Lecture 2: securities exchanges and indices

2.1. Securities Exchanges

2.2. Securities Indices

2.1. Securities Exchanges

There are nine major stock exchanges in the U.S. Two of these, the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX), are national in scope. There are also several exchanges for the trading of options and futures contracts

An exchange provides a facility its members to trade security, and only members of the exchange may trade there. Therefore memberships, or seats, on the exchange are valuable assets. A seat on NYSE has sold over the year for $4,000 in 1878, $35,000 in 1977 and as high as $1,150,000 in 1997 before falling after that.

The NYSE is the largest single exchange. The shares of near 2,300 firm trade there, and nearly 3,000 stock issues (common and preferred stock) are listed. Firm which wants to trade on NYSE must correspond to such conditions: pre-fax profit is more or equal $2,500,000; number of stocks is more or equal 1,100,000 within minimum market prices $1,800,000.

The AMEX also is national in scope, but it focuses more on listing smaller and younger firms than does the NYSE. Here trade more than 840 firms.

Another large stock’s trade institution in U.S. is NASDAQ (National Association of Securities Dealers Automatic Quotations), where trade over than 4700 firms (large, middle, small developing).

The over-the-counter (OTC) NASDAQ market has posed a bigger competitive challenge to the NYSE. Many large firms that would be eligible to list their shares on NYSE now choose to list on NASDAQ. Some of the well-known firms currently trading on NASDAQ are Microsoft, Intel, Apple Computer, Sun Microsystems, and MCJ Communications. Total trading volume in over-the-counter stocks on the computerized NASDAQ System has increased six times in the last decade.

Roughly 35,000 issues are traded on the over-the counter market and any security may be traded there, but the OTC market is not a formal exchange. There are no membership requirements for trading, nor are there listing requirements for securities. In the OTC market thousands of brokers register with the SEC (Securities and Exchange Commission) as dealers in OTC securities. Security dealers quote prices at which they are willing to buy or sell securities. A broker can execute a trade by contacting the dealer listing an attractive quote.

The biggest non-U.S. markets:

• The London Stock Exchange;

• The Tokyo Stock Exchange (TSE);

• The German (Frankfurt-on-Main) Stock Exchange;

• The Zurich Stock Exchange;

• The Paris Stock Exchange;

• The Osaka Stock Exchange;

• The Toronto Stock Exchange.

2.2. Securities Indices

The daily performance of the Dow Jones Industrial Average is a staple portion of the evening news report. Although the Dow is the best-known measure of the performance of the stock market, it is only one of several indicators. Other more broadly based indexes are computed and published daily. In addition, several indexes of bond market performance are widely available.