National and Regional Exchanges — КиберПедия 

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National and Regional Exchanges

2019-08-03 133
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In the United States there are two national stock exchanges: The New York Stock Exchange (NYSE) and the American Stock Exchange, (AMEX), both of which are located in New York City. They are national in that companies listed or traded on the exchanges are relatively large and are headquartered in many different locations around the United States. Of these two exchanges, the NYSE has more corporations listed, and the firms are also larger. Regional exchanges list companies that, generally, are smaller and more locally oriented than those in the national exchanges. Included among the regional exchanges are the Boston, Cincinnati, Midwest (Chicago), Pacific (San Francisco and Los Angeles), and Philadelphia-Baltimore-Washington stock exchanges.

The relative importance of these exchanges is shown by shares and by values, the volume transacted on the NYSE, AMEX, and all other exchanges. In terms of 1984 share volume, the NYSE represents about 82.6 percent, the AMEX 5.2 percent, and all others combined 12.2 percent. In terms of value, the NYSE represents an even higher percentage, 85.7 percent.

 

The New York Stock Exchange

 

Since the New York Stock Exchange is the dominant institution among the exchanges and because its organizational pattern is followed by the other exchanges, it merits our particular attention. The NYSE is an association of members organized for the purpose of facilitating the buying and selling of securities. The NYSE, now a corporation,1 provides the physical facilities for its members to trade in securities. Its membership has been fixed at 1366 members since 1953. Members of the NYSE are usually said to have a "seat" on the exchange, which can be bought and sold, although each transfer must be approved by the NYSE board of directors. The board of directors is made up of representatives of the security industry, listed companies, and the investing public. Ten directors are chosen from the membership, and ten are chosen from outside the industry. The chairman of the exchange is selected by the board of directors, which brings the total membership of the board to twenty-one.

Only members of the NYSE can buy and sell securities on its trading floor. The trading floor, about the size of a football field, has fourteen U-shaped counters known as trading posts. Listed securities of the NYSE are assigned to each of these posts for trading.

FUNCTIONS OF MEMBERS In accordance with the functions performed, members of the NYSE can be classified into commission brokers, floor brokers, floor traders, odd-lot dealers, and specialists.

Commission brokers. A member of the NYSE may be a general partner or holder of voting stock in one of the brokerage concerns which, by virtue of exchange membership, is known as a member firm or member corporation. About half the members of the NYSE are partners or officers in member organizations doing business with the general public. These members execute customer orders to buy and/or sell on the exchange, and their firms receive commissions on these transactions. Many firms have more than one member.

Floor brokers. These members assist the commission brokers in the execution of their orders. In compensation for their services, they share a part of the commission earned by commission brokers. Floor brokers generally are "independents" who are not employees of a commission broker's firm.

Registered traders. These members trade for their own accounts. They do not act for the public or for other members.

Odd-lot dealers. These members serve investors who purchase or sell a few shares at a time rather than the conventional one hundred-share units known as a round lot. The odd-lot member acts as a dealer, not a broke. He buys from or sells to other members doing a public business.

Specialists. About one-fourth of all members of the NYSE are called specialists because they specialize in "making a market" for one or more stocks. They perform two principal functions. First, they execute limit orders that other members of the exchange leave with them. These limit orders are left with a specialist when the current market price differs from the price of the order. For example, a commission broker may receive an order when the shares are selling at $ 60 to wait to buy at $58. By executing these orders on behalf of other exchange members when the market price finally reaches the price stated on the orders, the specialist makes it possible for these members to transact other business elsewhere on the exchange floor. In handling these orders, the specialist acts as a broker or agent.

The second, more complex role of specialists is that of dealer or principal for their own accounts. As dealers, specialists are expected, as far as is practical, to maintain continuously fair and orderly markets in the stocks assigned to them. When there is a temporary disparity, for example, between supply and demand, they usually buy or sell for their own account to narrow price changes between transactions and to give depth to the market. By doing this, they keep price continuity more orderly than it would otherwise be; they contribute to the liquidity of the market; and they make it possible for investors' orders to be executed at better prices when temporary disparities occur.

To maintain the market, specialists may purchase stock at a higher price than anyone

else is willing to pay. For example, assume that a stock has just sold at 55. The highest price anyone is willing to pay is 541/4 (the best bid), and the lowest price at which anyone is willing to sell is 551/4 (the best offer). The specialist, acting as a dealer for his or her own account, may now decide to bid 541/4 for one hundred shares, making the quotation 543/4551/4, which narrows the spread between the bid and offer prices to        1/2 point. Now, if a prospective seller wishes to sell one hundred shares at the price of the best bid, the specialist will purchase the stock at 543/4. By doing this, the specialist not only provides the seller with a better price but also maintains better price continuity, for the change from the last sale is only 1/4 of a point.

In other cases specialists may sell stock from their own account to maintain a market. Assume that with the last sale in a stock at 621/2, the best bid is 62 and the best offer 63. The specialist offers shares at 621/2 from his own account, changing the quotation to 62-621/2. A buyer enters the market and buys the stock from the specialist. Thus the buyer purchases the stock 1/2 point cheaper than would have been the case without the specialist's offer. Again, better price continuity and depth have been maintained.

In their efforts to maintain an orderly market, sometimes specialists make both the best bid and best offer for a stock in their own account. Many times when specialists do not have sufficient stock in their inventory, they will sell short to maintain a market. In doing this, they must observe all the rules and regulations governing short selling.

Specialists record all limit orders in their books under each price category in the sequence in which they are received. For each of their orders, specialists show the number of shares and from whom it was received. They represent those orders in the market, and when they are successful in executing those orders on their books, they send reports to the members for whom they have acted according to the sequence of listing under each price category.

Because specialists stand at the center of the marketplace at the NYSE, they are closely regulated and supervised. Specialists are prohibited by exchange rules from buying for their account at a given price while they hold an order to buy at that price for someone else. Specialists must not buy stock at any price for their own account while holding an order to buy that stock «at the market» (the best available price). The same holds true with respect to specialists selling for their own account while holding a sell order for someone else. They cannot compete at the same price, for their own account, with orders they hold as a broker's broker.

Specialists are required to submit to the exchange, about eight times a year, details of their dealings for unannounced one – week periods selected at random by the exchange. Actions taken by specialists, price movements in stocks which they cover, and spreads in quotations are examined carefully by the exchange to determine their effectiveness in maintaining fair and orderly markets.

The main source of the specialists' income is the floor brokerage commissions they earn by acting as an agent in executing the orders left with them by other members. The floor brokerage commission is paid to the specialist out of the commission that the commission broker receives from his customer. There is no extra charge to the investor when the specialist's services are used. On the other hand, specialists in their capacity as dealers buy and sell securities for their own account. The specialist's success in making a profit, as in the case with all other dealers, is largely determined by his or her own judgment and astuteness as well as by general market conditions. Specialists do have one intangible advantage over others. For the stocks in which they trade, they keep limit orders in their books, and, therefore, they know more than others about the supply and demand schedule for these stocks.

 


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