The New York Stock Exchange
• Stock is bought and sold on stock
exchanges.
• The largest and most prestigious is the
New York Stock Exchange, abbreviated
NYSE.
• The “Big Board,” as it is called is located
on Wall Street in New York City.
The Origins of the NYSE
• In the 1700’s an informal gathering took
place for merchants and traders to buy
and sell stocks of banks and insurance
companies.
• In 1792, they decided to meet at the same
time every day under an old sycamore tree
on Wall Street to take orders to buy
and sell stocks.
On the Floor of the NYSE
• At 9:30 a.m. EST every business day, the world’s most
fascinating financial drama begins and ends at 4:00 p.m.
• The trading floor is the size of a football field and five
stories high.
• The floor is described as “organized chaos.”
• It is noisy and crowded as brokers, clerks and
messengers dart about (no running is allowed) the four
rooms that make up the trading floor.
• All 3,000 people who work here buy and sell stock for
customers at the best possible price.
Other Exchanges
• The American Stock Exchange – abbreviated
ASE or AMEX.
– Formed 60 years after the NYSE.
• The National Association of Securities Dealers
Automated Quotation System
– NASDAQ, an automated communications system lists
about 5,000 companies.
– This is the Over-the-Counter market, OTC, and offers
shares of smaller, younger companies.
– Almost all new issues trade here before graduating to
the NYSE or AMEX.
High-Tech Trading
• One of the strengths of the system is fairness; an order
for 100 shares from a factory worker in Detroit competes
equally with an order for a million shares from the
nation’s largest pension fund.
• Thousands of electronic devices on the trading floor
practically eliminate paperwork and processing errors.
• Every trade on the NYSE floor is recorded on the stock
ticker, an electronic device that reports transactions
shortly after they occur.
• An order placed in Los Angeles can be processed in
New York within 30 seconds.
Buy Low, Sell High…
• When you decide to buy stock, the first person
you want to talk to is a stockbroker.
• Stockbrokers work for a stock brokerage, or
brokerage house.
• They buy and sell for you, and for this service,
they earn a commission or fee.
CharlesSchwab
Orders to Buy, Orders to Sell
• When a stockbroker buys or sells stock for a
customer, it is called “placing an order”.
• There are different types of orders:
– A market order is an order to buy or sell immediately
at the best price available.
– Buying “at the market” is the most common form of
trading.
– A limit order specifies a price;
• Example: You tell the broker to buy 100 shares of Nike at
$50.25 per share, but the price has climbed to $50.75 by the
time your order reaches the floor, no sale will take place.
Round Lots and Odd Lots
• Stock orders can be
placed in either round
lots or odd lots
– A round lot is 100
shares,
– Any order less than
100 shares is
considered an odd lot.
What Causes the Market to
• Ups and downs in the stock market are perfectly
normal; the bear and the bull balancing each
other.
• When many people rush to sell their shares, the
balance is thrown off and gets out of kilter.
• In stock market terms…IT CRASHES.
• The greatest crash to date occurred in 1929,
thereafter known as Black Thursday.
What Happened on Black Thursday
• Stock prices plummeted as investors suddenly decided
to sell their stocks for a profit.
• As other investors saw stock prices begin to fall, they too
hurried to sell.
• The frenzy of selling activity had a negative impact on
the country for years afterward.
• With nobody investing money in the stock market,
businesses could not grow.
• When businesses failed, people lost their jobs, and
without paychecks they could not buy goods and
services.
• Still more businesses failed and there was a tremendous
economic decline lasting about 12 years.
Takeovers, Mergers and Tender
Offers
• A merger is the acquisition of one
company by another.
– It occurs when one company purchases
enough shares of another company’s stock in
order to have a controlling interest.
– Mergers must be approved by the company’s
board of directors and shareholders.
• If the merger does not have the
cooperation of the target company’s
board, it is called a takeover…
Takeovers
• A takeover is accomplished in one of three ways:
– By buying up a company’s stock on the open market,
– Buying its stock through private transactions,
– Or issuing a tender offer to the company’s board of directors.
• A tender offer is an offer to buy a company’s stock at a stated
price and by a stated time.
• To gain control of the target company, the tender offer price is
usually above the current market price.
– A takeover becomes hostile when the
target seriously objects to being
acquired and nothing, not even a
higher price, is likely to change the
board’s mind.