Finance 301 1st Edition Lecture 13 Outline of Last Lecture I Private Equity II Public Equity III Ownership and Voting Rights IV Preferred Stock V Participation in Stock Markets VI Initial Public Offerings VII Stock offerings and Repurchases Outline of Current Lecture VIII Stock exchanges IX Monitoring publicly traded companies X Market for Corporate Control XI Globalization of Stock Markets Current Lecture I Stock exchanges a Organized Exchanges i Organized exchanges have a trading floor where traders execute transactions in the secondary market for their clients ii New York Stock Exchange NYSE is by far the largest with two broad types of members iii Floor brokers ones that buy and sell the stock someone hired by Edward d jones execute trades for their customers Takes care of big boys iv Specialists people who say they want to pay a certain amount for a stock people come to these people to ask them for help Decide what price to open with based on bids and ads Execute trades for the sales decide whether to sell or buy Superdoc computer system Buy and sell stocks themselves because they are providing liquidity Sometimes called market makers start in morning close at night do all of the executions v Companies that are listed NYSE 1792 vi 400 shareholders of 100 shares or more vii 1 100 000 shares at 4 00 Have to be at least 4 a share because nyse could drop you if not enough Have to be worth 40 000 000 earnings of atleast 11 000 000 b Over the Counter Market c What are these markets Dealer market trade electronically d Nasdaq National Association of Securities Dealers Automatic Quotations Nasdaq e Specialists of using computers matching up people who wanna buy stock with who wants to sell stock on computers Have a lot more technology companies f OTC Bulletin Board own by NasDaq trade penny stocks 5 dollars or less delisted by stock exchange possibly can make a lot more or loose a lot more g Pink Sheets also penny stocks but with a big difference they don t even have to register with SEC or provide financial statements to owners They just have to pay a fee to get listed Not good to invest in very risky h Over the Counter Market i What are these markets Dealer market trade electronically ii Nasdaq National Association of Securities Dealers Automatic Quotations Nasdaq iii Specialists of using computers matching up people who wanna buy stock with who wants to sell stock on computers Have a lot more technology companies iv OTC Bulletin Board own by NasDaq trade penny stocks 5 dollars or less delisted by stock exchange possibly can make a lot more or loose a lot more v Pink Sheets also penny stocks but with a big difference they don t even have to register with SEC or provide financial statements to owners They just have to pay a fee to get listed Not good to invest in very risky i Extended Trading Sessions i The NYSE and Nasdaq market offer extended trading sessions beyond normal trading hours ii Market liquidity is lower higher or lower than the normal 9 30 to 4 00 trading session iii Why do we have these overnight trading hours Changes happen after hours lower liquidity for people like us because people are sleeping at these hours There is a risk for trading at night j Stock Quotations Provided by Exchanges i 52 Week Price Range high and low over the last year can tell how to company has been doing Expectation of cash flows ii Symbol don t trade by name trade by symbol iii Dividend cash payment for owning a stock they pay in general quarterly but stocks do not have to pay dividends iv Dividend Yield your total return Dividend over the price of the stock most dividends are really small v Price Earnings Ratio price earnings per share make comparisons with other stocks in the section using this vi Volume look at how many shares are traded k Stock Index Quotations i Dow Jones Industrial Average best of the best ii Standard Poor s 500 iii Wilshire 5000 Total Market Index iv New York Stock Exchange Indexes The Composite Index is the average of all stocks traded on the NYSE NYSE also provides indexes for four sectors Industrial Transportation Utility Financial v Nasdaq Stock Indexes The National Association of Securities Dealers NASD provides quotations on indexes of stocks traded on the Nasdaq vi Dropped Alcoa HP Bank of America and added Nike Visa and Goldman Sachs They dropped first 3 and added last 3 because the new 3 were out performing the old 3 l II Monitoring publicly traded companies a Role of Analysts i Analysts are often employed by securities firms and assigned to monitor a small set of publicly traded firms They are not always right Be careful do not get paid commissions they are good you study companies and try to help share holders to buy or sell b Stock Exchange Rules In the 2002 2004 period U S stock exchanges imposed new rules to prevent some obvious conflicts of interest faced by analysts i Analysts cannot be supervised by the division that provides advisory services and their compensation cannot be based on the amount of advisory business they generate ii Securities firms must disclose summaries of their analysts ratings for all the firms that they rate so that investors can determine whether the ratings are excessively optimistic c Accounting Irregularities i In recent years many firms used unusual accounting methods to create their financial statements This led to failures in the industry What is an example of this ii SEC has to watch everyone because there are crooks Example enron said they were making money and they weren t companies can go broke have to regulate all of the time d Sarbanes Oxley Act i What is auditing 1 Using an external to look at financial statements Auditors have to be external ii What did this act do in regards to auditing companies 1 2002 audit company from outside 2 CEO sign financial statements 3 Auditors paid by salary instead of commission e Shareholder Activism i If shareholders are displeased with the way managers are managing a firm they have three choices ii Do nothing and retain their shares iii Sell the stock iv Engage in shareholder activism v Examples sony corporation electronics and movies Ebay needs to sell paypal 6 months later they decided to do that vi Communication with the Firm wrote letters to firm cause they owned a bunch of shares vii Proxy Contest get 50 of the shareholders to vote with you to get a company to change viii Shareholder Lawsuits not done as much because you are partial owners of the company and most of the