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Securities market players Comments

Amy Tailor   |   January 15, 2008
Securities market is a place where buyers and sellers of securities (stocks and bonds) meet. Several centuries ago they used to make deals directly. Nowadays, there exists a system of specialists for this purpose. You will find it quite interesting and hopefully worthy to learn who is who and who does what on the securities market.

The �field� and its participants

To start with, let�s define the territory of the play. The stock market takes place on an exchange. Exchange is a physical or electronic place where securities buyers and sellers meet. Not only buy and sell transactions take place here, but also stock market price is determined and information about stock trading is disseminated. Today many countries have their own exchanges.

New-York Stock Exchange (NYSE) is the largest exchange in the world. Tokyo Exchange, NASDAQ (specializes in technology sector), London Exchange are among the biggest exchanges. Each exchange has a huge server that records an enormous volume of information about securities, transactions, etc. In fact, exchanges offer their informational resources to trade parties, enabling them to execute deals more efficiently.

There are two main trading parties, those that need money (issuers) and those who have it (investors). An investor can be an organization, corporation, or individual. An issuer is a corporation that issues shares of stock to be sold to potential investors. By purchasing the shares of stock, investors acquire an ownership position of the issuing corporation.

There are also speculators who like investors invest into companies. Although they seem like acting in the same way, they have different goals. So, don�t confuse them. Investors are more interested in long-term investment. Thus, they spend a lot of energy scrutinizing and analyzing individual companies before they make their final decision. Unlike investors, speculators traditionally make their money on short-term investments. They usually execute several deals in a single day betting on price fluctuations.

Investors are divided into bulls and bears. Bull investors are those who bet on the market rise. Bears are those investors who anticipate a decline in prices, therefore they usually sell short.

Professional players

Aside from the issuers and investors, there are other professional players on the market. They assist the two parties to match each other, support securities trades, and keep records of stocks.

One of them is a broker. A broker is a middleman acting between a client and a market-maker. Brokers charge commissions for their services. In the past, usually rich investors could afford hiring a broker. Today, anyone can use on-line brokers whose services are pretty much affordable. You can learn more on how to find a good broker on our website.

There also exist dealers which like brokers execute transactions. However, there is a significant difference between a dealer and a broker. A dealer is an individual or firm that buys or sells securities for their own account and risk. Today, most of the brokers on the American stock market are dealers, and they are also called broker-dealers.

Market-makers are like broker-dealers as well. They are firms that hold certain number of shares in order to facilitate trading of these shares. On the NASDAQ, for example, there are over 500 market-makers who secure effective market operating and high level of stock liquidity. Market-makers quote both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the turn or the bid/offer spread.

You can also find transfer agents. They play a very important role on the exchange. A transfer agent keeps a record of the name of each registered shareowner, his or her address, the number of shares owned, and sees that certificates presented for transfer are properly canceled and new certificates issued in the name of the new owner.

If a company needs to sell its stocks to the general public, it hires an investment bank which is also known as underwriter. An underwriter buys an entire new securities issue from the company and resells the issue as individual stocks or bonds to the public.

For sell and buy orders to match, there exists a central clearing system in the USA. It automatically transfers shares from seller�s account to buyer�s one and money from buyer�s account to seller�s one. The largest clearing company that also serves as a depository (it holds securities and certificates) is DTCC, Depository Trust and Clearing Corporation. Its subsidiaries, NTCC and DTC are the world�s largest clearing and depository service providers.

You may be wondering why you need to know all this. Well, you do need to know this if you are thinking to become an investor or work for a big investment bank. Good luck!
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