Chapter 10

Stock Exchange MachanisamIbrahim Sameer (MBA - Specialized in Finance,

B.Com – Specialized in Accounting & Marketing)

www.ibrahimsameer.wordpress.com

Introduction

Introduction

Introduction

How Does Stock Market Work?

How Does Stock Market Work?

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

• NASDAQ was created by National Association

Securities Dealers.

NASDAQ

• Is the second largest exchange in the world by

market capitalization.

• It was founded in 4th February 1971.

NASDAQ

• World 1st electronic stock market.

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)

• Primary stock exchange in UK and largest in

Europe.

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

• It was informed by the merger of the two

companies on January 1, 2013.

Japan Stock Exchange Group

• The group provides and operates a marketplace

for the trading of equities, future and options.

Shanghai Stock Exchange

• Shanghai Stock Exchange is the world’s 5th largest

stock market.

Shanghai Stock Exchange

• Shanghai clearing house provides security for

financial market participants and efficient clearing

services development purposes.

Types of Market in Stock

Exchange

Bull

Bear

Stag

Bull Market

• A bull is where people are finding jobs, economy is

rising, GDP is increasing & stock market is

increasing.

Bull Market

• Number of share traded and companies entering

the stock market is also high.

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

• It is period when there is recession, stock are

falling and economy bad.

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.

Credit Rating

• Most well known credit rating agencies around the

globe are:

Credit Rating

• Standard & Poor’s

Credit Rating

• Moody’s

Credit Rating

• Fitch

Credit Rating

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

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.

What else you want to know?

Questions & Answers

Thank You

Ibrahim SameerSeek knowledge from cradle to grave