26. Stock exchange

Lead-in:

1. currency market – валютна біржа

2. commodity exchange – товарна біржа

3. labour exchange – біржа праці

4. stock market – фондова біржа

5. gilt-edged securities – першокласні цінні папери

6. bid price – курс покупця

7. offer price – курс продавця

8. bull – “бик”, спекулянт, що грає на підвищення ціни

9. bear – “ведмідь”, той, що грає на пониженні ціни

10. stag – “олень”, той, що купує нові акції, щоб їх одразу продати

11. put option – опціон продавця

12. call option – опціон покупця

13. over-the-counter market – ринок позабіржової торговлі

There are different kinds of exchanges: currency markets, commodity exchanges, labour exchanges.We shall try to consider stock markets and stock exchanges, which are the most important financial institutions in the sphere of international economic relations.

Stock markets play a significant role in the economy of any country.

Stock markets are control centres where businesses and governments come to raise money and expand their operations. There are actually two different markets for stocks: the new issues market or the primary market, where stocks are offered for sale for the first time, and the secondary market, where stocks can be bought and sold by individuals and institutions. The phrase “the stock market” means many things: it is a place where stocks are traded, and it also refers to the biggest and most important stock exchanges in the world: the New York Stock Exchange, the London Stock Exchange, the Nasdaq Stock Market, based in Washington, DC, and the Over-the Counter Market (OTC).

A stock exchange is a market for dealings in stock and shares, handling gilt-edged and all kinds of commercial and industrial shares. The London Stock Exchange provides a market for British government stocks and the stocks and bonds of a large number of foreign governments and corporations. Only members are admitted to the stock exchange and business is transacted according to a pre­scribed set of rules. Before the “Big Bang” on 27 October 1986 there were about 4,100 Stock Exchange members (jobbers, middlemen who bought and sold shares from other traders on the Stock Exchange, and brokers).

There are no jobbers in the Stock Exchange now, they are market makers. A market maker buys and sells securities making money by charging a commission on each transaction. Anyone who wants to buy or sell shares on the Stock Exchange does it through the broker who acts as a middleman between a seller and a buyer for a commission. Companies apply to the Stock Exchange to have their shares listed. Only “quoted” shares can be bought or sold on the Stock Exchange. A Stock Exchange quotation is the price of a share which usually gives the bid price and an offer price. The bid price (or the selling price) differs from the offer price and the difference between them is called the “spread”. The Stock Exchange quotations appear daily in the financial press and the financial section of newspapers.

The greater part of the business transacted on stock exchanges is investment business, but a small part consists of speculative operations. There are three kinds of speculators: bulls, bears and stags. Speculation is also possible in the form of options: call options, put options and put and call options.

The price of the stock in the market reflects investor demand. The tendencies of the market are indicated by indexes. Some of the most important indexes are: FT Actuaries Share Indices, FT – Stock Exchange 100 Share Index (FT – SE 100 or Footsie), based on the prices of 100 leading companies (this is the main London index, DOW JONES, FAS, NIKKEI, etc.).

The biggest and the most important stock market in the world is the New York Stock Exchange. NYSE is also known as the Big Board and the Exchange, it was founded in 1792 and is located at 11 Wall Street in New York City.Brokers buy and sell stock in about 2,570 different companies at the NYSE. AMEX stands for American Stock Exchange; it has the second biggest volume of trading in the US, here brokers buy and sell Stocks in over 840 companies. There is one more market place: it is trading of common stock “over-the-counter” or “OTC”.

Most securities other than common stock are traded over-the-counter, through vast telephone and other electronic networks that link traders.

 Questions for comprehension check-up and discussion:

1. What types of exchanges do you know?

2. How many markets are there for stocks?

3. What is a stock exchange?

4. What is the role of a market maker?

5. What is a Stock Exchange quotation?

6. Give the names of the most important stock exchange indexes.

7. What do the letters “OTC” stand for?