After coming under English rule in 1664, New York City became known as Wall Street.
The U.S. financial markets began to take shape in the late 18th century as stockbrokers and speculators informally gathered on Wall Street to trade.
The first organized American securities exchange was founded in 1792 by twenty-four stockbrokers who signed the Buttonwood Agreement.
You should be able to use the New York Stock Exchange after studying this chapter.
The merger of the New York Stock Exchange and the Euronext N.V. created the first global stock exchange.
A group of people describe their characteristics.
European exchanges to the merger include the Paris, Brussels, Lisbon, and Amsterdam stock exchanges.
The London-based Euronext.liffe is now known as the New York Stock Exchange Liffe.
In 2008 they discussed how they differ from alternative trading systems.
The American Stock Exchange was acquired by Euronext.
The key aspects of globalization are reviewed.
The Buttonwood Agreement became the world's tional markets through a series of acquisitions and securities markets.
In November of last year, the Atlanta-based Intercontinental Discuss acquired the New York Stock Exchange.
The combined entity controlled 11 exchanges that traded common stocks as well as more exotic securities such as Explain long purchases, margin transactions, and options, interest rate and credit derivatives, foreign exchange, and short sales.
The growing importance of derivatives trading and the decline of the Big Board were reflected in the transaction.
For years, the share of trading volume that the New York Stock Exchange had was on the decline.
Wall Street has been a truly global marketplace since trading under a buttonwood tree in a Dutch colonial settlement in the 19th century.
Their goal is to allow such transactions to be done quickly and at a fair price.
The various types of securities markets will be looked at in this section.
The money market is used by investors for short-term borrowing.
Most of our attention will be on the capital market.
There are a lot of financial securities that investors can make transactions in.
The agency must confirm the accuracy of the information given to potential investors.
The securities markets are regulated by the SEC.
The issuer of the equity or debt securities gets the proceeds of the sales.
In the first full year of the Great Recession, only 21 operating companies sold stock to the public for the first time in the primary market in the United States.
The end of the technology-stock-driven bull market in 1999 resulted in less than one-twentieth the number of IPOs.
When the recovery from the Great Recession began in 2009, the number of IPOs per year began to rebound, producing nearly twice as many as the previous year.
The volume of IPOs increased as the economy continued to improve.
Seasoned equity offerings follow a similar pattern.
The low point for the market was in 2008, though the deals have picked up since then.
There are three options for a firm to sell securities in the primary market.
The majority of companies that go public are small and fast-growing.
Shake Shack went public on January 30, 2015, at $21 per share, raising about $98 million for the reju venation of New York City's Madison Square Park.
Not all IPOs fit the typical start-up profile.
A unit may be spun off into a public corporation.
Time Warner spun off its magazine business, Time, Inc., in June of 2014).
When a company decides to go public, it needs the approval of its current shareholders, the investors who own its privately issued stock.
The company's auditors and lawyers have to certify that all financial disclosure documents are legit.
This bank is responsible for facilitating the sale of the company's IPO shares and is the lead underwriter.
Investment banking firms are often brought in to help market the company's stock.
In the next section, we will discuss the role of the investment banker.
A registration statement is filed with the SEC by the company.
The issuer's management, financial position and key aspects of the securities to be issued are described.
Prospective investors may receive a preliminary prospectus while waiting for the registration statement to be approved by the SEC.
The purpose of the quiet period is to make sure that all potential investors have access to the same information about the company that is presented in the preliminary prospectus, but not to any unpublished data that might provide an unfair advantage.
When the SEC declares the firm's prospectus to be effective, the quiet period ends.
The offering price of the stock should be under the company name in the preliminary prospectus.
The red herring is printed across the top of the front page.
In addition to providing inves tors with information about the new issue, road shows help the investment bankers gauge the demand for the offering and set an expected price range.
The SEC must approve the offering before the IPO can take place.
The table shows the number of IPOs each year.
As economic conditions change and the stock market moves up and down, the number of IPOs changes dramatically.
When the economy is strong and stock prices are rising, more companies go public.
The per centage change from the price of the IPO in the prospectus to the closing price of the stock on its first day of trading is what's known as an IPO's first-day return.
When the details of Shake Shack's IPO were finalized, shares were offered to investors in the final prospectus for $21 per share.
On the cover of the prospectus, there are some key factors related to Shake Shack Inc.'s common stock issue.
In Table 2.1, you can see that the average first-day return for all IPOs is positive, ranging from 6.4% in 2008 to 71.1% in 1999.
IPO shares can be sold to investors at a lower price than the market will bear.
In the Shake Shack offering, investors were willing to pay $45.90 per share (based on the value of the shares once trading began), but shares were initially offered at $21.
Shake Shack shares were underpriced by $24.90, we could say.
Table 2.1 shows that the average first-day return is related to the number of IPOs.
The average first-day returns are higher in years when many firms choose to go public, and lower in years when few firms go public.
The third feature of the IPO market is highlighted in Table 2.1.
The total gross proceeds from IPOs ranged from $9 billion in 2003 to $65 billion in 1999.
Shake Shack underpriced its offering by 141.2 million dollars, which comes from the sale of 5.75 million shares at $24.90 per share.
Aggregate money left on the table peaked at the same time that under pricing did.
477 companies went public in 1999 and left $37.1 billion on the table.
It seems that companies left more money on the table than they raised by going public in the first place, since the total money paid by investors in the primary market to acquire IPO shares was $65 billion.
If shares had not been underpriced in 1999, companies would have raised more money.
Individual investors who can't easily acquire shares at the offering price are at risk of investing in IPOs.
Most of the shares go to institutional investors.
IPO stocks are not necessarily good long-term investments.
Most public offerings are made with the help of an investment banker.
This process involves buying the securities from the issuing firm at an agreed-on price and then selling them to the public.
The issuer is given advice about pricing and other important aspects of the issue by the investment banker.
The financial risk associated with buying the entire issue from the issuer is shared by the syndicate.
Each member of the selling group is paid a commission on the securities they sell.
The roles of the participating firms are indicated by the layout of the prospectus cover.
The syn dicate members whose names appear in a smaller fonts are different from the originaters, whose names appear in a larger type.
J.P. Morgan and Morgan Stanley are acting as joint-lead investment banks.
A discount on the sale price of the securities is typically what comes in the form of compensation.
In the Shake Shack IPO, the investment bank might pay Shake Shack $19.50 for stock that investors will ultimately purchase for $21.
The lead underwriter can guarantee the issuer $19.50 per share and sell the shares to the syndicate members for $19.75 per share.
The management fee is 25 cents per share.
The selling group gets the shares for 85 cents more, or $20.60 per share.
The discount is the profit per share.
Members of the selling group earn a selling concession of 40 cents per share when they sell shares to investors.
The majority of new issues are sold through public offering, even though the issuer places some primary security offerings directly.
A syndicate may be formed by the lead investment bankers hired by the issuing firm.
The syndicate buys the entire security issue from the issuing corporation at a discount to the public offering price.
The risk of reselling the issue to the public is taken by the investment banks in the syndicate.
The investment banks' profit is the difference between the price they guaranteed and the public offering price.
The selling group was put together by the lead investment bank and the other syndicate members.
Secondary market transactions do not involve the corporation that issued the securities.
An investor can sell his or her holdings to another investor in the secondary market.
The secondary market provides an environment for continuous pricing of securities that helps to ensure that the true values of the securities are reflected in the security prices.
Section 6(a) of the Exchange Act allows the SEC to register national securities exchanges.
The OTC market is regulated by the Financial Industry Regulatory Authority.
The largest independent securities firms in the United States are regulated by the Financial Industry Regulatory Authority.
The mission of the Financial Industry Regulatory Authority is to make sure that the thousands of brokerage firms, tens of thousands of branch offices, and hundreds of thousands of registered securities representatives operate fairly and honestly.
Billions of shares change hands on a daily basis in the secondary market.
Broker markets and dealer markets are the two segments of the secondary market that are based on how securities are traded.
The biggest difference between the two markets is the way trades are executed.
The seller sells his or her securities directly to the buyer when a trade occurs in a broker market.
Buyers' orders and sellers' orders are not brought together directly when trades are made in a dealer market.
The seller sells his or her securities to a dealer, and the buyer buys his or her securities from another dealer.
The distinction between broker and dealer markets is fading as the secondary market continues to evolve.
The broker-dealer markets allow both broker and dealer functions to be performed.
The New York Stock Exchange is the first thing that comes to mind when you think of the stock market.
The New York Stock Exchange is the largest stock exchange in the world.
More than 2,400 firms with an aggre gate market value of greater than $19 trillion were listed on the New York Stock Exchange.
The broker market has historically been dominated by the New York Stock Exchange.
The American Stock Exchange, a national securities exchange, and several regional exchanges are included in the broker markets.
Outside of New York City, regional exchanges are actually national securities exchanges.
In the range of 100 to 500 companies are the number of securities listed on these exchanges.
A small fraction of the shares traded on organized exchanges are handled by a group.
The Chicago Stock Exchange, the Philadelphia Stock Exchange, the Boston Stock Exchange, and the National Stock Exchange are the best known of these.
Local and regional appeal are what these exchanges deal in.
The membership and listing requirements of most of them are less strict than those of the New York Stock Exchange.
Regional exchanges often list securities that are listed on the New York Stock Exchange.
Foreign stock exchanges that list and trade shares of firms in their own foreign markets are included in other broker markets.
There are domestic exchanges for trading in options and futures.
The structure, rules, and operations of the major exchanges in the broker markets are considered next.
The New York Stock Exchange was the inspiration for most securities exchanges.
Before the New York Stock Exchange became a for-profit, publicly traded company in 2006 an individual or firm had to own or lease a seat on the exchange to become a member.
The New York Stock Exchange ceased to have member seats on December 30, 2005.
The New York Stock Exchange sells one-year trading licenses to trade directly on the exchange.
A one-year trading license costs $40,000 per license for the first two licenses and $25,000 per additional license held by a member organization.
Investment banks and see the nYsE's brokerage firms comprise the majority of trading license holders.
Merrill Lynch has officers who hold trading licenses.
The floor of the exchange has only designated individuals who can make transactions.
The commission broker and independent broker are the two main types of floor broker.
The floor of the New York Stock Exchange is about the size of a football field.
It used to be a hub of trading activity, and in some respects it is the same today as it was years ago.
Some stocks trade at each post on the New York Stock Exchange.
The buy and sell orders from brokers' offices to the exchange floor are transmitted by electronic gear around the perimeter.
Transactions on the floor of the exchange occur through an auction process that takes place at the post where the security trades.
Members interested in buying a security publicly negotiate a transaction with members interested in selling it.
An exchange member who specializes in making transactions in one or more stocks is in charge of the auction process.
A continuous, fair, and orderly market is provided by the DMM when she buys or sells securities assigned to her.
The trades that happen on the New York Stock Exchange account for a tiny fraction of trading volume.
Most trading takes place off the floor.
To list its shares on a stock exchange, a domestic firm must file an application.
Over time, the requirements for listing have evolved, and as the New York Stock Exchange has come under pressure, it has relaxed many of its standards.
Companies that wanted to list on the New York Stock Exchange used to have to have millions in pretax earnings.
Some companies will be listed on the New York Stock Exchange today with no pretax earnings at all.
The market value of a company's public float, which is the value of shares available for trading on the exchange, must be at least 15 million in order to be listed on the New York Stock Exchange.
A listing on the New York Stock Exchange doesn't have the prestige that it once did.
The membership and listing requirements of most regional exchanges are not as strict as those of the New York Stock Exchange.
The costs of trading are lower.
Most of the securities listed on regional exchanges are listed on the New York Stock Exchange.
100 million shares of the New York Stock Exchange pass through one of the regional exchanges on a typical day.
A dual listing may increase trading activity.
The Chicago Board Options Exchange is the dominant options exchange.
On the International Securities Exchange, options are also traded.
Many exchanges have an option to sell or buy a given security.
The company that dominates the futures trading business is the CME Group, which has four exchanges.
The broad spectrum of products is not handled by some futures exchanges.
A large number of market makers are linked via a mass electronic network.
The securities dealer who makes a market in one or more securities by offering to buy or sell them at stated bid/ask prices is called a market maker.
The OTC and OMX markets make up the dealer market.
The largest dealer market is made up of a large list of stocks that are listed and traded on the National Association of Securities Dealers Automated Quotation System.
The OTC market is no longer a part of the OTC market, which was founded in 1971, but is still considered a separate entity.
In 2006 the SEC formally recognized the Nasdaq as a national securities exchange, giving it the same stature and prestige as the New York Stock Exchange.
All stocks have to have at least two market makers, although the bigger, more actively traded stocks have many more.
When investors place market orders, the dealers electronically post their bid/ask prices so that they are immediately filled.