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SECURITIES MARKETS

Securities are bought and sold at two types of securities mar­kets: primary markets, which issue new securities, and second­ary markets, where previously issued securities are bought and sold. If a company wants to sell a new issue of stock or bonds it usually negotiates with an investment bank, or underwriter, who sells the securities for it. The underwriter buys the securities from the corporation and resells then to individual investors through the secondary market.

Organized security exchanges have developed to make the buying and selling of securities easier. The securities exchanges consist of the individual investors, brokers, and intermediaries who deal in the purchase and sale of securities. Security exchanges do not buy or sell securities; they simply provide the location and services for the brokers who buy and sell.

Stock transactions are handled by a stockbroker. A stockbro­ker buys and sells securities for clients. Stockbrokers act on the clients' orders. Stockbrokers receive a fee and are associated with a brokerage house. To trade on the exchange, a "seat" must be purchased. A seat is a membership. The members represent stockbrokers. When a stockbroker calls in an order to sell, the member representing that broker looks for a buyer at the price requested. When a broker calls in an order to buy, the exchange member looks for a buyer at the price offered.

The largest and best known exchange in the USA is the New York Stock Exchange (NYSE) also called the "Big Board". There are 1,300 seats on the NYSE and approximately 2,000 stocks and 3,400 bonds are traded daily. In order to be listed on the NYSE, a firm has to meet the following requirements:

1. Pretax earnings of at least $2.5 million in the previous year.

2. Tangible assets of at least $16 million

3. At least 1 million shares of stock publicly held, and others.

The second largest stock exchange in the USA is the Ameri­can Stock Exchange (AMEX). It is located in Manhattan and has about 500 full members and 400 associate members. AMEX oper­ates in much the same way as NYSE, but smaller companies may qualify for listing. There are also regional stock exchanges that serve regional markets.

The over the counter market (OTC) sells and buys unlisted securities outside of the organized securities exchanges. About 5,000 brokers of OTC are scattered all over the country. They trade unlisted stocks and bonds by phone and keep in contact with each other.

The prices of the securities are established by supply and demand. Electronic screens in the offices of the brokerage firms display OTC transactions, so brokers continually keep cus­tomers up to date on the latest prices.

Options are traded on the major stock exchanges, but also on a special market for options, the Chicago Bond Options Ex­change (СВОЕ).

America's Financial Markets / The Economist, 2000. November 24.