Chapter3SecuritiesMarketsChapter3coversSecondarymarketsandthemarketmakersThemechanicsofinvestinginsecuritiesForeignSecuritiesThemarginpurchaseandshortsaleofstocksRegulationofsecuritiesindustryMayo/BasicInvestments-Ch032Chapter3SecuritiesMarketSection1-SecondaryMarketsandroleofmarketmakersSection2-TheMechanicsofInvestinginSecuritiesSection3—ForeignSecuritiesSection4--ThemarginpurchaseandshortsaleofstocksSection5RegulationofsecuritiesindustryMyo/BasicInvestments-Ch033Section1

—SecondaryMarketsandroleofmarketmakers

levelsofsecuritiesmarketsroleofmarketmakerspricespreaddeterminationofpricesreportingoftransactionscompositetransactions（混合交易）

Characteristics?

Differentrequirementsforgoingpublic?tosatisfydifferentneedsoffinancing

?

themorenationwide,thestricterrequirements,andthemorefundsraised?

notclose-end,connectedeachotherlevelsofsecuritiesmarketsTwolevelsSecondaryMarketsPrimaryMarkets1234BigBoard(NYSE,AMEX)OTC(Nasdaq)Blocktrades(OTCBB,PinkSheets-NQB)Fourthmarkets(Instinet)電子交易系統FourtypesRoleofMarketMakers

DealeranyoneengagesinthebusinessofbuyingandsellingforhisownaccountSpecialistsdealersontheNYSEwhomaintainsanorderlymarketinsecuritiesMarketmakersDealersintheOTCmarkets,suchasNASDAQ

發行者（籌資者）

投資者（股東）新發行的股票資金

投資者投資者投資者股票股票資金資金發行市場二級市場交易所交易參與方證券交易所結算所經紀商和自營商投資者roles12OffertobuysecuritiesfromanysellerOffertosellsecuritiestoanypurchaser

makemarketsinsecuritiesTransactions

Aroundlot※thenormalunitoftrading※usually100sharesofstocksOddlots◎smallerthanthegeneralunitofsale◎37sharesofstocksVastmajorityoftradesPriceSpreadSecuritydealersquotepricesonabidandaskbasis.Bid—buyingpriceAsk—sellingpricespreadThedifferencebetweenthebidandtheaskpricesFormarketmakers—aprimarysourceofcompensationForinvestors—costofinvestingDeterminationofPricesThesecuritypricesarequotedbymarketmakersaresetbythedemandfromallbuyersandthesupplyfromallsellersofsecurities.Equilibriumprice?

quotedbymarketmakers;?equatesthesupplywiththedemand;

Ifquoteabovetheequilibriumprice?excessivesupply?absorbedbymarketmakersIfquotebelowtheequilibriumprice?

excessivedemand?providedbymarketmakersMarketmakerscannotquotethebidandaskpricesatwill,andtheytrytosetasecurity’sequilibriumprice.另外一種證券交易方式：競價交易競價制度,也稱指令(委托)驅動交易制度、雙向拍賣制度,主要特點是嚴格遵循價格優先、時間優先的原則

競價交易制度競價制度又分成連續競價制度和集合競價制度,前者適用于日內連續交易,對市場流動性的要求最高；后者適用于確定開盤、收盤價格等,對市場流動性的要求相對較低

ReportingofTransactionsDailytransactionsonthelistedexchangearereportedbythefinancialpress.Weeklysummariesarealsoreportedinseveralpublications.VariationinthereportingSomesimilarformatYTD%CHGPercentagechangeinthepriceofthestockduringthecurrentcalendaryearHIThehighpricesofthestockLOThelowpricesofthestockSTOCKThenameofthecompany(SYM)ThetickersymbolinboldprintDIVAnnualdividendpaidorannualdividendrateYLD%ThedividenddividedbythepriceofthestockPETheratioofthestockpricetothecompany’sper-shareearningsVOL100sThevolumeofsharestradedexpressedinhundredsLASTTheclosingpriceofthestockNETCHGThechangefromtheclosingpriceonthepreviousdayoftradingOtherreportingThereportingofNasdaqnational-marketissuesisessentiallythesameasthereportingofNYSE-listedsecurities.納斯達克全國市場板ThereportingofNasdaqsmallcapissuesorbulletinboard(OTCBB)issues:NotreportedinthefinancialpressbutinthepinksheetsContents:information,dividends,volume,lastprice,pricechanges;納斯達克小公司市場板Section2:

TheMechanicsof

InvestinginSecuritiesA.B.C.D.RoleofbrokersLongandshortpositionsTypesoforderCashandmarginAccountsE.DeliveryofSecuritiesF.CostofInvestingGShortSale交易所交易參與方證券交易所結算所經紀商和自營商投資者A-RoleofBrokersbrokerAnagentwhohandlesbuyandsellordersforaninvestorBrokeragefirmsDealers—marketmakersBrokers—accountexecutives(賬戶執行人)Forthefirms’accountForcustomers’accountsHowtobecomebrokers?PasstheproficiencyexaminationadministeredbytheNationalAssociationofSecuritiesDealers;Practices;Aregisteredrep.Twokindsofbrokeragefirms:full-servicefirms—higherfeesandcommissions;moreservicesdiscountbrokeragefirms—lowercommissions,lessservices;B.Long&ShortPositionsAninvestorhasonly2coursesofaction,whichinvolveoppositepositions.2oppositepositionsBull(long)position多頭Bear(short)position空頭Bullish看漲的Bearish看跌的Expectingasecurity’spricetorisePurchasingthesecurityTotakealongposition;BebullishExample:---tobuy100sharesofAB&Cfor$55;---thepricerisesto$60;---theprofitonthelongpositionis$5pershare.LongPosition:Owningassetsfortheirincomeandexpectingpossiblepriceappreciation.Expectingasecurity’spricetofallSellingthesecurityTotakeashortposition;Bebearish;Investorsholdscashorplacesthefundsininterest-bearingshort-termsecurities(T-billsorasavingsaccount).Someinvestorsmayspeculate—sellshort;andgetprofits.ShortPosition:Sellingassetsforpossiblepricedecline;beingshortinasecurityoracommodity.C.TypesofOrdersTypesoforders

TobuyTosell

Marketorder市價委托Limitorder限價委托Dayorder當日有效委托指令

Good-till-canceledorder長期有效委托指令

Stoporder止損委托Stop-lossorderStop-sellorder

MarketorderLimitorder

證券交易委托指令是投資者通知經紀人進行證券買賣的指令，其主要種類有：

(1)市價委托（MarketOrder）

(2)限價委托(LimitOrder)(3)停止損失委托（StopOrder）

(4)停止損失限價委托（StopLimitOrder）

證券交易委托指令的種類AMarketOrderMarketorderAnordertobuyorsellatthecurrentmarketpriceorquoteBestpricecurrentlyavailableInvestorsdon’tneedtosetapriceinhisorder2.Generallyexecutedatorveryneartheaskingorbidprice.Investorsareassuredofbuyingorsellingthesecuritysoonbutnotassuredofexecutionatthecurrentlyquotedpriceduetothepricechanges;ALimitOrderAlimitorderAnorderplacedwithabrokertobuyorsellataspecifiedprice12A-day-order

isanorderplacedwithabrokerthatiscanceledattheendofthedayifitsisnotexecuted.A-good-till-canceled-order

isanorderplacedwithabrokerthatremainsineffectuntilitisexecutedbythebrokerorcanceledbytheinvestor.Investorsneedtosetaprice(p)inhisorderBuyingprice≤pSellingprice≥pButinvestorsarenotinsuredofexecutionAStopOrderAstoporderAsellorderdesignedtolimitaninvestor’slossortoassureaprofitonapositioninasecurity12Astop-lossorderisanorderwhichspecifiesthepricebelowthecostofthesecurityatwhichthebrokerisauthorizedtosell.Astop-sellorderisanorderwhichspecifiesthepriceabovethepurchasepriceatwhichthebrokerisauthorizedtosell.Astop-lossorderPurchasedfor$50pershare$45pershare(-10%)Thesellingpriceisatorbelow$45pershare.Astop-sellorderPurchasedfor$50pershare$60pershareTolimitthepotentialprofitifpricecontinuingtorise掛單于現價之下追空Comparisonoflimit,stopandmarketorderLimitorderinsuresthepricesetintheorderbutnottheexecutionStoporderinsurestheexecutionbutnotinsurestheprice(likemarketorder)MarketorderinsurethesoonestexecutionatorverynearthecurrentquotingpriceDifferencesLimitorders&StopordersTosell$20$25buyAlimitordertosell/purchaseat$25:therealsell/purchasingpricewouldbemore/lessthan$25orequalto$25.Astop-lossordertosellat$20:therealsellingpricemaybelessthan$20.$19TosellAStop-limitOrderThesaleorder;Combinesastop-losswithalimitorder;Tosell$25$20Astop-limitorderat$20$19AConfirmationStatement

交易確認書、確認函

Astatementreceivedfromabrokeragefirmdetailingthesaleorpurchaseofasecurityandspecifyingasettlementdate.

ExampleAninvestorbought100sharesofCleverpakCorporationwiththeunitpriceof$12.13.SettlementDate—thedaythepaymentisdueTransactionfees—commissions，transferfeeandothermiscellaneousfees過戶費和雜費Unitprice;totalamountT+3:threebusinessdaysafterthetradedate;1234D.CashandMarginAccountsCashAccountsInvestorspaytheentirecostofsecuritiesincash.MarginAccountsInvestorspurchasesthesecuritiespartiallywithcashandpartiallywithcreditsuppliedbybrokers.MarginRequirementTheminimumpercentageofthetotalpricethattheinvestorpayandissetbytheFederalReserveBoard.IndividualbrokersmayrequiremoremarginInvestorspayinteresttothebrokerwholends;InvestorsusemargintoincreasepotentialROI;ExampleofMarginRequirement1CashMargin(60%requirement)Buyingprice$1000$1000(with$600cashpaymentand$400borrowed)Sellingprice$1400$1400profits$400$400ROI40%67%Notice:Theuseofmarginisfavorable.ExampleofMarginRequirement2CashMargin(60%requirement)Buyingprice$1000$1000(with$600cashpayment)Sellingprice$700$700losses$300$300ROI-30%-50%Notice:Theuseofmarginisunfavorable.ExampleWhat’stheROIonthecashpurchaseandmarginpurchaserespectively?(Lastparagraphonp19)ExampleofMarginRequirement3CashMarginSaleprice$1400$1400Commission

50/70

50/70Proceedsofsale13301330Loanpayment0420Cashreceived1330910Dividendsreceived100100Interestpaid042ROI36.2%53.7%ConclusionTheuseofmarginmagnifiesnotonlythepotentialgainbutalsothepotentiallossMaintenanceMarginTheminimumequityrequiredforamarginposition.MaintenancemarginpurposeProtectthebrokerfromtheinvestor’sdefaulting;AMarginCallAMargincallArequestbyabrokerforaninvestortoplaceadditionalfundsorsecuritiesinanaccountascollateralagainstborrowedfundsorasagoodfaithdeposit.MarginTransactionsInitialmarginrequirementatleast50%.SetupbytheFed.MaintenancemarginRequirementproportionofequitytostockProtectsbrokerifstockpricedeclinesMinimumrequirementis25%MargincallonundermarginedaccounttomeetmarginrequirementIfmargincallnotmet,stockwillbesoldtopayofftheloanmaximumminimumAmargincallAdvanceadditionalfundsequitypositionMarginTransactionsChangesinpriceaffectinvestor’sequitypositionMarginTransactionsBuy200sharesat$50=$10,000positionBorrow50%,investmentof$5,000Ifpriceincreasesto$60,positionValueis$12,000Less-$5,000borrowedLeaves$7,000equityfora$7,000/$12,000=58%equitypositionMarginTransactionsBuy200sharesat$50=$10,000positionBorrow50%,investmentof$5,000Ifpricedecreasesto$40,positionValueis$8,000Less-$5,000borrowedLeaves$3,000equityfora$3,000/$8,000=37.5%equityposition

Margincallprice

Whenequityposition≤

MaintenanceMarginrequirement,theinvestorsreceivemargincallfromthebroker.Margincallprice=Equityposition=

minimumequityadded=maintenancemarginE.DeliveryofSecurities

takedelivery

leavethesecuritieswiththebrokerToregisteredinthebrokeragefirm’sname(inthestreetname)Receivethestockcertificatesorbonds5%95%F.CostofInvestingTaxes—securitiesdealingsTransferfees;othermiscellaneousfeesCommissionfees123Mostobviouscost;Canbenegotiable;Thesaleofborrowedsecuritiesinanticipationofapricedecline;Acontractforfuturedelivery;FShortsaleOtherexamplesMagazine—subscription;Professionals—lawyer,engineer,teacher…RationaleforshortsaleSellborrowedsecuritiesBuybacksecuritiesandreturntohisbrokerprofitsCharacteristicsAcurrentsalewithacontractforfuturedelivery;Processofshortsale:borrowedsecuritiesfirstthensellthem(shortsale)buybacksecuritiesandthenreturnthemExpectthedeclineofsecuritiespriceWhosesecuritiescanbelent?Ifinvestorsregisterhisorhersharesinacashaccount,thebrokeragefirmscannotlendthemtoshortsellers;Ifinvestorsregistertheirsharesinamarginaccount,onepartofthemarginagreementpermitsthebrokeragefirmstolendtheshares.ACoveringtheShortSale

空頭回補、平倉Theproceedsofshortsalearenotremittedtosellersbutareheldbythebroker.Theproceedswillsubsequentlybeusedtorepurchasethestock.Suchrepurchasesarereferredtoacoveringtheshortsale.MarginrequirementClosingthePositionAftershort-sellersbuytheshares,thebrokeragefirmsgetthembackandclosethesellers’position.SellingpriceminuspurchasingpriceminusanyothercostsFigure1.1TheFlowofMoneyandCertificatesinaShortSalesellerTheflowofmoney:$5000proceedsfromthebuyer(tobroker);$3000marginfromtheshortseller(tobroker);Thecertificatesinashortsale:Shortsellerborrowed100sharesfrombroker;Shortsellersold100sharestothebuyer;Shortseller’saccount:shortthe100sharesFigure1.2TheFlowofMoneyandCertificatesWhenCoveringaProfitableShortSaleWhencoveringaprofitableshortsale:Shortsellersold100sharesat$5000Shortsellerbought100sharesat$4000Shortsellerreturned100sharestobrokerShortsellergot$1000netprofits;$3000margin

CoveringafailedshortsaleWhencoveringafailedshortsale:Shortsellersold100sharesat$5000Shortsellerbought100sharesat$6000Shortsellerreturned100sharestobroker;Shortsellergot$1000netlosses;$3000margin($2000back)Nakedshortselling---investorsdirectlysellstocksthattheydon’townorhold.---beforethematuritydate(valuedate;deliverydate),investorsjustgotothemarket,buystocksanddeliverthem;It’slegal

todonakedshortsellinginUSsecuritiesmarket,butit’sunlawful

touseittodepressstockprices.Muchtroublecausedbynakedshortselling:UnbelievableprofitsShortsellers(hedgefunds)targetsomeshareswithalotofrealorfalseunfavorableinformation;Nakedshortsellingoftheseshareswiththehelpofunfavorablenews;Buythematverycheapprice;CausefluctuationsinsecuritiesmarketExamples:LehmanBrothers1850-2008Stockpricecutdownfrommorethan$60atthebeginningof2008to$7.79beforeSeptember15,2008.Oneofreasons—nakedshortsellingTheUptickRule報升\提價規則

高于前成交價It’soneimportantconstraintonshortsale.Shortsellerscanexecuteshortsellingonlywhenthechangeinthepriceofthestockisanuptick.Ifthepriceofastockmovesupfromtheprevioustrade,thatisanuptick.Ifthepriceofthestockdeclinesfromtheprevioustrade,thatisadowntick.Section3ForeignSecuritiesForeignSecuritiesForeignstockstradedinAmericanmarketsAmericanDepositoryReceipts(ADRs)AvoidstheproblemoflanguageExpressedindollarsandnotlocalcurrencyMayo/BasicInvestments-Ch0382Section4

RegulationTheSecuritiesandExchangeCommission(SEC)FulldisclosureofinformationRegistration