投资学（原书第12版）课件汇 英文 第1-15章　投资环境 -利率期限结构

ChapterOneTheInvestmentEnvironment“Real”versusfinancialassetsRisk-returntrade-offandefficientpricingoffinancialassetsFinancialcrisisof2008Illustratedconnectionsbetweenfinancialsystemand“real”sideoftheeconomyLessonsaboutsystemicriskChapterOverview1-2©2021McGraw-HillEducationRealAssetsUsedtoproducegoodsandservicesExamples:Land,buildings,machines,intellectualpropertyFinancialAssetsClaimstotheincomegeneratedbyrealassetsorclaimsonincomefromthegovernmentDonotdirectlycontributetotheproductivecapacityoftheeconomyExamples:Stocks,bondsRealAssetsvs.FinancialAssets1-3©2021McGraw-HillEducationFixed-income/DebtsecuritiesPromiseseitherafixedstreamofincomeorastreamofincomedeterminedbyaspecifiedformula(e.g.,corporatebond)EquityRepresentsownershipshareinafirm(e.g.,commonstock)DerivativesecuritiesPayoffdependsonthevalueofotherfinancialvariablessuchasstockprices,interestrates,orexchangeratesTypesofFinancialAssets©2021McGraw-HillEducationCurrency$2trillionofcurrencytradedeachdayinLondonaloneCommoditiesE.g.,corn,wheat,naturalgasOtherTypesofFinancialMarkets1-5©2021McGraw-HillEducationTheInformationalRoleConsumptionTimingAllocationofRiskSeparationofOwnershipandManagementAgencyproblemsFinancialMarketsandtheEconomy1-6©2021McGraw-HillEducationMechanismstomitigatepotentialagencyproblemsCompensationplanstietheincomeofmanagerstothesuccessofthefirmMonitoringfromtheboardofdirectorsMonitoringbylargeinvestorsandsecurityanalystsThreatoftakeoverforpoorperformersFinancialMarketsandtheEconomy

(Continued)1-7©2021McGraw-HillEducationCorporateGovernanceandCorporateEthicsAccountingscandalsEnron,RiteAid,HealthSouthAuditingscandalsArthurAndersen(Enron’sauditor)Sarbanes-OxleyAct(aka“SOX”)Passedin2002inresponsetoethicsscandalsFocusedoncorporategovernanceFinancialMarketsandtheEconomy

(Concluded)1-8©2021McGraw-HillEducationPortfolio:CollectionofinvestmentassetsAssetallocationChoiceamongbroadassetclasses(e.g.,stocks,bonds,realestate,etc.)SecurityselectionChoiceofsecuritieswithineachassetclassTheInvestmentProcess1-9©2021McGraw-HillEducationSecurityanalysisinvolvesthevaluationofparticularsecuritiesthatmightbeincludedintheportfolio“Top-down”approachAssetallocationfollowedbydeterminationofparticularsecuritiestobeheldineachassetclass“Bottom-up”approachInvestmentbasedonattractivelypricedsecuritieswithoutasmuchconcernforassetallocationTheInvestmentProcess

(Continued)1-10©2021McGraw-HillEducationFinancialmarketsarehighlycompetitiveTherewillalmostalwaysberiskassociatedwithinvestmentsRisk-returntrade-off-Higher-riskassetsarepricedtoofferhigherexpectedreturnsthanlower-riskassetsMarketsAreCompetitive1-11©2021McGraw-HillEducationYoushouldrarelyexpecttofindbargainsinthesecuritymarketsSeeCh.11foradiscussionofthetheoryandevidenceoftheefficientmarkethypothesisEfficientmarkethypothesisThepricesofsecuritiesfullyreflectavailableinformationIfthisweretrue,therewouldexistneitherunderpricednoroverpricedsecuritiesMarketsAreCompetitive

(Continued)1-12©2021McGraw-HillEducationPassivemanagementHighlydiversifiedportfolioNoattempttoimproveinvestmentperformancebyidentifyingmispricedsecuritiesActivemanagementFocusonimprovingperformancebyfindingmispricedsecuritiesorbytimingtheperformanceofbroadassetclassesMarketsAreCompetitive

(Concluded)1-13©2021McGraw-HillEducationFirmsNetdemandersofcapitalRaisecapitalnowtopayforinvestmentsinplantandequipmentHouseholdsTypicallynetsuppliersofcapitalPurchasesecuritiesissuedbyfirmsthatneedtoraisefundsGovernmentsCanfunctionasborrowersorlenders,dependingontherelationshipbetweentaxrevenueandgovernmentexpendituresThePlayers

(1of4)©2021McGraw-HillEducationFinancialintermediariesbringthesuppliersofcapital(investors)togetherwiththedemandersofcapital(primarilycorporationsandthefederalgovernment)ExamplesInvestmentcompaniesBanksInsurancecompaniesCreditunionsThePlayers

(2of4)1-15©2021McGraw-HillEducationInvestmentbankersspecializeinthesaleofnewsecuritiestothepublic,typicallybyunderwritingtheissueAdvisetheissuingcorporationonappropriateprice,interestrates,etc.NewissuesofsecuritiesareofferedtothepublicintheprimarymarketInvestorstradepreviouslyissuedsecuritiesamongstthemselvesinthesecondarymarketThePlayers

(3of4)1-16©2021McGraw-HillEducationVenturecapital(VC)referstomoneyinvestedtofinanceanew,notyetpubliclytradedfirmVCinvestorscommonlytakeanactiveroleinthemanagementofastart-upfirmPrivateequityreferstoinvestmentsincompanieswhosesharesarenotpubliclytradedinastockmarketThePlayers

(4of4)1-17©2021McGraw-HillEducationAntecedentsoftheCrisisFedresponsetohigh-techbubbleof2000-2002wasanaggressivereductionininterestratesT-billratesdroppeddrasticallybetween2001and2004Asaresult,thisrecessionwasmildandbrief,engenderinganewterm,the“GreatModeration”HistoricboominhousingmarketresultedfromseeminglystableeconomyanddramaticallyreducedinterestratesGreatertoleranceforrisk,suchassecuritizedmortgagesTheFinancialCrisisof20081-18©2021McGraw-HillEducationCumulativeReturnsofS&P500Index1-19©2021McGraw-HillEducationShort-termLIBORand

Treasury-billRatesandtheTEDSpread1-20©2021McGraw-HillEducationTheCase-ShillerIndexofU.S.HousingPrices1-21©2021McGraw-HillEducationChangesinHousingFinance

(1of2)OldWayMortgageloanscamefromalocallender,suchasaneighborhoodsavingsbankorcreditunionTypicalthriftinstitutionwouldhaveasitsmajorassetaportfoliooftheselong-termhomeloansThrift’smainliabilitywouldbeaccountsofitsdepositorsNewWaySecuritizationisthepoolingofloansforvariouspurposesintostandardizedsecuritiesbackedbythoseloans,whichcanthenbetradedlikeanyothersecurityFannieMaeandFreddieMacbecamethebehemothsofthemortgagemarket1-22©2021McGraw-HillEducationConformingmortgageswerepooledalmostentirelythroughFreddieMacandFannieMaeLow-riskrequiringdemonstrationofabilitytorepayloanNewproductresultingfromsecuritizationmodelSecuritizationbyprivatefirmsofnonconforming“subprime”loanswithhigherdefaultriskTrendtowardslow-andno-documentationloansLittleverificationofborrower’sabilitytorepayChangesinHousingFinance

(2of2)1-23©2021McGraw-HillEducationCashFlowsinaMortgagePass-ThroughSecurity1-24©2021McGraw-HillEducationCollateralizeddebtobligations(CDOs)Designedtoconcentratethecreditriskofabundleofloansononeclassofinvestors,leavingtheotherinvestorsinthepoolrelativelyprotectedfromthatriskPrioritizationofclaimsonloanrepaymentsbydividingthepoolintoseniorversusjuniortranchesSeniortranches–firstclaimonrepaymentsfromtheentirepoolJuniortranches–paidonlyaftertheseniortrancheshadreceivedtheircutRatingssignificantlyunderestimatedcreditriskMortgageDerivatives1-25©2021McGraw-HillEducationDefaultprobabilitieshadbeenestimatedusinghistoricaldatafrombothanunrepresentativeperiodoftimeandaverydifferentborrowerpoolCross-regionaldiversificationdidnotreduceriskasmuchasanticipatedAgencyproblemswithratingagenciesWhyWasCreditRiskUnderestimated?1-26©2021McGraw-HillEducationACDSisaninsurancecontractagainstthedefaultofoneofmoreborrowersPurchaseroftheswappaysanannualpremiumforprotectionfromcreditriskInvestorsboughtCDSstoinsuresafetyagainstsubprimeloansSomeswapissuersdidnothaveenoughcapitaltobacktheirCDSsE.g.,AIGalonesoldmorethan$400bofCDScontractsonsubprimemortgagesCreditDefaultSwap(CDS)1-27©2021McGraw-HillEducationSourcesoffragilityin2007Manyhighlyleveraged,largebankswererelyingprimarilyonshort-termloansforfundingWidespreadinvestorrelianceon“creditenhancement”viaCDOsSystemicriskistheriskofbreakdowninthefinancialsystem,particularlyduetospillovereffectsfromonemarketintoothersRiseofSystemicRisk

(1of3)1-28©2021McGraw-HillEducationFall2007HousingpricedeclineswerewidespreadMortgagedelinquenciesincreasedStockmarketentereditsownfreefallManyinvestmentbanks,whichhadlargeinvestmentsinmortgages,begantosufferCrisispeakedinSeptember2008FannieMaeandFreddieMacputintoconservatorshipLehmanbankruptcy,AIGbailout,andMerrillLynchsoldtoBOACrisisnotlimitedtotheU.S.GreecewashardesthitTheShoeDrops1-29©2021McGraw-HillEducationDodd-FrankWallStreetReformandConsumerProtectionActpassedin2010Partialrollbackin2018MechanismstomitigatesystemicriskStricterrulesforbankcapital,liquidity,andriskmanagementpracticesE.g.,stresstestsforlargebanksLimitriskyactivitiesinwhichbankscanengageCreationoftheOfficeofCreditRatingswithintheSECtooverseethecreditratingagenciesTheDodd-FrankReformAct1-30©2021McGraw-HillEducationChapterTwoAssetClassesandFinancialInstrumentsBuildinganinvestmentportfolioAssetallocationinvolvesmakingdecisionsabouthowmuchmoneytoallocatetobroadclassesofassetsSecurityselectionoccurswhentheinvestorselectsspecificassetsfromwithineachclassFinancialmarketsMoneymarketsaremadeupofshort-term,marketable,liquid,low-riskdebtsecuritiesCapitalmarketsincludelongertermandriskiersecuritiesDividedintofoursegments–longertermbondmarkets,equitymarkets,andthederivativemarketsforoptionsandfuturesChapterOverview©2021McGraw-HillEducation2-32TreasuryBills(i.e.,T-bills)SimplestformofborrowingwhereinthegovernmentraisesmoneybysellingbillstothepublicAskpriceisthepriceyouwouldhavetopaytobuyaT-billfromasecuritiesdealerBidpriceistheslightlylowerpriceyouwouldreceiveifyouwantedtosellabilltoadealerBid-askspreadisthedifferenceintheseprices,whichisthedealer’ssourceofprofitCertificatesofDeposit(CD)BankpaysinterestandprincipaltothedepositoronlyatmaturityTimedepositcannotbewithdrawnondemandMoneyMarketSecurities

(1of3)©2021McGraw-HillEducation2-33CommercialpaperShort-ternunsecureddebtnotes,oftenissuedbylarge,well-knowncompaniesandbackedbyabanklineofcreditBankers’acceptanceAnordertoabankbyacustomertopayasumofmoneyatafuturedateEurodollarsDollar-denominateddepositsatforeignbanksorforeignbranchesofAmericanbanksMoneyMarketSecurities

(2of3)©2021McGraw-HillEducation2-34RepurchaseagreementsShort-term,oftenover-night,salesofsecuritieswithanagreementtorepurchasethemataslightlyhigherpriceFederalfundsFundsinabank’sreserveaccountattheFederalReserveBankBrokers’callsInvestorsmaybuystocksonmarginandbrokers,inturn,mayborrowthefundsfromabankMoneyMarketSecurities

(3of3)©2021McGraw-HillEducation2-35LIBORLIBORisthepremiershort-terminterestratequotedintheEuropeanmoneymarketBasedonsurveysofratesreportedbyparticipatingbanksratherthanactualtransactionsRegulatorshaveproposedphasingoutLIBORby2021YieldsonMoneyMarketInstrumentsMostmoneymarketsecuritiesarelowrisk,butnotrisk-freeMoneymarketfundsaremutualfundsthatinvestinmoneymarketinstrumentsGovernmentfundsholdshort-termU.S.TreasuryoragencysecuritiesPrimefundsalsoholdothermoneymarketinstrumentsTheMoneyMarket©2021McGraw-HillEducation2-36Spreadbetweenfederalfundsrate

andTreasurybillrates©2021McGraw-HillEducation2-37BondmarketiscomposedoflongertermborrowingordebtinstrumentsthanthosethattradeinthemoneymarketTreasurynotesandbondsCorporatebondsMunicipalbondsMortgagesecuritiesFederalagencydebtTheBondMarket©2021McGraw-HillEducation2-38TreasurynotesandtreasurybondsU.S.governmentborrowsfundsinlargepartbysellingT-notesandT-bondsNotes–maturitiesrangeupto10yearsBonds–maturitiesrangefrom10to30yearsInflation-protectedtreasurybondsManycountries’governmentsissuebondslinkedtoanindexofthecostoflivinginordertoprovidetheircitizenswithaneffectivewaytohedgeinflationriskIntheU.S.,inflation-protectedT-bondsarecalledTIPSDebtInstruments

(1of5)©2021McGraw-HillEducation2-39FederalagencydebtAgenciesformedtochannelcredittoaparticularsectorthatCongressbelievesmightnotreceiveadequatecreditthroughprivatesourcesE.g.,FHLB,FNMA,GNMA,FHLMCInternationalbondsInternationalcapitalmarketcenteredinLondonEurobondisabonddenominatedinacurrencyotherthanthatofthecountryinwhichitisissuedYankeebondisadollar-denominatedbondsoldintheU.S.byanon-U.S.issuerDebtInstruments

(2of5)©2021McGraw-HillEducation2-40MunicipalBondsTax-exemptbondsissuedbystateandlocalgovernmentsGeneralobligation–backedbygeneraltaxingpowerofissuerRevenue–backedbyproceedsfromtheprojectoragencytheyareissuedtofinanceTypicallyissuedbyairports,hospitals,etc.Industrialdevelopment–revenuebondissuedtofinancecommercialenterprisesVarywidelyinmaturityDebtInstruments

(3of5)©2021McGraw-HillEducation2-41Tax-ExemptDebt

Outstanding©2021McGraw-HillEducation2-42Compareafter-taxreturnsoneachbondLett=investor’scombinedtaxbracketLetrtaxable=before-taxreturnonthetaxablebondLetrtaxable(1-t)=after-taxrateLetrmuni=municipalbondratertaxable(1-t)>rmuni

Taxablebondgivesahigherreturn;otherwise,themunicipalbondispreferredMunicipalBondYields

Taxablevs.Tax-ExemptBonds©2021McGraw-HillEducation2-43Tax-ExemptYieldTable©2021McGraw-HillEducation2-44CorporatebondsMeansbywhichprivatefirmsborrowmoneydirectlyfromthepublicSecuredbondsUnsecuredbonds(i.e.,debentures)SubordinateddebenturesSimilartoTreasuryissuedsecuritiesinthattheyusuallypaysemiannualcouponsandreturnfacevaluetobondholderatmaturityLargerdefaultriskthanTreasuryissuedsecuritiesMaycomewithoptionsattachedCallableorconvertibleoptionsDebtInstruments

(4of5)©2021McGraw-HillEducation2-45Mortgage-andasset-backedsecuritiesOwnershipclaiminapoolofmortgagesoranobligationthatissecuredbysuchapoolConformingmortgagesLoansmustsatisfycertainunderwritingguidelinesbeforetheymaybepurchasedbyFannieMaeorFreddieMacSubprimemortgagesRiskierloansmadetofinanciallyweakerborrowersDebtInstruments

(5of5)©2021McGraw-HillEducation2-46Mortgage-BackedSecuritiesOutstanding©2021McGraw-HillEducation2-47RepresentownershipsharesinacorporationEachshareentitlesownertoonevoteCorporationcontrolledbyboardofdirectorselectedbyshareholdersResidualclaimStockholdersarelastinlineofallwhohaveaclaimontheassetsandincomeofthecorporationLimitedliabilityMostshareholderscanloseintheeventoffailureofthecorporationistheiroriginalinvestmentEquitySecurities:

CommonStock©2021McGraw-HillEducation2-48DividendyieldAnnualdividendpaymentexpressedasapercentofthestockpriceCapitalgainsAmountbywhichthesalepriceofasecurityexceedsthepurchasepricePrice-earningsratioRatioofastock’spricetoitsearningspershareEquitySecurities:

StockMarketListings©2021McGraw-HillEducation2-49PreferredstockhasfeaturessimilartobothequityanddebtLikeabond,promisestopayafixedamountofincomeeachyearDoesnotconveyvotingpowerregardingthemanagementofthefirmContractualobligationtopayinterest,butnotdividendsPreferredstockpaymentsaretreatedasdividendsratherthaninterest,sotheyarenotatax-deductibleexpenseforthefirmEquitySecurities:

PreferredStock©2021McGraw-HillEducation2-50AmericanDepositoryReceipts(ADRs)CertificatestradedinU.S.marketsthatrepresentownershipinsharesofaforeigncompanyEachADRmaycorrespondtoownershipofafractionofaforeignshare,oneshare,orseveralsharesoftheforeigncorporationEquitySecurities:

DepositoryReceipts©2021McGraw-HillEducation2-51DowJonesIndustrialAverage(DJIA)Includes30largeblue-chipcorporationsComputedsince1896Price-weightedaverageStandard&Poor’s500(S&P500)ImprovementoverDJIAintwowaysMorebroadlybasedindexof500firmsMarket-value-weightedIndexStockMarketIndexes©2021McGraw-HillEducation2-52U.S.market-valueindexesNYSE,NASDAQ,Wilshire5000,CRSPEquallyweightedindexesDonotcorrespondtobuy-and-holdstrategiesForeignandinternationalstockmarketindexesNikkei,FTSE,DAZ,HangSeng,TSX OtherIndexes©2021McGraw-HillEducationU.S.Fixed-IncomeMarket($b)©2021McGraw-HillEducation2-54DerivativeassetisaclaimwhosevalueisdirectlydependentonoriscontingentothevalueofsomeunderlyingassetsOptionsFuturesDerivativeMarkets©2021McGraw-HillEducationCalloptionGivesholdertherighttopurchaseanassetforaspecifiedprice,calledtheexerciseorstrikeprice,onorbeforeaspecifiedexpirationdatePutoptionGivesholdertherighttosellanassetforaspecifiedexercisepriceonorbeforeaspecifiedexpirationdateDerivativesMarkets:

Options©2021McGraw-HillEducation2-56FuturescontractCallsfordeliveryofanasset(orcashvalue)ataspecifieddeliveryormaturitydateforanagreed-uponprice,calledthefuturesprice,tobepaidatcontractmaturityLongpositionheldbythetraderwhocommitstopurchasingtheassetonthedeliverydateShortpositionheldbytraderwhocommitstodeliveringtheassetatcontractmaturityDerivativesMarkets:

FuturesContract©2021McGraw-HillEducation2-57OptionsRight,butnotobligation,tobuyorsellOptionisexercisedonlywhenitisprofitableOptionsmustbepurchasedThepremiumisthepriceoftheoptionitselfFuturesContractObligedtomakeortakedeliveryLong(short)positionmustbuy(sell)atthefuturespriceFuturescontractsareenteredintowithoutcostComparison©2021McGraw-HillEducation2-58ChapterThreeHowSecuritiesareTradedBroadintroductiontothemanyvenuesandproceduresavailablefortradingsecuritiesintheU.S.andinternationalmarketsTradingsecuritiesMechanicsoftradeexecutionEssentialsofsomespecifictypesoftransactionsE.g.,buyingonmarginandshort-sellingChapterOverview©2021McGraw-HillEducation3-60FirmsrequiringnewcapitalcanraisefundsbyborrowingmoneyorsellingsharesinthefirmPrimarymarketisthemarketinwhichnewissuesofsecuritiesareofferedtothepublicSecondarymarketinvolvesalreadyexistingsecuritiesbeingboughtandsoldontheexchangesorintheOTCmarketSharesofpubliclylistedfirmstradecontinuallyinmarketssuchastheNYSEorNASDAQ,butthesharesofprivatecorporationsareheldbysmallnumbersofmanagersandinvestorsHowFirmsIssueSecurities©2021McGraw-HillEducation3-61OwnedbyarelativelysmallnumberofshareholdersFewerobligationstoreleaseinformationtothepublicJumpstartOurBusinessStartups(JOBS)of2012allowsupto2,000shareholdersRaisefundsthroughprivateplacementHowFirmsIssueSecurities

PrivatelyHeldFirms©2021McGraw-HillEducation3-62Initialpublicoffering,orIPOAfirm’sfirstissueofsharestothepublicSeasonedequityofferingThesaleofadditionalsharesinfirmsthatalreadyarepubliclytradedPublicofferingsofbothstocksandbondstypicallyaremarketedbyunderwritersAdvisesthefirmregardingthetermsonwhichitshouldattempttosellthesecuritiesHowFirmsIssueSecurities

PubliclyTradedCompanies©2021McGraw-HillEducation3-63RelationshipsAmongaFirmIssuingSecurities,theUnderwriters,andthePublic©2021McGraw-HillEducation3-64ShelfregistrationRule415wasintroducedin1982AllowsfirmstoregistersecuritiesandgraduallysellthemtothepublicforthreeyearsfollowingtheinitialregistrationSharescanbesoldonshortnoticeandinsmallamountswithoutincurringhighfloatationcostsThesesecuritiesarereferredtoas“ontheshelf”HowFirmsIssueSecurities

ShelfRegistration©2021McGraw-HillEducation3-65InitialpublicofferingsRoadshowstopublicizenewofferingBookbuildingtodeterminedemandDegreeofinvestorinterestprovidesvaluablepricinginformationSharesofIPOsareallocatedacrossinvestorsinpartbasedonthestrengthofeachinvestor’sexpressedinterestHowFirmsIssueSecurities

InitialPublicOfferings©2021McGraw-HillEducation3-66UnderwriterbearspriceriskIPOsarecommonlyunderpricedcomparedtothepricetheycouldbemarketedExample:DropboxSomeIPOsareoverpricedExample:FacebookOtherscannotbefullysoldHowFirmsIssueSecurities

InitialPublicOfferings(Continued)©2021McGraw-HillEducation3-67DirectsearchmarketLeastorganizedBuyersandsellersseekeachotheroutdirectlyBrokeredmarketsBrokersoffersearchservicestobuyersandsellersDealermarketsTradersspecializinginparticularassetsbuyandsellassetsfortheirownaccountsAuctionmarketsAlltradersinanassetmeet(physicallyorelectronically)atoneplacetobuyandsellTypesofMarkets©2021McGraw-HillEducation3-68BidPriceBidsareofferstobuyIndealermarkets,thebidpriceisthepriceatwhichthedealeriswillingtobuyInvestors“selltothebid”AskPriceAskpricesareselloffersIndealermarkets,theaskpriceisthepriceatwhichthedealeriswillingtosellInvestorsmustpaytheaskpricetobuythesecurityBidandAskPrices©2021McGraw-HillEducation3-69Bid-askedspreadisthedifferencebetweenadealer’sbidandaskpriceMarketordersBuyorsellordersthataretobeexecutedimmediatelyTraderreceivescurrentmarketpricePrice-contingentordersTradersspecifybuyingorsellingpriceLimitbuy(sell)orderinstructsthebrokertobuy(sell)sharesifandwhenthosesharesareatorbelow(above)aspecifiedpriceTypesofOrders©2021McGraw-HillEducation3-70Price-ContingentOrder:

Example©2021McGraw-HillEducation3-71DealermarketsOver-the-counter(OTC)marketisaninformalnetworkofbrokersanddealerswheresecuritiescanbetraded(notaformalexchange)Electroniccommunicationnetworks(ECNs)Computer-operatedtradingnetworkRegisterwiththeSECasbroker-dealersSpecialist/DMMmarketsDesignatedmarketmaker(DMM)acceptstheobligationtocommititsowncapitaltoprovidequotesandhelpmaintaina“fairandorderlymarket”TradingMechanisms©2021McGraw-HillEducation3-721975:EliminationoffixedcommissionsontheNYSE1994:Neworder-handlingrulesonNASDAQ,leadingtonarrowerbid-askspreads1997:Reductionofminimumticksizefromone-eighthtoone-sixteenth2000s:IntheUS,theshareofelectronictradingrosefrom16%to80%in2000sTheRiseofElectronicTrading

(1of2)©2021McGraw-HillEducation3-732000:EmergenceofNASDAQStockMarket2001:Decimalizationallowedtheticksizetofallto1cent2005:SECadoptedRegulationNMS2006:NYSEacquiredelectronicArchipelagoExchangeandrenameditNYSEArca2007:NMSfullyimplementedTheRiseofElectronicTrading

(2of2)©2021McGraw-HillEducation3-74TheEffectiveSpreadFellDramaticallyastheMinimumTickSizeFell©2021McGraw-HillEducation3-75NASDAQListsabout3,000firmsNASDAQ’sMarketCenterconsolidatesNASDAQ’spreviouselectronicmarketsintooneintegratedsystemThreelevelsofsubscribersU.S.Markets:

NASDAQ©2021McGraw-HillEducation3-76LargestU.S.stockexchange,asmeasurebymarketvalueoflistedstocksAutomaticelectronictradingrunsside-by-sidewithbroker/specialistsystem1976(andlater)–DOTandSuperDot2000-Direct+2006–NYSEHybridAllowedNYSEtoqualifyasafastmarketforthepurposesofRegulationNMS,butstillofferedadvantagesofhumaninteractionforcomplextradesU.S.Markets:

NYSE©2021McGraw-HillEducation3-77Electroniccommunicationnetworks(ECNs)arecomputer-operatedtradingnetworkfortradingsecuritiesSomeregisteredasformalstockexchanges,whileothersareconsideredpartoftheOTCmarketCompeteintermsofthespeedtheycanofferLatencyreferstothetimeittakestoaccept,process,anddeliveratradingorder Example:CBOEGlobalMarketsadvertisesaveragelatencytimesofaround100microsecondsU.S.Markets:

ECNs©2021McGraw-HillEducation3-78AlgorithmictradingistheuseofcomputerprogramstomaketradingdecisionsHigh-frequencytradingisasubsetofalgorithmictradingthatreliesoncomputerprogramstomakeextremelyrapiddecisionsDarkpoolsareprivatetradingsystemsinwhichparticipantscanbuyorselllargeblocksofsecuritieswithoutshowingtheirhandNewTradingStrategies

(1of2)©2021McGraw-HillEducation3-79BondtradingVastmajorityofbondtradingtakesplaceintheOTCmarketamongbonddealersMarketformanybondissuesis“thin”andissubjecttoliquidityriskOneimpedimenttoheavyelectronictradingislackofstandardizationinthebondmarketAsinglecompanymayhavedozensofoutstandingbondissues,differingbycoupon,maturityandseniorityNewTradingStrategies

(2of2)©2021McGraw-HillEducation3-80PressureinrecentyearstomakeinternationalalliancesormergesMuchofthepressureisduetotheimpactofelectronictradingWaveofmergershasleadtoafewgiantsecurityexchangesICE,NASDAQ,theLSE,DeutscheBoerse,theCMEGroup,TSE,andHKEXGlobalizationofStockMarkets©2021McGraw-HillEducation3-81BiggestStockMarketsintheWorld©2021McGraw-HillEducation3-82Explicitcost-brokeragecommissionsFull-serviceversusdiscountbrokersExecuteorders,holdsecuritiesforsafe-keeping,extendmarginloans,facilitateshortsales,andprovideinformationandadviceaboutinvestmentalternativesImplicitcostsDealer’sbid-askspreadPriceconcessionaninvestormaybeforcedtomakefortradinginquantitiesgreaterthanthoseassociatedwiththe