Certificate for Introduction to Securities & Investment (Cert.ISI) Unit 1

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1 26cis Certificate for Introduction to Securities & Investment (Cert.ISI) Unit 1 Lesson 26: World Stock Markets London Stock Exchange NYSE Nasdaq Euronext Tokyo Stock Exchange Deutsche Borse

2 Stock markets Stock exchanges began as informal meeting places, where investors congregated to swap information and trade their shares face-to-face Nowadays, most exchanges no longer have a trading floor they trade electronically The London Stock Exchange traces its origins to informal gatherings of investors in City coffee houses in the 17 th century. Face-to-face trading stopped 25 years ago.

3 Stock exchanges in the USA Almost half of all stock exchange activity takes place in the US. The two main exchanges are: The New York Stock Exchange The National Association of Securities Dealers Automated Quotations (Nasdaq) NYSE and Nasdaq do not just list the shares of US companies. Provided they meet the listing criteria, companies from most countries can list their shares on the NYSE or Nasdaq Many UK companies list their shares on US exchanges This can improve their access to domestic American investment capital Name Symbol Last Trade Volume HSBC USA, Inc. HBAPRZ $ ,002 InterContinental Hotels Group PLC IHG $ ,697 Lloyds Banking Group plc LYG $ ,282,447 National Grid plc NGG $ ,765 Pearson plc PSO $ ,350 Prudential plc PUK $ ,251 Prudential Public Limited Company PUKPR $ ,883 Reed Elsevier PLC RUK $ ,570 Rio Tinto plc RIO $ ,870,913 The Royal Bank of Scotland Group plc RBS $ ,213

4 New York Stock Exchange NYSE/Euronext The NYSE is the largest stock exchange in the world, as measured by its market capitalisation. In 2007, NYSE merged with Euronext but both exchanges continue to operate independently World Stock Market rankings by market cap, 2009 (US$m) 1 NYSE Euronext (US) 11,837, Tokyo SE Group 3,306, NASDAQ OMX 3,239, NYSE Euronext (Europe) 2,869, London SE 2,796,444.3 Source: World Federation of Exchanges Definition of market capitalisation: total value of all the shares listed on the exchange The NYSE is significantly larger than any other exchange in the world Although the NYSE has fewer companies listed than Nasdaq, many stocks listed on Nasdaq are small so-called penny stocks In terms of value of shares traded daily, NYSE is much bigger than Nasdaq

5 NYSE (cont.) The NYSE is the last of the world s major stock exchanges to trade with the open outcry method Member firms act as auctioneers to bring together buyers and sellers This process is called the continuous auction format How the NYSE works But more than 50% of the NYSE s order flow is now delivered to the trading floor electronically There are proposals for the NYSE to switch over to the hybrid structure Open outcry and Electronic trading

6 Nasdaq Nasdaq is well known for attracting new high-tech companies. Stocks are often high-growth with volatile share price trading patterns. Companies listed on Nasdaq are likely to be in the following sectors: Telecoms Media Technology Characteristics of Nasdaq: The exchange has 3,200 companies listed on it It is the third largest stock exchange by market capitalisation It has the second largest trading volume

7 Nasdaq and the TMT / dot.com / tech bubble

8 Trading on Nasdaq Nasdaq is an electronic exchange but it operates with a market-maker system A market-maker provides a two-way price for a share: Buy (bid) Offer (ask, sell) When a broker wants to buy or sell shares of a Nasdaq-listed company, he /she does so directly from the market-maker

9 London Stock Exchange The LSE is the most important stock exchange in Europe and one of the largest in the world. It is also the most international of all exchanges. The LSE has over 3,000 companies listed Of those, 350 companies are incorporated outside the UK o 50 different countries are represented on the exchange

10 Trading on the LSE The main trading system of the LSE is SETS the Stock Exchange Trading Service SETS is an automated trading system that operates on an order-driven basis When a buy price and a sell price match, an order is automatically executed For securities that trade less regularly, the LSE uses the SETS Quotes and Crosses (SETSqx) and Stock Exchange Automated Quote (SEAQ) systems Market-makers ensure that trading in the shares is reasonably liquid The market-makers are required to hold shares of a specific company and provide buy (bid) and sell (ask) prices

11 Euronext Although merged with the NYSE in 2007, Euronext operates independently as a cross-border European exchange Euronext operates in: Belgium France Netherlands Portugal UK Euronext offers trades in Equities Bonds Derivatives Note: In the UK, Euronext trades in derivatives only Euronext also provides listing and trading facilities for investment products such as tracker and investment funds

12 Trading on Euronext Euronext is an order-driven market. Cash instruments are traded via a harmonised order book Euronext also owns a majority stake in MTS MTS is an electronic exchange that dominates trading in the European government bond market. The exchange has over 500 unique counterparties and average daily turnover exceeding 85bn. MTS uses a common trading platform for trading European government bonds But each country imposes its own national regulatory regime for trading its bonds This includes corporate governance and market supervision Greek government bond Maturity Date Coupon GGB /05/13 20/05/ GGB /10/19 22/10/ GGB /01/14 11/01/ GGB /06/20 19/06/ GGB /08/15 20/08/ GGB /07/19 19/07/ GGB /04/17 20/04/ GGB /10/22 22/10/ GGB /08/14 20/08/ GGB /05/11 18/05/ Greek government bonds traded on MTS

13 Deutsche Börse Deutsche Börse is the main German stock exchange Deutsche Börse provides trades in Securities Derivatives Deutsche Börse is also active in the development and operation of electronic trading systems Deutsche Börse has made 2-3 attempts to mount a take-over of the London Stock Exchange

14 Trading on Deutsche Börse For the cash market, Deutsche Börse offers both floor trading and a fully electronic system Xetra is Deutsche Börse s electronic trading system It matches buy and sell orders from licensed traders in a central, fully electronic order book Floor trading is provided in Frankfurt Each stock is supported by a lead broker The lead broker fixes buy (bid) and sell (ask) prices o The lead broker either executes incoming orders straight away or manages them in an order book This system ensures decent liquidity for all securities Deutsche Börse also owns Clearstream an international central securities depository Clearstreamoffers integrated banking, custody and settlement services for shares and bonds

15 Tokyo Stock Exchange The Tokyo Stock Exchange (TSE) is one of five stock exchanges in Japan. It is one of the largest in the world TSE uses an electronic, continuous auction system of trading Brokers place orders on line When a buy and sell price match, the trade is automatically executed o There is no market-maker: deals are made directly between buyer and seller The TSE uses price controls to ensure that a share price cannot rise above or fall below a certain point throughout the day These circuit-breakers are used to prevent dramatic swings in prices that can occur during market crashes Nikkei 225 Index

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