the European Community ( EC ) , in contrast, boast 32 stock exchanges and 23 hereafters and options exchanges. Of these, the market in London, Frankfurt, Paris, Amsterdam, Milan and Madrid & # 8211 ; at least & # 8211 ; aspire to important functions on the European and universe phases. And the figure of exchanges is turning. Recent reachings include exchanges in Italy and Spain. In eastern Germany, Leipzig wants to reopen the stock exchange that was closed in 1945.

True, the EC is non every bit integrated as the United States. Most mediators, investors and companies are still national instead than pan-European in character. So is the occupation of modulating securities markets ; there is no European equivalent of America & # 8217 ; s Securities and Exchange Commission ( SEC ) . Taxes, company jurisprudence and accounting patterns vary widely. Several regulative barriers to cross-border investing, for case by pension financess, remain in topographic point. Recent convulsion in Europe & # 8217 ; s exchange rate mechanics has reminded cross0border investors about currency hazard. Despite the Maastricht pact, talk of a common currency is little more than that

Yet the local truenesss that sustain so many European exchanges look progressively outdated. Countries that one time had regional stock exchanges have seen them merged into 1. A individual European market for fiscal services is on its manner. The EC ‘s investing services directive, which should come into force in 1996, will allow cross-border stockbroking without the demand to put up local subordinates. Jean-Francois Theodore, president of the Paris Bourse, says this will take to another European Big Bang. And finance is the transnational concern par excellence: electronics and the terminal of most capital controls mean that securities bargainers roam non merely Europe but the Earth in hunt of the best returns.

This affects more than merely stock exchanges. Investors want fiscal market that are inexpensive, accessible and of high liquidness ( the ability to purchase or sell portions without traveling the monetary value ) . Businesss, big and little, need a capital market in which they can raise finance at the lowest possible cost If European exchanges do non run into these demands, Europe ‘s economic system suffers.

In the past few old ages the favoured manner of agitating up Bourses has been competition. The event that triggered this was London ‘s Big Bang in October 1986, which opened its stock exchange to Bankss and aliens, and introduced a screen-plus-telephone system of securities merchandising known as SEAQ. Within hebdomads the trading floor had been abandoned. At the clip, other European Bourses saw Big Bang as a British eccentricity. Their markets matched buy and sell orders ( order-driven trading ) , whereas London is a market in which traders quote house monetary values for trades ( quote-driven trading ) . Yet
many Continental markets shortly found themselves forced to copy London ‘s illustration.

That was because Big Bang had strengthened London ‘s clasp on international equity-trading. SEAQ ‘s international arm rapidly grab & # 173 ; bed balls of European concern. Today the London exchange reckons to manage around 95 % of all European cross-border share-trading It claims to manage three-fourthss of the trading in blue-chip portions based in Holland, half of those in France and Italy and a one-fourth of those in Germany & # 8212 ; though, as will go clear, there is some difference about these figures.

London ‘s market-making tradition and the presence of many international fund directors helped it to win this concern. So did three other factors. One was stamp responsibilities on portion trades done in their place states, which SEAQ normally avoided. Another was the shortness of trading hours on Continental Bourses. The 3rd was the ability of SEAQ, with market-makers citing bipartisan monetary values for concern in big sums, to manage trades in large blocks of stock that can be fed through order-driven markets merely when they find opposite numbers.

A similar hassle for concern has been seen among the ex & # 173 ; alterations that trade hereafters and options. Here, the market which foremost trades a given merchandise tends to corner the concern in it. The European Options Exchange ( EOE ) in Amsterdam was the first derived functions exchange in Europe ; today it is the merely 1 to merchandise a European equity-index option. London ‘s LIFFE, which opened in 1982 and is now Europe ‘s biggest derived functions exchange, has kept a two-to-one lead in German government-bond hereafters ( its most active contract ) over Frankfurt ‘s DTB, which opened merely in 1990. LIFFE competes with several other European exchanges, non ever successfully: it lost the market in ecu-bond hereafters to Paris ‘s MATIF.

European exchanges armoured themselves for this conflict in three ways. The first was to fend off foreign competition with regulations. In three old ages of haggle over the EC ‘s investment-services directing, several member-countries pushed for regulations that would necessitate securities to be traded merely on a recognized exchange. They besides demanded regulations for the revelation of trades and monetary values that would hold hamstrung SEAQ ‘s quote-driven trading system. They were beaten off in the eventual via media, partially because authoritiess realized they risked driving concern outside the EC. But residuary efforts to smother competition remain. Italy passed a jurisprudence in 1991 necessitating trades in Italian portions to be conducted through a house based in Italy. Under force per unit area from the European Commission, it may hold to revoke it.

6.1 New Ways for Old

The 2nd response to competition has been frenetic attempts by Bourses to overhaul systems, better services and cut costs. This has meant puting in new trading systems, bettering the manner trades are settled, and pressing authoritiess to trash stamp responsibilities. It has besides progressively intend seeking to crush London at its ain game, for case by seeking for ways of fiting London ‘s art in block trading.

Paris, which galvanized itself in 1988, is a good illustration. Its Bourse is now unfastened to foreigners. It has a computerized trading system based on uninterrupted auctions, and colony of most of its trades is computerized. Attempts to put up a block-trading mechanism continue, although easy. Meanwhile, MATIF, the French hereafters exchange, has become the continent ‘s biggest. It is particularly proud of its ecu-bond contract, which should turn in importance if and when pecuniary brotherhood looms.

Frankfurt, the continent ‘s biggest stock-market, has moved more ponderously, partially because Germany ‘s federal system has kept regional stock exchange in being, and left much of the ordinance of its markets at Land ( province ) degree. Since January 1st 1993 all German exchanges ( including the DTB ) have been grouped under a house called Deutsche Borse AG, chaired by Rolf Breuer, a member of Deutsche Bank & # 8217 ; s board. But there is still some manner to travel in centralising German share-trading. German floor agents continue to defy the inroads made by the bank & # 8217 ; s screen-based IBIS trading system. A jurisprudence to put up a federal securities regulator ( and do insider-dealing illegal ) still lies becalmed in Bonn.

Other Bourses are traveling excessively. Milan is forcing frontward with screen-based trading and rushing up its colony. Spain and Belgium are reforming their stock-markets and establishing new hereafters exchanges. Amsterdam plans an particularly determined onslaught on SEAQ. It is implementing a McKinsey study that recommended a screen-based system for sweeping trades, a particular mechanism for large block trades and a bigger market-making function for agents.

Ironically, London now finds itself a dawdler in some respects. Its portion colony remains prehistoric ; the computerized undertaking to overhaul it has merely been scrapped. The SEAQ trading system is falling apart ; merely late has the exchange, tardily, approves programs draw up by Arthur Andersen for a replacing, and there is plentifulness of incredulity in the City about its ability to present. Yet the exchange & # 8217 ; s claimed figures for its portion of trading in Continental equities suggest that London is keeping up good against its competition.

Are these figures correct? Not needfully: trades done through an agent based in London frequently get counted as SEAQ concern even when the opposite number is based elsewhere and the order has been executed through a Continental Bourse. In today & # 8217 ; s electronic age, with many houses members of most European exchanges, the true location of a trade can be impossible to trap down. Continental Bourses claim, anyhow, to be winning back concern lost to London.

Financiers in London agree that the glory-days of SEAQ & # 8217 ; s international arm, when other European exchanges were moribund, are gone. Covering in London is now more frequently a complement to, instead than a replacement for, covering at place. Large blocks of stock may be bought or sold through London, but broken apart or assembled through local Bourses. Monetary values tend to be derived from the domestic exchanges ; it is noteworthy that trading on SEAQ beads when they are closed. Baron new wave Ittersum, president of the Amsterdam exchange, calls this the & # 8220 ; queen & # 8217 ; s birthday consequence & # 8221 ; : trading in Dutch equities in London slows to a drip on Dutch populace vacations.

Such competition-through-diversity has encourage European exchanges to cut out the ruddy tape that protected their members from outside competition, to encompass electronics, and to accommodate themselves to the wants of investors and issuers. Yet the diverseness may besides hold had a cost in lower liquidness. Investors, particularly from outside Europe, are deterred if liquidness remains divided among different exchanges. Companies suffer excessively: they grumble about the costs of naming on several different markets.

So the 3rd response of Europe & # 8217 ; s Bourses to their conflict has been pan-European co-operative ventures that could expect a bigger European market. There are more desirous words here than workss. Work on two joint EC undertakings to pool market information, Pipe and Euroquote, was abandoned, thanks chiefly to ill will from Frankfurt and London. Eurolist, under which a company run intoing the listing demands for one stock exchange will be entitled to a listing on all, is traveling frontward & # 8211 ; but this is barely a individual market. As Paris & # 8217 ; s Mr Theodore puts it, “ there is a compelling concern instance for the large European exchanges constructing the European-regulated market of to-morrow ” Sir Andrew Hugh-Smith, president of the London ex & # 173 ; alteration has besides long advocated one European market for profes & # 173 ; sional investors

One ground small has been done is that Bourses have been get bying with so many reforms at place. Many wanted to force these through earlier believing about Europe. But there is besides throwback patriotism. London, for illustration, is unwilling to give up the taking function it has acquired in cross-border trading between establishments ; and other exchanges are unwilling to accept that it keeps it. Mr. Theodore says there is no hereafter for the European Bourses if they are forced to row in a boat with one steersman. Amsterdam ‘s Baron new wave Ittersum besides emphasises that a joint European market must non be one under London ‘s control.

Hence the latest, lesser impression gripping Europe ‘s exchanges: bilateral or many-sided links. The hereafters exchanges have shown the manner. Last twelvemonth four smaller exchanges led by Amsterdam ‘s EOE and OM, an options exchange based in Sweden and London, joined together in a federation called FEX In January of this twelvemonth the continent ‘s two biggest exchanges, MATIF and the DTB, announced a link-up that was clearly aimed at tumbling London ‘s LIFFE from its dominant place Gerard Pfauwadel, MATIF ‘s president, trumpets the trade as a case in point for other European exchanges. Mr Breuer, the Deutsche Borse ‘s president, reckons that a web of European exchanges is the manner frontward, though he concedes that London will non warm to the thought. The Bourses of France and Germany can be expected to follow the MATIF/DTB lead.

It remains ill-defined how such link-ups will work, nevertheless. The impression is that members of one exchange should be able to merchandise merchandises listed on another. So a Frenchman wanting to purchase German government-bond hereafters could make so through a trader on MATIF, even though the contract is really traded in Frankfurt. That is easy to set up via screen-based trading: all that are needed are local terminuss. But associating an electronic market such as the DTB to a floorbased market with open-outcry trading such as MATIF is harder Nor have any exchanges thought through an efficient manner of pooling their colony systems

In any instance, linkages and webs will make nil to cut down the overplus of European exchanges, or to construct a individual market for the chief European blue-chip stocks. For that a bigger joint attempt is needed It would non intend the decease of national exchanges, for there will ever be concern for single investors, and in securities issued locally Mr Breuer observes that finally all concern is local. Small investors will no uncertainty travel on worrying about currency

hazard unless and until pecuniary brotherhood happens. Yet big sweeping investors are already used to fudging against it. For them, investing in large European blue-chip securities would be much simpler on a individual sweeping European market, likely capable to a individual regulator

More to the point, if investors and issuers want such a market, it will emerge & # 8212 ; whether today ‘s exchanges provide it or non. What, after all, is an exchange? It is no more than a system to convey together as many purchasers and Sellerss as possible, sooner under an in agreement set of regulations. That used to intend a physically supervised trading floor. But computing machines have made it possible to retroflex the characteristics of a physical exchange electronically. And they make the airing of monetary values and the occupation of using regulations to a market easier.

Most users of exchanges do non cognize or care which exchange they are utilizing: they deal through agents or traders. Their concern is to cover with a reputable house such as S. G. Warburg, Gold-man Sachs or Deutsche Bank, non a reputable exchange. Since large houses are now members of most exchanges, they can take where to merchandise and where to fall back to off-exchange trades & # 8212 ; which is why there is so much difference over market portions within Europe This fluidness creates much range for new challengers to undersell constituted stock exchanges.

6.2 Europe, Meet Electronics

See the experience of the New York Stock Exchange, which has remained stalwartly loyal to its trading floor. It has been losing concern steadily for two decennaries, even in its ain listed stocks. The victors have included NASDAQ and cheaper regional exchanges. New York ‘s trading has besides migrated to electro & # 173 ; nic trading systems, such as Jeffries & A ; Co ‘s Posit, Reuters ‘s Instinct and Wunsch ( a computing machine grandly renamed the Arizona Stock Exchange ) .

Something similar may go on in Europe. OM, the Swedish options exchange, has an electronic trading system it calls Click. It late renamed itself the London Securities and Derivatives Exchange. Its main executive, Lynton Jones, dreams of offering clients side-by-side on a screen a pick of hard currency merchandises, options and hereafters, some of them customised to accommodate peculiar clients The Chicago hereafters exchanges, worried like all established exchanges about losing market portion, have late launched “ flex ” contracts that combine the virtuousnesss of homogenous exchange-traded merchandises with bespoke nonprescription 1s.

American electronic trading systems are seeking to interrupt into European markets with likewise inventive merchandises Instinet and Posit are already active, though they have had limited success so far. NASDAQ has an international arm in Europe. And there are homegrown systems, excessively. Tradepoint, a new electronic order-driver trading system for British equities, is about to open in London. Even bond-dealers could play a portion. Their trade association, ISMA, is recognized British exchange for trading in Eurobonds ; it has a computerized coverage system known as TRAX ; most of its members use the international clearing-houses Euroclear and Cedel for trade colony. It would non be difficult for ISMA to widen its range to include equities or hereafters and options. The association has late announced a nexus with the Amsterdam Stock Exchange.

Electronicss poses a menace to established exchanges that they will ne’er run into by seeking to travel it entirely. A individual European securities market ( or derivatives market ) need non look like an established stock exchange at all. It could be a web of the diverse trading and colony systems that already exists, with the necessary computing machine terminuss scattered across the EC. It will necessitate to be regulated at the European degree to supply unvarying coverage ; an audit trail to let trades to be retraced from marketer to purchaser ; and a manner of doing certain that investors can make the market shapers offering the best monetary values. Existing national regulators would prefer to make all this through co-operation ; but some moneymans already talk of demand for a European SEC. An analogy is European civil air power & # 8217 ; s loath inching towards a European system of air-traffic control.

Once a Europe-wide market with agreed ordinance is in topographic point, competition will window out the victors and also-rans among the member- Bourses, on the footing of services and cost, or of the rival appeals of the immediateness and size of quote-driven trading set against the keener monetary values of order-driven trading. Not a cozy chance ; but if the EC & # 8217 ; s bing exchanges do non subject to such a European model, other creative persons will step in to deny them the escapade.


Up to now, we have talked about the map of securities markets as trading markets, where one investor who wants to travel out of a peculiar investing can easy sell to another investor who wishes to purchase. We have non talked about another map of the securities markets, which is to raise new capital for corporations & # 8211 ; and for the federal authorities and province and local authoritiess.

When you buy portions of stock on one of the exchanges, you are non purchasing a & # 8220 ; new issue & # 8221 ; . In the instance of an old established company, the stock may hold been issued decennaries ago, and the company has no direct involvement in your trade today, except to register the alteration in ownership on its books. You have taken over the investing from another investor, and you know that when you are ready to sell, another investor will purchase it from you at some monetary value.