4. Group Members 8
SaifUllah Malik
Ibraheem Ansar
Bilal Ahmad
Raheem Ansar
Muhammad Hussain
Khalid Razzaq
Abdul Basit
Arslan Pervaiz
4
5. ACKNOWLEDGEMENT
We at first bow our head before Allah Almighty who bestowed his countless blessings
upon us, guided us towards the way of success, and blessed us with courage of facing
problems and obstacles. We have no words at our command to express our deepest sense of
gratitude of All Mighty Allah who enabled us to complete our project against all odds.
We wish to place our deep sense of thanks to MR Naveed Anjum who guided us to
complete this project in its true sense. His valuable experience and knowledge of the field
removed the difficulties at all crucial junctures. We acknowledge untiring efforts of our
teacher who has been a beacon of light for us. He broadened our horizon by allowing us to
research at our own and gave us free will to right whatever we wanted to.
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6. EXECUTIVE SUMMARY
Whenever someone talks about the stock market as a place
where equities are exchanged between buyers and sellers, the
first thing that comes to mind is either the NYSE or Nasdaq,
and there's no debate over why. These two exchanges account
for the trading of a major portion of equities in North
America and the world. At the same time, however, the NYSE
and Nasdaq are very different in the way they operate and in
the types of equities that trade upon them. Knowing these
differences will help you better understand the function of a
stock exchange and the mechanics behind the buying and
selling of stocks
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7. Stock Trading Occurs
In the United States, secondary market trading in common stock has occurred in
two different ways.
1.The first is an organized exchange, which are specific geographical locations
called trading floors, where buyers and sellers physically meet. The trading
Mechanism on exchanges is the auction system, which results from the presence
of many competing buyers and sellers assembled in one place.
2.The second type is via over-the-counter (otc) trading, which results from
geographically dispersed traders or market-makers linked to one another via
telecommunication systems. That is, there is no trading floor. This trading
mechanism is a negotiated system whereby individual buyers negotiate with
individual sellers
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8. National Stock Exchanges
In the United States, there are two national stock exchanges
(1) The New York Stock Exchange (NYSE), commonly called the Big Bang
(2) the American Stock Exchange (AMEX or ASE), also called the curb.
National stock exchange trade stocks of not only U.S corporations but also
non-Corporations. In addition to the national exchanges, there are regional
stock exchanges in Boston, Chicago (called the Midwest Exchange),
Cincinnati, San Francisco (called the Pacific Coast Exchange) and
Philadelphia. Regional exchanges primarily trade stocks from the
corporation based with in their region
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9. Major Otc Market
The major OTC market in the United States is Nasdaq (the National Association
of Securities Dealers Automated Quotation System), which is owned and
operated by the NASD (the National Association of Securities Dealers).
The NASD is a securities industry self-regulatory organization (SRO) that operates
subject to the oversight of the SEC.
NASDAQ is a national market. During 1998, Nasdaq and AMEX merged to form
the Nasdaq-AMEX Market Group, Inc.
The NYSE is the largest exchange in the United States, with approximately 3,000
companies ‘ shares listed. The AMEX is the second largest national stock exchange
in the United States, with more than 750 issues listed for trading. Nasdaq has a
greater number of listed stocks but with much less market capitalization than the
NYSE
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10. Securities Act of 1934
According to the Securities Act of 1934. There are two categories of traded
stocks
o Listed Stocks
The first is exchange-traded stocks, which are also called listed stocks.
o Nonlisted stocks
The second is OTC stocks, which are also non-exchange traded stocks and are,
thereby, by interference, Nonlisted
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11. Listing Requirements
Nasdaq has listing requirements (the Nasdaq National Market and the
Nasdaq Small Capitalization Market). Thus the more practical
categorization of these categories is as follows:
•Nasdaq listed OTC stocks
•Exchange listed stocks (national and regional exchange)
Non-Nasdaq OTC stocks
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12. Type Of Markets
he four Major type of markets on which stocks are traded are referred to
as follows:
First Market- Trading on exchanges of stocks listed on an exchange.
Second Market- Trading in the OTC market of stocks not listed on an
exchange.
Third Market- Trading in the OTC market of stocks listed on an
exchange.
Fourth Market- Private transactions between the institutional
investors who deal directly with each other without utilizing the services
of a broker-dealer intermediary 12
13. EXCHANGES
Exchange markets are called central auction specialist systems and OTC markets
are called multiple market-maker systems. Recently however, a new method of
trading common stocks via independently owned and operated Electronic
Communications Networks (ECNs) has developed and is growing quickly.
Stock exchange is formal organization, approved and regulated by the Securities
and Exchange Commission (SEC). They are made up of members who use the
exchange facilities and systems to exchange or trade listed stocks.
These exchanges are physical locations where members assemble to trade. To be
listed, a company must apply and satisfy requirements established by the exchange
for minimum capitalization shareholder equity, average closing share price, and
other criteria.
The number of seats is fixed by the exchange and the cost of a seat is
determined by supply and demand of those who want to sell or buy
seats. In early 2001, there were 1,366 seats on the NYSE, and the
cost of a seat was $2 million
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14. HISTORY
New York Stock Exchange
Type Stock Exchange
Location New York city, New York,United States
Key people *Marsh Carter is Chairman of the (NYSE)
Currency United States Dollar
No. Of listings 2,773
Market Cap US$25 trillion (2006)
Volume US$ 22 trillion (2006)
Indexes Nyse Composite
Built/Founded 1903
Governing body Private
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15. New York Stock Exchange
1792 - The NYSE acquires its first traded securities
Equity Stock Exchange
Located At 11 Wall Street Lower Manhattan,New York,USA
Largest Stock Exchange
Physical Place Where Traders Trade
Operations
Operated by NYSE Euro next
NYSE is an auction-based market
16. Trading
A specialist is a dealer representing a NYSE specialist firm
The New York Stock Exchange (sometimes referred to as "the Big Board")
NYSE is open for trading Monday through Friday between 9:30–16:00 ET
NYSE trades in a continuous auction format
open outcry auction market
January 24, 2007, all NYSE stocks can be traded via its electronic Hybrid Market
Customers can now send orders for immediate electronic execution
17. Post
Trading in stock listed on the NYSE is conducted as a centralized continuous
auction market at a designated location on the trading floor, called a post
with brokers representing their customers buy or sell orders
A single specialist is the market maker for each stock
A member may be designated as a specialist for the common stock of more
than one company
But only one specialist is designated for the common stock of each listed
company
several stocks can trade at the same post
Each post is essentially an auction site where an order, bids, offers, arrive
18. Super Dot
Most orders arrive from floor brokers and via an electronic delivery
system called the Super Dot
Super dot is an electronic order routing and reporting system
It links members firms electronically worldwide directly to the
specialist‘s post on the trading floor of the NYSE
The majority of NYSE orders are processed electronically through super
dot.
19. Single Specialist Market-Maker
In addition to the single specialist market maker on an exchange, other
firms that are the members of an exchange can trade for themselves or on
behalf of their customers. NYSE members firms, which are broker-dealer
organization that serve the investing public, are represented on the trading
floor by brokers who serve as fiduciaries in the execution of customers
orders
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20. Commission Broker
The largest category on the NYSE is that of the Commission Broker. A
commission broker is an employee of one of the nearly 500 securities
houses (stockbrokers) or wire houses) devoted to handling business on the
exchange. Commission brokers execute orders for their firm on behalf of
their customers at agreed commission rates. The houses may deal for their
own account as well as on behalf of their clients
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21. Other Transactors on the Exchange Floor Include the Following
Categories
Independent floor brokers work on the exchange floor and execute orders
for other exchange members who have more orders than they can handle
alone or who require assistance in carrying out large orders. Floor brokers
take a share in the commission received by the firm they are assisting.
Registered traders are individual members who buy and sell for their own
account. Alternatively, they may be trustees who maintain membership for the
convenience of dealing and to save fees
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22. NYSE Specialist
Specialists are dealers or market makers assigned by the NYSE to
conduct the auction process and maintain an orderly marketing one or
more designated stocks. Specialists may act as both a broker (agent) and a
dealer (principal).
Broker (Agent). The NYSE has seven specialist firms
In their role as a broker or agent, specialists represent customer orders in
their assigned stocks, which arrive at their post electronically or entrusted
to them by a floor broker to be exected if and when a stock reaches a price
specified by a customer (limit or stop orders).
Dealer (principal)
As a dealer or a principle, specialists buy and sell shares in their assigned
stocks for their own accounts as necessary to maintain an orderly market.
Specialists must always give preference to public orders over trading for
their own accounts.
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23. Public Orders
In general, Public Orders for stocks traded on the NYSE, if they are
not sent to the specialist’s post via Super Dot, are sent from the
member firm’s office to its representative on its exchange floor, who
attempts to execute the orders in the trading in the crowd.
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24. Types of orders
There are certain types of orders where the order will not be perform
immediately on the trading floors. These are limit orders and stops orders. If
the order is at a limit order or a stop order and the member firm’s floor
brokers cannot transact the order immediately, the floor broker can wait in
the trading crowd or give the order to the specialist in the stock, who will
enter the order in that specialist’s limit order book (or simply book) for
later execution based on the relationship between the market price and the
price specified in the limit or stop order. The book is the list on which
specialist keep the limit and stop orders that
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27. Major roles
Specialists working on the NYSE have four roles to fulfill in order to ensure
a fair and orderly market:
Auctioneer - because the NYSE is an Auction Market, bids and asks are
competitively forwarded by investors.
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28. Major roles
Agent - the specialist can also accept limit orders relayed by investors
through brokers or electronic trading.
Catalyst - as the specialists are in direct contact with the bidders and sellers
of particular securities, it is their responsibility that enough interest exists for
a particular stock.
Principle - in the instance where there's a demand-supply imbalance of a
particular security.
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29. History
Nasdaq
Type Stock exchange
Location New York City, United States
Owner The NASDAQ OMX Group
Key people *Robert Greifeld (CEO)
*H. Furlong Baldwin (Chairman)
Currency USD
No. Of listings 3,800
Indexes (1)NASDAQ Composite
(3)
(2)NASDAQ-100
(3)NASDAQ Biotechnology Index
Website www.nasdaq.com
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30. Nasdaq
NASDAQ was founded in 1971, and provided quotes for Over-the-
Counter (OTC) stocks not listed on other markets. For that reason,
it became associated in people's minds with technology stocks.
The Nasdaq, on the other hand, is not a physical entity. The
Nasdaq, on the other hand, is strictly an electronic exchange.
. Nasdaq is essentially a telecommunication network that links
thousands of geographically dispersed, market-making
participants. Nasdaq is an electronic quotation system that
provides price quotations to market participants on Nasdaq listed
stocks.
Although there is no critical trading floor, Nasdaq has become an
electronic “virtual trading floor”. There are more than 4700
common stocks included in the Nasdaq system with a total market
value of over $3.5 trillion.
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31. Dealer’s Market
The Nasdaq is a dealer’s market, wherein market participants are not
buying from and selling to one another but to and from a dealer,
which, in the case of the Nasdaq, is a market maker The Nasdaq is
a computer-based stock exchange where buyers and sellers meet
electronically .
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32. Over-the-counter(OTC)market
The Nasdaq is an Over-the-counter(OTC)market and it relies on
market makers rather than specialists to facilitate trading
and liquidity in stocks. For each stock, there is at least one
market maker
If you wish to buy a stock that trades on the Nasdaq, your broker
will either call up a market maker with the information of your
trade or enter your order into a Nasdaq-sponsored online
execution system
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33. Trading schedule
NASDAQ has a pre-market session from 07:00am to 09:30am, a normal
trading session from 09:30am to 04:00pm and a post-market session
from 04:00pm to 08:00pm (all times in EST)
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34. Quotes Availability
NASDAQ quotes are available at three levels:
•Level 1 shows the highest bid and lowest offer — the
inside quote.
•Level 2 shows all public quotes of market makers
together with information of market makers wishing to sell
or buy stock and recently executed orders.
• Level 3 is used by the market makers and allows them to
enter their quotes and execute orders
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35. The Market Maker
The market maker is an investment company that registers with
the SEC to buy and sell a particular stock on the Nasdaq. A
market maker is a broker-dealer who facilitates the trading
of shares by posting bid and ask prices along with maintaining
an inventory of shares
Nasdaq has nearly 300 market makers
Unlike their counterparts at the NYSE, the market makers work
through a computer network rather than on the floor of a
physical exchange.
Their job is, literally, to make a market in a particular security.
Here is what they do:
•They fill orders for their company’s customers and for
their own account
•They also act as dealers to profit from the difference
between the bid and ask price for the stock
The Nasdaq requires market markers to provide a “two-sided
quote” in the securities they cover. 35
36. Buy and Sell
This means they must post a price they will buy at and a price
they will sell at (a bid and ask price –These prices along with
customer orders go into the Nasdaq computer system and the
system ranks the orders.
The best prices to buy and the best prices to sell automatically
go to the top of the queue and the computer fills them first. The
difference is the computer moves orders and prices through the
system faster than any human ever could
Unless you have access to an information provider that offers
Level II Nasdaq screens, you will never see this process at work.
Level II screens reveal the process of ranking prices and a
tremendous amount of information about orders.
Level II Screens
You can buy access to Level II screens from a number of
vendors; however, it could cost up to $300 per month or more
depending on what options you choose.
Day traders, swing traders and others who trade on very tight
margins need this type of information. Most other investors36
do
not.
37. Perception and Cost
The Nasdaq is typically known as a high-tech market, attracting
many of the firms dealing with the Internet or electronics.
Accordingly, the stocks on this exchange are considered to be more
volatile and growth oriented
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39. NASDAQ Operation
Not all securities trade through the NASDAQ system.
NASDAQ operates the Nasdaq National Market list, where
the larger NASDAQ largest stocks are listed (Intel, Microsoft
etc), and the Nasdaq Small Cap Market list, where small
companies with high growth potential are listed. NASDAQ
also operates the OTC Bulletin Board, which lists quotes for
stocks registered only at the Securities Exchange Commission
(SEC) and not on any exchange. Also, NASDAQ operates the
Nasdaq Pink Sheets, for stocks not registered with the SEC.
In order to become more competitive with the NYSE and the
international markets, NASDAQ has merged with the
American Stock Exchange (AMEX) in 1998 to form an
organized investment network. Although this network is still
referred to as NASDAQ, securities are traded separately on
the two markets
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40. Nasdaq Market Tiers
The Nasdaq stock market has two board tiers of securities: (1) the
Nasdaq National Market (NNM) and (2) the small Capitalization
Market. Newspapers contain separate security for these two tiers
of stocks (labelled the Nasdaq National Market” and the “Nasdaq
Small Capitalization Market”). The Nasdaq NMS is the dominant
OTC market in the United States there were approximately 3,800
stocks on the Nasdaq NNM system and 900 on the Small Cap
Market
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41. Some features of the two tiers of Nasdaq
•Securities are actually listed on both tiers of Nasdaq; that is,
must meet fairly stringent listing requirements for size, issuer
profitability, trading volume, governance, public disclosure
and other factors.
•Securities traded on these Nasdaq tiers must meet specified
minimum standards for both initial listing and continued
listing.
•The financial criteria for listing in the Small Cap Market are
not as strict as in the NNM system, although the corporate
governance standards for the two are the same.
•Small Cap companies often grow and move up to the NNM
market. The NNM issues are more widely known, have more
trading volume, and have more market makers.
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