Английский язык. Практический курс для решения бизнес-задач
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Источник: www.micex.ru
Lesson 28
Stock Exchanges
Read and translate the text and learn terms from the Essential Vocabulary.
Getting to Know Stock Exchanges
A stock exchange does not own shares. Instead, it acts as a sort of high-tech flea market where buyers connect with sellers. Every public stock trades on one of several possible exchanges such as the New York Stock Exchange (NYSE) or American Stock Exchange (AMEX).
How Does It All Start?
The primary function of an exchange is to provide liquidity (the ease with which securities can be bought and sold without wide price fluctuations); in other words, to give sellers a place to
Stocks first become available on an exchange after a company conducts its initial public offering (IPO). In an IPO, a company sells shares to an initial set of public shareholders (a.k.a. the primary market). After the IPO «floats» shares into the hands of public shareholders, these shares can be sold and purchased on an exchange (a.k.a. the secondary market).
The exchange tracks the flow of orders for each stock, and this flow of supply and demand sets the price of the stock. Depending on the type of brokerage account you have, you may be able to view this flow of price action. For example, if you see that the «bid price» on a stock is $40, this means somebody is telling the exchange that he or she is willing to buy the stock for $40. At the same time you might see that the «ask price» is $41, which means somebody else is willing to sell the stock for $41. The difference between the two is the bid-ask spread.
Auction Exchanges – NYSE and Amex
The NYSE and AMEX are both primarily auction based, which means specialists are physically present on the exchanges’ trading floors. Each specialist «specializes» in a particular stock, buying and selling the stock in a verbal auction. These specialists are under competitive threat by electronic-only exchanges that claim to be more efficient (that is, execute faster trades and exhibit smaller bid-ask spreads) by eliminating human intermediaries.
The NYSE is the largest and most prestigious exchange. Its listed companies represent about $18 trillion in market capitalization. AMEX is a smaller but quite prestigious exchange. AMEX also has a history of innovating: it pioneered the concept of exchange traded funds and it has the second largest options trading market.
New York Stock Exchange
Milestones. The NYSE traces its origins to a founding agreement in 1792. The NYSE registered as a national securities exchange with the SEC on October 1, 1934. The Governing Committee was the primary governing body until 1938, at which time the Exchange hired its first paid president and created a thirty-three member Board of Governors. The Board included Exchange members, non-member partners from New York and out-of-town firms, as well as public representatives.
In 1971, the Exchange was incorporated as a not-for-profit organization. In 1972, the members voted to replace the Board of Governors with a twenty-five member Board of Directors, comprised of a Chairman and CEO, twelve representatives of the public, and twelve representatives from the securities industry.
Subject to the approval of the Board, the Chairman may appoint a President, who would serve as a director. Additionally, at the Board’s discretion, they may elect an Executive Vice-Chairman, who would also serve as a director.
The Auction Market. The NYSE is an agency auction market. It means that trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand.
At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or by a floor broker. As a result, the flow of buy and sell orders for each stock is funneled to a single location.
This heavy stream of diverse orders is one of the great strengths of the Exchange since it provides liquidity. When an investor’s transaction is completed, the best price will have been exposed to a wide range of would-be buyers and sellers .
Benefits of NYSE. Listing on the NYSE affords companies great credibility because they must meet initial listing requirements and also comply annually with maintenance requirements. For example, to remain listed, NYSE companies must keep their price above $1 and their market capitalization above $50 million.
Furthermore, investors trading on the NYSE benefit from a set of minimum protections. Among several of the requirements that the NYSE has enacted, the following two are especially significant:
1. Companies must get shareholder approval for any equity incentive plan. In the past, companies were allowed to sidestep shareholder approval if an equity incentive plan met certain criteria; this, however, prevented shareholders from knowing how many stock options were available for future grant.
2. A majority of the members of the board of directors must be independent. Furthermore, the compensation committee must be entirely composed of independent directors, and the audit committee must include at least one person who possesses
How a Stock is Bought and Sold. This chart is a detailed explanation of how a stock is traded. It illustrates how one transaction looks from three different perspectives – the buyer, seller and the stock market professionals who execute the trade.