Reading practice

Ex. 11.

a) Look through the text below and say what the figures in the text stand for.

b) Reread the text carefully and explain what the Fourth Market implies and what prompted its emergence.

Third and Fourth Markets

Until the 1970s the New York Stock Exchange required its member firms to trade all NYSE-listed stocks at the exchange and to charge fixed commissions. For large institutions this was expensive. In particular, the existence of a required minimum commission rate created a serious problem since it exceeded the marginal cost of arranging large trades. Brokerage firms that were not members of the exchange faced no restrictions on the commissions they could charge and thus could compete effectively for large trades in NYSE-listed stocks. Such transactions were said to take place in the third market. More generally, the term "third market" now refers to the trading of any exchange-listed security in the over-the-counter market. The existence of such a market is enhanced today by the fact that its trading hours are not fixed (unlike exchanges), and that it can continue to trade securities even when trading is halted on an exchange. On average 18 million shares were traded in the third market during each day of 1992.

Until 1976 NYSE member firms were prohibited by Rule 394 from either acting as dealers in the third market or executing orders involving NYSE-listed securities for their customers in the third market. In 1976, Rule 394 was replaced by Rule 390, which permits the execution of these orders in the third market but still prohibits member firms from acting as dealers in the third market. However, the Securities and Exchange Commission has issued a rule that permits member firms to act as dealers in securities that became listed on the NYSE after April 26, 1979. Controversy still exists over Rule 390, as some people argue that it should be abolished completely to spur competition between the NYSE and the over-the-counter market, whereas others argue that having all orders funnelled to the NYSE will lead to the most competitive marketplace possible.

Many institutions have dispensed with brokers and exchanges altogether for transactions in exchange-listed stocks and other securities. Trades of this type, where the buyer and seller deal directly with each other, are sometimes said to take place in the fourth market. In the United States some of these transactions are facilitated by an automated computer/communications system called Instinet, which provides quotations and execution automatically. A subscriber can enter a limit order in the computerized “book”, where it can be seen by other subscribers who can, in turn, signal their desire to take it. Whenever two orders are matched, the system automatically records the transaction and sets up the paperwork for its completion. Subscribers can also use the system to find likely partners for a trade, then conduct negotiations by telephone. In recent years automated electronic facilities have been developed to permit institutional investors to trade portfolios of stocks directly with each other.

Words you may need:

Англійський варіант	Російський варіант	Український варіант
third market	«третий рынок» (торговля ценными бумагами, зарегистрированными на фондовой бирже или на внебиржевом рынке брокерами, не являющимися членами биржи, и другими инвесторами)	«третій ринок» (торгівля цінними ареєстрованими паперами на фондовій біржі або на позабіржовому ринку брокерами, членами, що не є біржі, і іншими інвесторами)
fourth market	«четвертый рынок» (торговля ценными бумагами между инвесторами безучастия брокера/дилера)	«четвертий ринок» (торгівля цінними паперами між інвесторами байдужості брокера/ділера)
funnel	направлять, пропускать	направляти, пропускати
dispense (with)	обходиться (без чего-л.)	обходитися (без чого – н.)
limit order	лимитный приказ (приказ клиента брокеру с ограничительным условием, например, максимальной или минимальной ценой)	лімітний наказ (наказ клієнта брокеру з обмежувальною умовою, наприклад максимальною або мінімальною ціною)

Ex. 12.

a) Read the text below quickly and name organizations involved in the issues,

b) Reread the text more carefully to find the answer to the question: What can guarantee the success of the issue?

The New Issue Market

The mere buying of securities traded on the Stock Exchange does not create new capital. The stock exchange does not itself issue new shares to the public. Fresh capital is provided through the mechanism known as the New Issue Market.

The Market has no outward formal organization or fixed place of business. Nevertheless it functions efficiently on the basis of a number of institutions working together: issuing houses, joint-stock banks, merchant bankers, insurance companies, stockbrokers, underwriters and others.

Issuing houses have become very active in the New Issue Market recently. An issuing house is a financial firm specializing in the issuing or floating of new securities for governments, municipalities and companies. Although this activity is not directly connected with the Stock Exchange, the Exchange is vitally interested in the activities of issuing houses; and the people who own and operate issuing houses have often been members of stock exchanges. The issuing house undertakes that the whole of a new issue of securities should be sold and makes all necessary arrangements for it.

It is charged with the entire “handling” procedure of the issue: this includes the arrangements for banks, other financial houses to share in the underwriting (only in a few cases do issuing houses underwrite the entire amount themselves); arrangements for the drawing up and publication of the prospectus.

Yet, even the most careful and competent handling will not guarantee the success of an issue. This depends on the attitude of the investing public, who will be guided very much by the reputation of the issuing house itself.

Issuing houses make arrangements with underwriters, who guarantee, for a commission, that if the public does not subscribe fully to the new issue the underwriters take up the remaining shares or stock.

Underwriting is a process whereby a group of investment bankers agree to purchase a new security issue at a set price and then offer it for sale to the general public.

Words you may need:

Англійський варіант	Російський варіант	Український варіант
new issue market	рынок новых эмиссий	ринок нових емісій
mere outward Issuing house	простой внешний эмиссионный дом	простий зовнішній емісійний будинок
underwriter	гарант размещения ценных бумаг	гарант розміщення цінних паперів
floating	выпуск (акций через биржу)	випуск (акцій через біржу)
"handling procedure"	выполнение всех формальностей	виконання всіх формальностей

UNIT 3