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  • 1. The Role andThe Role and Function of a StockFunction of a Stock ExchangeExchange www.StudsPlanet.com
  • 2. OutlineOutline • Overview of financialOverview of financial marketsmarkets • Institutional infrastructureInstitutional infrastructure • Role and functions of stockRole and functions of stock exchangeexchange www.StudsPlanet.com
  • 3. OverviewOverview ofof FinancialFinancial MarketsMarkets • Two types of financial markets • Money markets • Capital markets • Primary market • Secondary market www.StudsPlanet.com
  • 4. The Hierarchy of Markets Money market Government bond market Corporate bonds & equities Asset backed securities & derivatives Gov’t T Bills www.StudsPlanet.com
  • 5. Financial Market Money market Capital market Primary market Second ary market Commercial banks Firms raise capital Investors trade securities issued in primary market debt equity Public Private placement Short term instruments Primary Mkt Inst Stock excha nge Credit unions Insurance cos NIS Supporting agents www.StudsPlanet.com
  • 6. Market infrastructureMarket infrastructure • Stock exchangeStock exchange • Clearing and settlementClearing and settlement • Education and trainingEducation and training • Investors’ protectionInvestors’ protection • Rating agencyRating agency www.StudsPlanet.com
  • 7. InstrumentsInstruments • EquitiesEquities • BondsBonds Most popular investing instruments Stocks and shares Bonus issues Rights issues Corporate Government www.StudsPlanet.com
  • 8. IntermediariesIntermediaries • Brokerage housesBrokerage houses • Stock brokersStock brokers • AdvisorsAdvisors Hand in Hand Beharry stockbrokers Trust company GuyAmerica www.StudsPlanet.com
  • 9. Regulation & SupervisionRegulation & Supervision AA few questionsfew questions • Ever wondered how the capitalEver wondered how the capital markets workmarkets work • Who sets the rulesWho sets the rules • What does the stock exchange doWhat does the stock exchange do • What is the role of the stock brokerWhat is the role of the stock broker • How to become a registered brokerHow to become a registered broker www.StudsPlanet.com
  • 10. The Regulator • Foremost authority presiding over the capital markets • With mission to promote and maintain Fair, efficient , secure and transparent market and to facilitate the orderly development of the stock exchange www.StudsPlanet.com
  • 11. Role and Functions ofRole and Functions of a stock exchangea stock exchange Established for theEstablished for the purpose of assisting,purpose of assisting, regulating and controllingregulating and controlling business of buying,business of buying, selling and dealing inselling and dealing in securitiessecurities www.StudsPlanet.com
  • 12. Role and Functions ofRole and Functions of a stock exchange cont’da stock exchange cont’d • Provides a market for the trading ofProvides a market for the trading of securities to individuals andsecurities to individuals and organizations seeking to investorganizations seeking to invest their saving or excess fundstheir saving or excess funds through the purchase of securitiesthrough the purchase of securities www.StudsPlanet.com
  • 13. Role and Functions of a stock exchange cont’d Provides a physical location for buying and selling securities that have been listed for trading on that exchange www.StudsPlanet.com
  • 14. Role and Functions of a stock exchange cont’d Establishes rules for fair trading practices and regulates the trading activities of its members according to those rules www.StudsPlanet.com
  • 15. Role and Functions ofRole and Functions of a stock exchangea stock exchange cont’dcont’d The exchange itself does not buy or sell the securities, nor does it set prices for them www.StudsPlanet.com
  • 16. FairFair The exchange assuresThe exchange assures that no investor will havethat no investor will have an undue advantage overan undue advantage over other market participantsother market participants www.StudsPlanet.com
  • 17. Efficient marketEfficient market This means that ordersThis means that orders are executed andare executed and transactions are settledtransactions are settled in the fastest possiblein the fastest possible wayway www.StudsPlanet.com
  • 18. TransparencyTransparency Investor make informedInvestor make informed and intelligent decisionand intelligent decision about the particular stockabout the particular stock based on informationbased on information www.StudsPlanet.com
  • 19. Transparency cont’dTransparency cont’d Listed companies mustListed companies must disclose information indisclose information in timely, complete andtimely, complete and accurate manner to theaccurate manner to the Exchange and the publicExchange and the public on a regular basison a regular basis www.StudsPlanet.com
  • 20. Transparency cont’dTransparency cont’d Required information includeRequired information include stock price, corporatestock price, corporate conditions and developmentsconditions and developments dividend, mergers and jointdividend, mergers and joint ventures, and managementventures, and management changes etcchanges etc www.StudsPlanet.com
  • 21. Doing businessDoing business People who buy or sell stock on an exchange do so through a broker www.StudsPlanet.com
  • 22. Doing business cont’dDoing business cont’d The broker takes your order to the floor of the exchange looks for a broker representing someone wanting to buy/sell • If a mutually agreeable price is found the trade is made www.StudsPlanet.com
  • 23. Some type of ordersSome type of orders • Limit orderLimit order • Market orderMarket order • Day orderDay order • OpenOpen • All or noneAll or none • Any partAny part • Good throughGood through www.StudsPlanet.com
  • 24. PricePrice At any point in time, the price of previously issued stock is determined by the ebb and flow of supply and demand www.StudsPlanet.com
  • 25. Listing requirementsListing requirements There are specificThere are specific requirements for allowing arequirements for allowing a public company to list itspublic company to list its securities on the Stocksecurities on the Stock Exchange these are set outExchange these are set out in the legislationin the legislation www.StudsPlanet.com
  • 26. Benefits of listing • Visibility • Market support • Investors confidence • Increased demand for products and services • Overall increase in profitability www.StudsPlanet.com
  • 27. Once tradedOnce traded • Aura of reliabilityAura of reliability • Accuracy in reportingAccuracy in reporting financial datafinancial data • ReputationReputation • StrengthStrength www.StudsPlanet.com
  • 28. Delisting Stock exchange can delist companies for a number of reasons including :- • Merger with another company • Solvency problems • Name change company asked to be removed • Failure to comply with exchange rules www.StudsPlanet.com
  • 29. Desirable Characteristics of a stock market Liquidity Ability to sell an asset quickly at a fairly known price Low transactions costs www.StudsPlanet.com
  • 30. Desirable Characteristics of a stock market cont’d • Availability of information Market efficiency • Prices react quickly to new information • Small price fluctuations • Narrow price spread www.StudsPlanet.com
  • 31. Financing the exchangeFinancing the exchange • Transaction fees paid by members forTransaction fees paid by members for each order executedeach order executed • Fees paid by firms when theirFees paid by firms when their securities are originally listedsecurities are originally listed • Annual fees by firmsAnnual fees by firms • Entrance fees from new membersEntrance fees from new members • sale of historic trading and marketsale of historic trading and market informationinformation www.StudsPlanet.com
  • 32. Major challenges for theMajor challenges for the ExchangesExchanges • Cross border trading • Issuers and investors are expanding their horizons beyond their home markets • Investors becoming much more demanding www.StudsPlanet.com
  • 33. •Regulatory improvementRegulatory improvement Transparency and CorporateTransparency and Corporate GovernanceGovernance Corporate Governance Protection to minority Shareholders Disclosure Enhance market confidence Strong industry regulator www.StudsPlanet.com
  • 34. Owners Board of Directors Managers Ownership of the company is by the public in the form of shares one share, one vote Board is elected by shareholders to represent the best interests of the owners Board hires and fires the management of the company www.StudsPlanet.com
  • 35. www.StudsPlanet.com
  • 36. Kinds of BrokersKinds of Brokers  Commission BrokerCommission Broker  JobberJobber  Floor brokerFloor broker  TaraniwallaaTaraniwallaa  Odd lot dealerOdd lot dealer  BudliwallaBudliwalla  ArbitrageurArbitrageur  Security dealersSecurity dealerswww.StudsPlanet.com