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Common stock • Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time
Common stock is usually voting shares, though not always. Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. Some holders of common stock also receive preemptive rights, which enable them to retain their proportional ownership in a company should it issue another stock offering. • There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, efficiency of the market to value and sell stock
Stock exchange • A stock exchange is an entity that provides "trading" facilities for stock brokers and traders, to trade stocks, bonds, and other securities. • Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends.
Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.
What Does Over-The-Counter - OTC Mean? • A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. • It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.
Over-The-Counter • Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading, such as futures exchanges or stock exchanges.
New York Stock Exchange • The New York Stock Exchange (NYSE) is a stock exchangelocated at 11 Wall Streetin lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalizationof its listed companies at US$11.92 trillion as of Aug 2010. Average daily trading value was approximately US$153 billion in 2008.
The origin of the NYSE can be traced to May 17, 1792, when the Buttonwood Agreementwas signed by 24 stock brokersoutside of 68 Wall Streetin New York under a buttonwood treeon Wall Street. On March 8, 1817, the organization drafted a constitution and renamed itself the "New York Stock & Exchange Board." Anthony Stockholmwas elected the Exchange's first president.
NASDAQ • The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations Systems," but the exchange's official stance is that the acronym is obsolete. It is the largest electronicscreen-based equity securitiestrading market in the United States and fourth largest by market capitalizationin the world. • With 2919 ticker symbols, it has more trading volume than any other electronic stock exchange in the world.
It was founded in 1971 by the National Association of Securities Dealers(NASD), who divestedthemselves of it in a series of sales in 2000 and 2001. It is owned and operated by the NASDAQ OMX Group, the stock of which was listed on its own stock exchange beginning July 2, 2002, under the ticker symbolNASDAQ
Whenever someone talks about the stock market as a place where equitiesare exchanged between buyers and sellers, the first thing that comes to mind is either the New York Stock Exchange (NYSE) or Nasdaq, and there's no debate over why. • These two exchanges account for the trading of a major portion of equities in North America and worldwide. At the same time, however, the NYSE and Nasdaq are very different in the way they operate and in the types of equities traded therein • Knowing these differences will help you better understand the function of a stock exchangeand the mechanics behind the buying and selling of stocks.
Location, Location, Location • The location of an exchange refers not so much to its street address but the "place" where its transactions take place. On the NYSE, all trades occur in a physical place, on the trading floor in New York City. So, when you see those guys waving their hands on TV or ringing a bell before opening the exchange, you are seeing the people through whom stocks are transacted on the NYSE.
The Nasdaq, on the other hand, is located not on a physical trading floor but on a telecommunications network. People are not on a floor of the exchange matching buy and sell orders on behalf of investors. • Instead, trading takes place directly between investors and their buyers or sellers, who are the market makers through an elaborate system of companies electronically connected to one another.
Dealer vs. Auction Market • The fundamental difference between the NYSE and Nasdaq is in the way securities on the exchanges are transacted between buyers and sellers. • The Nasdaq is a dealer's market, wherein market participants are not buying from and selling to one another directly but through a dealer, which, in the case of the Nasdaq, is a market maker
The NYSE is an auction market, wherein individuals are typically buying and selling between one another and there is an auction occurring; that is, the highest bidding price will be matched with the lowest asking price.
Traffic Control • Each stock market has its own traffic control police officer. Just as a broken traffic light needs a person to control the flow of cars, each exchange requires people who are at the "intersection" where buyers and sellers "meet", or place their orders. The traffic controllers of both exchanges deal with specific traffic problems and, in turn, make it possible for their markets to work.
On the Nasdaq, the traffic controller is known as the market maker, who, we already mentioned, transacts with buyers and sellers to keep the flow of trading going. • On the NYSE, the exchange traffic controller is known as the specialist, who is in charge of matching up buyers and sellers.
The definitions of the role of the market maker and that of the specialist are technically different; a market maker creates a market for a security, whereas a specialist merely facilitates it. • However, the duty of both the market maker and specialist is to ensure smooth and orderly markets for clients. If too many orders get backed up, the traffic controllers of the exchanges will work to match the bidders with the askers to ensure the completion of as many orders as possible. If there is nobody willing to buy or sell, the market makers of the Nasdaq and the specialists of the NYSE will try to see if they can find buyers and sellers and even buy and sell from their own inventories
What's the main difference between a specialist and a market maker? • Not much. Both the New York Stock Exchange (NYSE) specialist and the Nasdaq market maker try to increase the liquidity on their respective exchanges and provide more fluid and efficient trading.
A specialist is a dealer representing a NYSE specialist firm - one of the main facilitators of trade on the exchange. A market maker is a broker-dealerwho facilitates the trading of shares by posting bidandaskprices along with maintaining an inventory of shares. It is important to note that a specialist is a type of market maker. The NYSE has seven specialist firms while the Nasdaq has nearly 300 market makers. The NYSE is an auction-based market where traders meet on the floor of the exchange, using person-to-person, telephone orders or electronic orders. The Nasdaq, on the other hand, is strictly an electronic exchange.
NYSE • Specialists working on the NYSE have four roles to fulfill in order to ensure a fair and orderly market: • 1.Auctioneer • 2. Agent • 3. Catalyst • 4. Principal • Nasdaq • Market makers working on the Nasdaq exchange are not actually at the exchange. They are large investment companies that buy and sell securities through an electronic network. These market makers maintain inventories and buy and sell stocks from their inventories to individual customers and other dealers.
Perception and Cost • One thing that we can't quantify but must acknowledge is the way in which the companies on each of these exchanges are generally perceived by investors • The Nasdaq is typically known as a high-tech market, attracting many of the firms dealing with the internet or electronics. Accordingly, the stocks on this exchange are considered to be more volatile and growth oriented.
On the other hand, the companies on NYSE are perceived to be more well established. Its listings include many of the blue chip firms and industrials that were around before our parents, and its stocks are considered to be more stable and established.
Whether a stock trades on the Nasdaq or the NYSE is not necessarily a critical factor for investors when they are deciding on stocks to invest in. However, because both exchanges are perceived differently, the decision to list on a particular exchange is an important one for many companies. • A company's decision to list on a particular exchange is affected also by the listing costs and requirements set by each individual exchange. The entry fee a company can expect to pay on the NYSE is up to $250,000 while on the Nasdaq, it is only $50,000-$75,000.
Yearly listing fees are also a big factor: on the NYSE, they based on the number of shares of a listed security, and are capped at $500,000, while the Nasdaq fees come in at around $27,500. So we can understand why the growth-type stocks (companies with less initial capital) would be found on the Nasdaq exchange
Public vs. Private • Prior to March 8, 2006, the final major difference between these two exchanges was their type of ownership: the Nasdaq exchange was listed as a publicly-traded corporation, while the NYSE was private. • his all changed in March 2006 when the NYSE went public after being a not-for-profit exchange for nearly 214 years
Most of the time, we think of the Nasdaq and NYSE as markets or exchanges, but these entities are both actual businesses providing a service to earn a profit for shareholders. The shares of these exchanges, like those of any public company, can be bought and sold by investors on an exchange. • As publicly traded companies, the Nasdaq and the NYSE must follow the standard filing requirements set out by the Securities and Exchange Commission. Now that the NYSE has become a publicly traded corporation, the differences between these two exchanges are starting to decrease, but the remaining differences should not affect how they function as marketplaces for equity traders and investors.
Third market • Third market in finance, refers to the trading of exchange-listed securities in the over-the-counter (OTC) market. These trades allow institutional investors to trade blocks of securities directly, rather than through an exchange, providing liquidity and anonymity to buyers.
Fourth market • Fourth market trading is direct institution-to-institution trading without using the service of broker-dealers. It is impossible to estimate the volume of fourth market activity because trades are not subject to reporting requirements. Studies have suggested that several million shares are traded per day.
What Does Electronic Communication Network - ECN Mean? • An electronic system that attempts to eliminate the role of a third party in the execution of orders entered by an exchange market maker or an over-the-counter market maker, and permits such orders to be entirely or partly executed.
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