chapter 10 stock exchange machanisam · circular trading • circular trading in stock...
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Chapter 10
Stock Exchange MachanisamIbrahim Sameer (MBA - Specialized in Finance,
B.Com – Specialized in Accounting & Marketing)
www.ibrahimsameer.wordpress.com
Top Stock Market In the World
• New York Stock Exchange (NYSE)
• National Association of Securities Dealers
Automated Quotations (NASDAQ)
• London Stock Exchange Group
• Japan Stock Exchange
• Shanghai Stock Exchange
• Hong Kong Stock Exchange
NYSE
• The world leading stock exchange in the world.
• Founded on 17th May 1792.
• It is also known as Big Board.
NYSE
• NYSE is owned by intercontinental exchange and
regulated by security exchange commission of
USA.
NASDAQ
• Is the second largest exchange in the world by
market capitalization.
• It was founded in 4th February 1971.
NASDAQ
• The term “NASDAQ” is also used to refer to the
Nasdaq Composite, an index of more than 3,000
stock listed on the Nasdaq exchange that includes
the world’s foremost technology and biotech giants
such as Apple, Google, Microsoft, Oracle,
Amazon, Intel & Amgen.
London Stock Exchange (LSE)
• Originated in 1773, the regional exchanges where
merged in 1973 to for the stock exchange of Great
Britain and Ireland, later renamed LSE.
London Stock Exchange (LSE)
• Most international of all stock exchanges with 350
companies from more than 50 countries.
Japan Stock Exchange Group
• An Asian financial services corporation that
operates multiple securities exchanges including
Tokyo Stock Exchange and Osaka Securities
exchange.
Japan Stock Exchange Group
• The group provides and operates a marketplace
for the trading of equities, future and options.
Shanghai Stock Exchange
• Shanghai clearing house provides security for
financial market participants and efficient clearing
services development purposes.
Bull Market
• A bull is where people are finding jobs, economy is
rising, GDP is increasing & stock market is
increasing.
Bull Market
• Bull markets are characterized by optimism,
investors confidence and expectations that strong
results should continue.
Bull Market
• Bull does not last long and is also quiet risky and
prices of stock in this period rise continuously.
Bull Market
• For example; Facebook has a bull market where
it’s stock are continuously increasing. When it was
started the stock price of FB was just $38 but
today it has increase to $125.
Bear Market
• Investors face tough choice to buy profitable
stocks. If a person is pessimistic believing that
stocks are going to drop he or she is called a
“bear” and said to have a “bearish outlook”.
Bear Market
• Investors can make gains in a bear market by
short selling. This techniques involves selling
borrowed shares and buying them back at lower
price.
Bear Market
• Bear market example can be Viacom Inc which
was as high as $85 but fell to $41 in 3 years time.
Stag Market
• A stag specifically refers to a speculator who buys
and sells stocks in short time frame’s to make
quick profits.
Stag Market
• A stag investor assumes that the price of a stock
will rapidly increase over the short term within the
first few hours or days. Short term profits and low
risk business.
Credit Rating
• A credit rating is an evaluation of the credit risk of
a prospective debtor (an individual, a business,
company or a government), predicting their ability
to pay back the debt, and an implicit forecast of the
likelihood of the debtor defaulting.
Credit Rating
• The credit rating represents an evaluation of a
credit rating agency of the qualitative and
quantitative information for the prospective debtor,
including information provided by the prospective
debtor and other non-public information obtained
by the credit rating agency's analysts.
Insider Trading
• Insider trading can mean that a person buys or
sells stock based on information that is not
available to the public. The person may be a
corporate officer, director employee or someone
who has received the non-public information.
Illegal Insider Trading - Example
• A board member of a company knows that a
merger is going to be announced within the next
day or so and that the company stock is likely to go
way up. He buys 1,000 shares of the company
stock in his mother's name so he can make a profit
using his insider knowledge without reporting the
trade to the Securities and Exchange Commission
and without news of the purchase going public.
Illegal Insider Trading - Example
• A lawyer representing the CEO of a company
learns in a confidential meeting that the CEO is
going to be indicted for accounting fraud the next
day. The lawyer shorts 1,000 shares of the
company because he knows that the stock price is
going to go way down on news of the indictment.
Circular Trading
• Circular trading in stock market refers to a
fraudulent trading scheme where buy/sell orders
are entered by a person or by persons acting in
collusion with each other to operate the price of the
underlying security. The person(s) buying or
selling knows that the same number of shares at
the same time and for the same price will be
entered to neutralize the transaction. Hence, these
trades do not represent a real change in beneficial
ownership of the security.
Circular Trading – Examples
• SEBI discovered another incidence of circular
trading by two brokers over the stock of Videocon
Industries Ltd. in 2004. The involved brokers were
Mansukh Securities and Finance Ltd. (MSFL) and
Intec Shares and Stock Brokers Ltd. (ISSL).
Together, they deflated the share price from Rs.
36.15 to Rs. 28.19 i.e. a 20% fall. In 2012, Sebi
imposed penalties of Rs 2 lakh each on the two
brokerage firms.
Mutual Funds
• Let's imagine you just overheard the following
conversation among three friends:
• 'I had a great year last year. My mutual fund was
up 10%.'
• 'Oh, yeah? Mine was up 12%.'
• 'Oh, my. Mine was down 1%.'
Mutual Funds
• A mutual fund is a basket of various investments,
such as stocks, bonds, and cash. A mutual fund is
funded by the investments of individual investors
and institutions.
Types of Mutual Funds
• Equity funds invest in stocks of various sizes and
domicile. For example, there are mutual funds that
are classified as global, which have the ability to
invest in both the U.S. and anywhere in the world.
Mutual funds that are classified as domestic are
mostly invested in the U.S. Growth funds typically
invest in companies that are expected to have
higher growth rates than others.
Types of Mutual Funds
• Fixed-income funds mainly invest in bond-
oriented investments, such as corporate bonds
and municipal bonds. You may come across a
municipal bond mutual fund that is state-specific.
Types of Mutual Funds
• Money market funds invest in high-quality, short-
term debt instruments, such as government
treasury bills (also known as T-bills).
Advantages of Mutual Funds
• A simple way to make diversified investment.
• Managed by a financial professional.
• Allow investors to participate in a wide variety of
investment.
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