Interviewer’s questions:

1. What are the largest organized stock exchanges?

2. How are stock markets measured?

3. Where are the stocks traded?

4. How does NYSE operate?

5. What does the membership in the New York Stock Exchange entail?

6. What requirements should a company meet to be listed on the organized stock exchange?

7. How does the trading floor work?

8. Is NYSE the only option for the US companies to be listed on the organized stock exchange?

9. Where is it listed then?

How Stocks Are Sold

I.: -

B.: -Literally billions of shares of stock are sold each business day in the United States and all over the world. We traditionally discuss stocks as trading on either an organized exchange or over the counter. Recently, however, this distinction is blurring as electronic trading grows in both volume and influence.

I.: -

B.: -The most active exchange in the world is the Nikkei in Tokyo. The largest of the organized stock exchanges in the United States is the New York Stock Exchange or NYSE, as we call it. Other major exchanges include the London Stock Exchange in England, the DAX in Germany, and the Toronto Stock Exchange in Canada.

I.: -

B.: -About 3000 companies around the world list their shares on the New York Stock Exchange. More than 70% of NYSE-listed companies have joined the exchange since 1986. The NYSE occupies a building in downtown New York City. Its trading floor, a place where the “trade” happens, is located at 11 Wall Street and is composed of four rooms used for the facilitation of trading. The actual exchange is made up of "members”. Only members of the exchange may engage in trading. To become a member, an individual or firm must buy or even lease a “seat”. Owning a “seat” on the NYSE enables a person to trade on the floor of the exchange, either as an agent for someone else (floor broker) or for one's own personal account (floor trader).There are 1366 seats on the NYSE, most of them owned by brokerage houses. The cost of a seat varies and could range from $50,000 dollars to $1,000,000 or more. The highest price paid till date is $4,000,000 in 2005. Prices for seats on the exchange depend on the market’s perception of the profit potential in being a trader.

I.: -

B.: -There are two ways of auctioning stock at this exchange. One is the traditional way of 'open outcry' format. The other option is electronic trading. In the 'open outcry' form, stock selling is conducted like an auction with buyers and sellers vocalizing their demands and fixing deals. About three- quarters of trades are executed by the SuperDOT system (Super Designated Order Turnaround system). The SuperDOT is an electronic order routing system that transmits orders directly to the specialist who trades in a stock. Only some very high-priced, premier stocks are withheld from electronic trade. They have to be bought and sold by the traditional auction route.

I.: -

B.: - NYSE has 17 "posts" that are positions on the trading floor where the brokers gather to trade their customers' buy and sell orders. The working of the exchange consists of many market makers. They include specialists, commission brokers and floor brokers. Specialists are the people employed by the member firms that stand at one of the 17 trading posts and act as the auctioneer in an open outcry format. They bring the buyers and sellers together. They also act as dealers for their own accounts and they execute market orders. The member firms also employ floor brokers on the trading floor who act as representatives of the customers' orders. The commission brokers are known as the stockbrokers; they are employees of investment firms acting on behalf of their customers. Their compensation is based on agreed-upon commission rates. When a customer places an order to buy or a sell stock, this order is first placed with the stockbroker. The stockbroker then contacts the exchange, and this information is transmitted to the floor broker and sometimes directly to the specialist. The floor broker then goes to the trading post and participates in the auction on behalf of the customer. The information of the transaction is relayed back to the stockbroker, who sends the confirmation to the customer. In about 90% of trades, 'the specialist matches buyers with sellers. In the other 10% the specialists may intervene by taking ownership of the stock themselves or by selling stock from inventory.

I.: -

B.: -To have a stock listed for trading on one of the organized exchanges, a firm must file an application and meet certain criteria set by the exchange designed to enhance trading. For example, the NYSE encourages only the largest firms to list so that transaction volume will be high. To list on the NYSE, a firm must have earnings of at least $10 million for the last three years as well as $500 million market value with $100 million in revenues.

I.: -

B.: -No, the American Stock Exchange or regional exchanges, such as the Philadelphia and Pacific Stock Exchange, are even easier to list on. Besides, some firms choose to list on more than one exchange, believing that more exposure will increase the demand for their stock and hence its price. Many firms also believe that there is a certain amount of prestige in being listed on one of the major exchanges. They may even include this fact in their advertising. However Microsoft, for example, is not listed on any organized exchange, yet its stock had a total market value of over $287 billion in late 2004.

I.: -

B.: -Its stocks are traded in the National Association of Securities Dealers Automated Quotation System (NASDAQ), one of the over-the-counter (OTC) markets. It is not organized in the sense of having a building where trading takes place. Instead, trading occurs over sophisticated telecommunications networks. This system was introduced in 1971. Whereas organized exchanges have specialists who facilitate trading, over-the- counter markets have market makers. Rather than trading stocks in an auction format, they trade on an electronic network where bid and ask prices are set by the market makers. There are usually multiple market makers for any particular stock. They each enter their bid and ask quotes. Market makers are compensated by the spread between the bid price (the price they pay for stocks) and ask price (the price they sell the stocks for). They also receive commissions on trades.

I.: -

B.: -Most investors consult one of two popular indicators. When these indicators go up, stocks in general also go up. When they go down, stocks in general go down. The most commonly quoted index is the Dow Jones Industrial Average (DJIA), an index based on the performance of the stocks of 30 large companies. At one time, a one-point change in the DJIA meant that an average share of stock changed by $1. Since this is no longer true, it is better to focus on the percentage change of the index rather than the number of points. Investors also use another popular benchmark of stock performance, the Standard & Poor’s 500 (S&P 500). It uses the price changes of 500 representative stocks as an indicator of overall market performance. Because the sum of 500 stock prices would be very large, it is reduced to an index number. Unlike the Dow Jones, which focuses primarily on the NYSE, the Standard & Poor’s 500 reports on stocks listed on the NYSE, AMEX, and OTC markets. The NASDAQ also computes several measures of market performance for investors. The most popular is the NASDAQ composite. In addition, there are more than 20 sub-indices that focus on everything from the size of the firms traded on the NASDAQ to the performance of individual industries.

Exercise 16. Translate into English.

Фондовий ринок – частина ринку капіталів, де здійснюються емісія, купівля і продаж цінних паперів.

Фондовий ринок – це абстрактне поняття, що служить для позначення сукупності дій і механізмів, що роблять можливими торгівлю цінними паперами. Його не слід плутати з поняттям фондова біржа – організацією, яка надає можливість для здійснення торгових операцій і зведення разом покупців і продавців цінних паперів.

До основних видів цінних паперів, які обертаються на біржі, належать акції й облігації, державні боргові зобов'язання, а також похідні від них. Процедура допуску їх до котирування на фондовій біржі називається лістингом і здійснюється вона у відповідності з конкретними вимогами до їх емітента. Цінні папери, які пройшли процедуру лістингу і дозволені для купівлі-продажу, називаються фондовими цінностями (активами).

Найбільшими біржами світу є Нью-Йоркська, Лондонська і Токійська. На них обертаються акції декількох тисяч великих корпорацій, які складають більш ніж 75 % всього фінансового капіталу, що обертається в світі.

Exercise 17. Discuss the following questions:

1.What are the main factors behind daily movements of a stock market?

2.Which three of these factors have the biggest effect on the performance of a company’s share price?

• Performance of competitors

• Company financial results

• Company announcements

• Sector outlook

• Business/consumer confidence survey

• Inflation data

• Movements in interest rates

• The views of analysts

Exercise 18. A. Listen to an interview with a fund manager who is explaining why stock markets move. Complete the two slides that she uses to explain the stock market.