Download Chapter IV: How Securities are Traded? etImUlbRtRtUv

Chapter IV:
How Securities are Traded?
etImUlbRtRtUv)aneKedaHdUrya:gdUc
emþc?
4.1. etIRkumh‘une)aHmUlbRtya:gdUcemþc? How
Firms Issue Securities?
enAeBlRkumh‘unRtUvkaredIm,IbegáInmUlF
n BYkeKGaceRCIserIslk;mUlbRtfµI. mUlbRt
TaMgenaH
CatYya:gGacedaHdUreTAkan;saFarN³tamry³Fn
aKarikvinieyaK eKehAfa TIpSar
TImYy.
karTij
Chapter III: How Securities are Traded?
74
niglk;mUlbRt)ane)aHrYcral;kñúgcMeNamral;vi
nieyaKinÉkCn eKehAfa TIpSarTIBIr.
When firms need to raise capital they may choose to sell (or float) new securities. Those
securities, typically are marketed to public by investment bankers in what is called the primary
market. Purchase and sale of already issued securities among private investors take place in the
secondary market.
manBIrRbePTcMeBaHTIpSarTImYyEdle)a
H Common stock. karpþl;eTAkan;saFarN³ dMbUg
b¤
IPOs
KWsþúk)ane)aHedayRkumh‘unÉkCnmYy
lk;eTAkan;sarFaN³Ca elIkdMbUg. Seasoned new
issue
KW)anpþl;edayral;Rkumh‘unEdlmanrYcral;nU
v mUlbRt)anedaHdUr.
Chapter III: How Securities are Traded?
75
There are two types of primary market issue of common stock. Initial public offering or
IPO, are stocks issued by a private firm to public for the first time. Seasoned new issues are
offered by companies that are already have floated securities.
4.1.1.
FnaKarikvinieyaK nigkarcuHkic©snüa
Investment Banker & Underwriting
karpþl;eTAkan;saFarN³TaMg stocks nig bonds
CatYya:gKW)anedaHdUrtamkarcuHkic©
snüaedayFnaKarikvinieyaK.
tamkarBit
FnaKarikmaneRcInCagmYy
EdledaHdUrmUlbRt
TaMgenaH.
EbbbTRkumh‘unEdldwknaMeK
nigGgÁPaBcat;taMgcuHkic©snüaedIm,IkarB
arpl
RbeyaCn¾rYmrbs;FnaKarikvinieyaK
Chapter III: How Securities are Traded?
76
edIm,IEbgEckkarTTYlxusRtUvcMeBaHsþúk
Edle)aH.
Public offering of both stocks and bonds typically are marketed via an underwriting by
investment bankers. In fact, more than one investment bankers usually market the securities.
A lead firm forms and underwriting syndicates of other investment bankers to share the
responsibility for the stock issue.
Figure
4.1.
PaBTMnak;TMngcMeNamRkumh‘unEdle)a
HmUlbRt nigGñkcuHkic©snüa
nig saFarN³
Issuing firm
Relationship among a firm issuing securities, and underwriters and public
Chapter III: How Securities are Traded?
77
FnaKarikvinieyaKpþl;»vaTeTAkan;Rkumh‘uncM
eBaHlkçxNÐEdlKYrb:unb:glk;ral;mUlbRt.
Chapter III: How Securities are Traded?
78
esckþI
Rbkas
epþImdMbUgRtUvEt)ancg;RkgCamYykMéreCIg
saredaHdUrsþúk
nigBiBN’nakare)aH
nigTidæPaBrbs;
Rkumh‘un.
enAeBlesckþIRbkasKW)anQandl;TIbBa©b;
nig)anGnum½teday
kMéreCIgsaredaHdUrsþúk
vaKW[eQµaHfabriyaybNѽ
(prospectus).
enAdMNak;kalenH
éføEdlmUlbRtTaMgLaynwgRtUvpþl;
eTAkan;saFarN³KWRtUv)anRbkas.
manviFIsaRsþBIrénkarcuHkic©snüamUlbR
tEdle)aH ³
The investment bankers advise the firm regarding the term on which it should attempt to sell the securities. A
preliminary statement must be filed with SEC & describing the issue and prospect of the company. When the
statement is finalized and approved by the SEC, it is called prospectus. At this time, the price at which the
securities will be offered to public is announced. There are two methods of underwriting a securities issue.
Chapter III: How Securities are Traded?
79
karebþCJarbs;Rkumh‘un
³
FnaKarikvinieyaKTijral;mUlbRtBIRkumh‘unEdle
)aH nigbnÞab;mk
lk;;mUlbRtTaMgenaHeTAkan;saFarN³vij
nigTTYl)anKMlat.
A firm commitment: investment bankers purchase the securities from issuing company resell them to
the public, get a spread.
kic©RBmeRBogBüayambMput
³
m©as;FnaKarvinieyaKyl;RBmCYyRkumh‘unEdl
e)aHlk;mUlbRt
BYkeKTTYlkMéreCIgsar.
nitiviFIRbwgERbgKW
CasamBaØcMeBaHkarpþl;CaelIkdMbUgrbs;
common stock.
A best-effort agreement: investment bankers agrees to help the issuing firm sell the securities, they get
commission. The best-effort procedure is more common for initial offering of common stock.
Chapter III: How Securities are Traded?
80
4.1.2.karpþl;eTAkan;saFarN³elIkdMbUg
Public Offering
Initial
kMéreCIgsaredaHdUrmUlbRtmanCasmBa
ØelIesckþIRbkaskarcuHbBa¢I
nigbriyaybNѽ
elIkdMbUgRtUv)anEbgEckeTAkan;plRbeya
Cn¾ral;vinieyaKin
nigFnaKarikvinieyaKeFVIkar
cat;EcgkarpSaytamry³TUrTsSn¾
nigviTüú
Edlral;mUlbRtqøgkat;CMuvijRbeTsedIm,IC
Un
dMNwgCasaFarN³EdlCitekItmaneLIgkñúgka
Chapter III: How Securities are Traded?
81
rpþl;[. edIm,ITak;TajGñkvinieyaK skþanu Bl
nigedIm,IRbmUlBt’manGMBIéføpþl;[EdlBY
keKnigGaceFVIkaredaHdUrmUlbRt.
dMeNIrkar
énkarRbmUlpþúMGtifiCnskþanuBlTaMgLay
KWRtUv)aneKehAfa Book Building.
Once the SEC has common on the registration statement and a preliminary prospectus has
been distributed to interest investors, the investment bankers organize “road shows” in which
they travel around the country to publicize the imminent offering, to attract potential
investors and collect information about the offering price at which they will be able to
market the securities. The process of polling potential investors is called book building.
Chapter III: How Securities are Traded?
82
4.2. etImUlbRt)anedaHdUrenAkEnøgNa?
Securities are Traded?
Where
4.2.1. karedaHdUrsþúkenA j:Úvj:k
New York Stock Exchange (secondary market)
NYSE
KWCaRkumh‘unrYmTunmYyEdlmansmaCik
1366nak;. vamanFmµnuBaØ nigkMnt; c,ab;
RBmTaMgbBaØtþiEdlRKb;RKgRbtibtþikar
nigskmµPaBénsmaCikrbs;xøÜn
Edlman
RkumRbwkSaPi)al 26 smaCik.
NYSE is a corporation that has 1,366 full members. It has a charter and a set of rules
and regulations that govern its operation & the activities of its members. A board of 26
directors.
Chapter III: How Securities are Traded?
83
edIm,IkøayCasmaCikmñak;
buKÁlenaHRtUvEtTijekAGIBIsmaCikbc©úb
,nñ
EdlkMBugGgÁúy.
smaCikmansiT§iGacRbtibtþiedaHdUredaykar
eRbIR)as;karsMrbsMrYlEdl)anpþl;[ edaykar
pøas;bþÚr.
QµÜjkNþalCaeRcInrbs;Rkumh‘un
KWCasmaCik.
In order to become a member, a person must purchase a seat from a current member.
By holding a seat, the member has the privilege of being able to execute trades using the
facilities provided by the exchange, many brokerage firms are members.
sþúkmYyEdlGaceFVIkaredaHdUrenAelI
NYSE
KWRtUv)aneKehAfa
Chapter III: How Securities are Traded?
84
mUlbRt)ancuHbBa¢I.
edIm,I[sþúkrbs;Rkumh‘unmYy)ancuHbBa¢I
Rkumh‘unRtUvEtdak;BaküsMueTAkan; NYSE.
RbsinebI
NYSE
)anGnum½t
Rkumh‘unbnÞab;mkdMeNIrkarCapøÚvkar
EdlRbkasCasaFarN³karvinicä½y
CaTUeTAeday
NYSE
KWsMercelIkardak;esñIKW ³
A stock that available for trading on the NYSE is known as a listed security. In order
for a company’s stock to be listed, the company must apply to the NYSE. If approved, the
company then makes a formal application that is announced publicly. The general criteria
used by the NYSE in approving an application are:
- kMritplRbeyaCn¾CatikñúgRkumh‘un
The
degree of national interest in the company
Chapter III: How Securities are Traded?
85
muxgarTak;Tgrbs;Rkumh‘un
nigesßrPaBkñúg]sSahkmµ
The company’s relative position and stability in the industry
faetIRkumh‘unKWsnüapþl;kñúgkarBRgIk]sS
ahkmµ CamYyGtifiCn ya:gehacNas;
karEfrkSamuxgarTMnak;TMngrbs;x¶øÜn.
Whether the company is engaged in an expanding industry, with prospects of at least
maintaining its relative position.
Rkumh‘unTaMgLayEdlRtUv)anGnum½tcMe
BaHkarcuHbBa¢IRtUvEtyl;RBmbg;kMérRbca
MqñaM
nigpþl;
Chapter III: How Securities are Traded?
86
B½t¾manBitR)akdeTAkan;saFarN³.
bnÞab;BIkarcuHbBa¢I
RbsinebIplRbeyaCn¾karedaHdUrkñúgsþúk
rbs;Rkumh‘unmYyman»nPaB ¬minRBmTTYl¦
ya:geRcInKYrsmenaH NYSE GacsMerccitþeFVI
karlb;ecjBIbBa¢I
¬edayKµanry³eBlyUr
EdlGaceFVIBaNiC¢kmµeTAelI karedaHdUr¦.
karlb;ecj
BIbBa¢Ik¾GacekItmanpgEdrenAeBlRkumh‘un
mYy
)ancuHbBa¢IKWRtUv)anTamTareday
Rkumh‘und¾éTeTot
b¤
KW)anbBa©ÚlKñaeTAkñúgRkumh‘und¾éTeT
Chapter III: How Securities are Traded?
87
ot.
Rkumhu‘nesñI
sMulb;sþúk
rbs;xøÜnecjBIbBa¢Iedaysµ½RK
citþpgEdreTaHbICasþúkenAmansiT§isMrab;cu
HbBa¢Ik¾eday
b:uEnþvaRtUvEtTamTarkarGnum½tBIKN³kmµ
kar
RtYtBinitü
nigral;GKÁnayksMxan;²rbs;xøÜn.
Companies that are approved for listing must agree to pay annual fee and provide
certain information to the public. After listing, if the trading interest in a company’s stock
declines substantially, the NYSE may decide to delist the company (No longer available for
trading on the exchange). Delisting also occurs when a listed company is acquired by
another company or is merged into another company. A company may also voluntarily ask
to have its stock delisted even though it is still eligible for listing, but it must acquire
approval from its audit committee and a major of its directors.
Chapter III: How Securities are Traded?
88
tarag 3>2 bgðajkarvinicä½yCak;lak;EdlRtUv)aneRbIR)as;eday
NYSE edIm,IkMnt; cMeBaHsþúkcuHbBa¢I nigkarlb;sþúkecjBIbBa¢I
tarag 3>2> karvinicä½yrbs; NYSE
cMeBaHplbRt½cuHbBa¢I
nigplbRt½lb;ecjBIbBa¢I
(c)
karTamTarkarcuHbBa¢IelIkdMbUgrbs;
NYSE
1. (a)
cMMNUlmuneBlbg;Bn§½sMrab;qñaMfµIbMputRtUvE
tya:gehacNas;
$2,500,000
nigcMNUlmuneBlbg;Bn§BIrqñaMmun
nImYy²RtUvEtya:gehacNas;
$2,000,000
b¤ (b)
cMNUlmuneBlbg;Bn§elIbIqñaMfµIbMputRtUvEtya:ge
hac Nas; $6,500,000 kññúgcMnYnsrubCamYyGb,brma
$4,500,000
enAkñúgqñaMfµI
nigTaMgbIqñaMRtUvEtGaccMeNj .
2. RTBürUbIysuT§RtUvEtmantMélya:gehacNas; $40,000,000
3. RtUvEtmanya:gehacNas; 1,000,000 bNѽkMBugedaHdUr
EdlKWRtUv)ankan;edaysaFarN³
nigbNѽTaMgenaHRtUv
Etman
Chapter III: How Securities are Traded?
EdlRbmUlcUlKñaelItMélTIpSarya:gehac $40,000,000.
89
Table 3.2 shows specific criteria that are used by the NYSE to determine whether to list or delist a stock.
j
(a)
Table 4.2. NYSE Criteria for listing and delisting a security
Initial listing requirements of the NYSE.
1. Either (a) the pretax income for most recent year must be at least $2,500,000 and the
pretax income over each of preceding two years must be at least $2,000,000 or (b) the
pretax income over the most recent three years must be at least $6,500,000 in total with
a minimum of $4,500,000 in the most recent year and all three years must have been
profitable.
2. Net tangible asset must be worth at least $40,000,000
3. There must be at least, 1,000,000 shares outstanding that are publicly held, and those
share must have aggregate market value at least $40,000,000.
4. There must be either (a) at least 2,000 stock holders who each own a minimum 100
shares or (b) at least 2,200 stock holders with the monthly trading volume averaging at
least 100,000 shares over the most recent six months or (c) at least 5,00 stock holders
with monthly trading volume averaging at least 1,000,000 shares over the most recent 12
months.
(b)
NYSE conditions for delisting a security
1. The number of stock holders that each own at least 100 shares fall below 1,200.
2. The number of share that are publicly held falls below 600,000.
3. The aggregate market value of publicly held shares fall below 8,000,000 (this amount is
Chapter III: How Securities are Traded?
subject to periodic adjustment based on market conditions).
90
karbBaÄb;karedaHdUr
Source: Adapted from fact book 1996 data (NYSE, 1997)
Gñkp¥akkaredaHdUr
3.2.1.1.
nig
Trading halt & circuit breakers
karbBaÄb;karedaHdUr
KWCaBüÜrbeNþaHGasnñnUvbNѽrbs;Rku
mh‘unmYy.
karbBaÄb;karedaH
dUrCatYya:gKWRtUv)aneRbIR)as;eday NYSE
enAeBlkaredaHdUrenAkñúgsþúkmYy
KWeFVI[l¥k;kkr edaysarEtBaküccamGaram
b¤karRbkasBt¾manfµI.
karcMhkñúgkaredaHdUr
GacRtUv)an
BnüaeBlcMeBaHehtuplRsedogKñaenHEdr
Chapter III: How Securities are Traded?
91
b¤RbsinGtulüPaBxøaMgeBkedaykarbBa¢aTij
man karekIteLIg cab;taMgBIkarbiTBImun.
A Trading halt is a temporary suspension of a firm’s shares. Trading halts typically are used by the
NYSE when trading in a stock is roiled because of rumors or a recent news announcement The opening of
trading can be delayed for similar reasons or if a large imbalance of orders accumulated since the previous
close.
NYSE
mansmtßPaBpgEdrcMeBaHkarBüÜrbeNþaH
GasnñkaeedaHdUr
ekIteLIgdMNalKña
enAkñúgsþúk)ancuHbBa¢Irbs;xøÜnTaMgGs;
. karGnuvtþedaysV½yRbvtþiedayeRbIR)as;
circuit
breaker
enAeBlkal³eTs³cg¥úlbgðajfa
mantMrUvkarkat;bnßykare)a:geLIgrbs;TIpSar
nigedIm,ICMrujTMnukcitþGñkvinieyaK.
Chapter III: How Securities are Traded?
92
The NYSE also has ability to temporarily halt trading simultaneously in all its listed stocks (or a
large number of them). This is done automatically by the use of circuit breaker when circumstances
indicate that there is a need to reduce the market volatility and to promote investor confidence.
4.2.2.
smaCikedaHdUrsþúkenAjÚ:vj:k
New York
Stock Exchange Member
smaCikenAkñúg
NYSE
GacmanRbePTmYykñúgcMeNamRbePTTaM
gbYnGaRs½yelIRbePT
énskmµPaBkaredaHdUrnUvGVIEdlBYkeKC
ab;kic©snüa.
Members in the NYSE fall into one of four categories depending on the type of trading activity in
which they engage.
1>
Commission
brokers
³
smaCikTaMgenHRbtibtþiral;karbBa¢aEdlGtif
iCn
Chapter III: How Securities are Traded?
93
TaMgGs;)anedaHdUrCamYykarbBa¢aTij
TTYlkMéreCIgsar.
Commission brokers. These members execute orders that the customers have placed
with them for commission.
2> Floor brokers RtUv)aneKdwgCa two-dollar brokers.
smaCikTaMgenHCMnYykar
dl;QµÜjkNþalkéRmeCIgsar
enAeBlmanclnakarbBa¢aTijeRcInenAkñúgT
IpSarcMeBaH
QµÜjkNþalkERmeCIgsar GnuvtþEtÉg.
Floor brokers. Also known as two-dollar brokers. These members assist commission
brokers when there are too many orders flowing into market for the commission brokers
to handle alone.
Chapter III: How Securities are Traded?
94
3>
Floor
Traders
smaCikTaMgenHeFVIkaredaHdUrEtÉgcMeBaH
xøÜnrbs;BYkeK nig RtUv)anhamXat;
edayc,ab;edaHdUrBIkarGnuvtþkarbBa¢aTijCasa
FarN³.
smaCikTaMgenHRtUv)aneKdwgpgEdrCa
GñkedaHdUrkñúgTIpSarRbkYtRbECg)ancuHb
Ba¢I
QµÜjRbkYtRbECg
b¤
QµÜjEdl)ancuHbBa¢I.
Floor Traders These members trade solely for themselves and are prohibited by exchange rule from handling public orders. These
members are also known as registered competitive market-makers, competitive traders, or registered traders.
.
Chapter III: How Securities are Traded?
95
smaCikTaMgenHGnuvtþtYnaTIBIr
TImYykarbBa¢aTijmYycMnYnEdlQµÜjkNþalykkéRme
CIg
sarminGacRbtibtþi)anPøam²
edaysarEtéføTIpSarbc©úb,nñKWminc,as;las;
b¤RbesIrCagéfø)ankMnt;Cak;lak; nig
bnSl;TukCa
mYyGñkÉkeTscMeBaHPaBGacRbtibtþikñúgeBlGnaKt
eKehAfa broker’s broker. TIBIrGñk
ÉkeTseFVIskmµPaBdUc
Dealer
b¤GñkedaH
dUrelITIpSar.
enHmann½y
faGñkÉkeTsTijniglk;sþúkBitR)akd
sMrab;KNnIrbs;BYkeK.
eTaHBIya:gNak¾eday
enAkñúgskmµPaBdUc
Dealer
4>
Specialists:
Chapter III: How Securities are Traded?
96
GñkÉkeTsKWRtUv)anTamTar
eday
NYSE
4edIm,IEfrkSa
¬PaBsmRsb
nigkaredaHdUredaykarbBa¢aTij¦.
dUecñH NYSE
rMBwgTukelIGñkÉkeTsedIm,ITij
b¤lk;bNѽBIKNnIpÞal;xøÜnrbs;eK
enAeBlmanGtulüPaBbeNþaHGasnñ
rvagcMnYnkarbBa¢aTij niglk;.
Specialists. These members perform two roles. First, any order that the commission broker cannot execute immediately
because the current market price is not at or better than the specified limit price will be left with the specialist for possible
execution in the future, called broker’s broker. Second, the specialist acts as a dealer or market-maker. This means that the
specialist buys and sells certain stocks for her own account. However, in acting as a dealer, the specialist is required by the
NYSE to maintain a “fair and orderly market”. Thus the NYSE expects the specialist to buy or sell shares from her own
account when there is temporary imbalance between the number of buy and sell order.
4.2.3.
karedaHdUrd¾éTeTot ¬TIpSarTIBIr¦ Other
exchange (secondary markets)
KµanGVIEdlKYr[PJak;ep¥IreT
NYSE
)anRKb;RKgelIbBa¢I.
sar³sMxan;TIBIr
Chapter III: How Securities are Traded?
97
KWkar edaHdUrsþúkenAGaemric (AMEX)
EdlbNѽbBa¢ITaMgLayEdlmanRkumh‘unt
Uc²én
GtßRbeyaCn¾Cati
¬manEtRkumh‘unBIr
bI
Edl)ancuHbBa¢IenAkñúg
NYSE
pgEdr¦.
enAmankaredaHdUrkñúgtMbn;sMxan;R)aMe
Tot bc©úb,nñkMBugman KW The Boston, Cincinnati,
Chicago,
Pacific
and
Philadelphia
exchanges
BYkeKeRbIR)as;nitiviFITaMgGs;Rsedog
eTAnwg NYSE. Not surprisingly, the NEYS dominated the list. Second importance is
the American stock Exchange (AMEX), which lists shares of somewhat smaller companies of national
interest (a few of which are also listed on the NYSE). There are five major regional exchanges currently
in existence  The Boston, Cincinnati, Chicago, Pacific and Philadelphia exchanges  and they all use
procedure similar to those of the NYSE.
Chapter III: How Securities are Traded?
98
ExSbNþajeRkApøÚvkarrbs; brokers and
dealers EdleFVIkar
crcarlk;nUvral;mUlbRt eKehAfa(OTC)
enAkñúgéf¶dMbUgenAGaemric
FnaKar)aneFVIskmµPaBdUc dealers CaelIkdMbUg
cMeBaHsþúk
nig
bonds
nigvinieyaKin)anTijniglk;mUlbRtTaMgLay KW
(OTC) enAFnaKar.
Bonds CaeRcInKW)anlk;enA
(OTC) dUcral;mUlbRténRkumh‘unmYycMnYn.
4.2.4.
Chapter III: How Securities are Traded?
99
In the early days of the United States, banks acted as the primary dealers for stocks and bonds and
investors bought and sold securities “Over-the-counter” at the banks. Most bonds are sold OTC, as are
the securities of small companies.
TIpSarbreTs Foreign Market
TIpSarsþúkFMCageKbMputBIrenAkñúgBiPBe
lakeRkABI New York KWmanTItaMgenA London and Tokyo
TItaMgTaMgBIrenHmanTIpSarCamUlbRtbreTs.
enAcugqñaM1996
sþúk
London
manRkumh‘un)ancuHbBa¢IedaHdUr
533
Rkumh‘unbreTs
nigsþúkenA
Tokyo
manRkumh‘un)ancuH
bBa¢IedaHdUr
63
sþúkbreTs. The two largest stock markets in the world outside New York are located in
4.3.
London and Tokyo; both of them have active markets in foreign securities. In particular, at the end of
1996 the London Stock Exchange listed 533 foreign companies and the Tokyo Stock Exchange listed 63
foreign stocks
4.4.
RbePTénkarbBa¢aTij Types of Orders
Chapter III: How Securities are Traded?
100
3.4.1. Market Orders
KWCakarbBa¢aTij
nigkarlk;CasamBaØEdl)anRbtibtþiPøam²eTA
elI
éføTIpSarbc©úb,nñ.
Market
orders
Market orders are simply buy or sell orders that are to be executed immediately at current market price.
3.4.2. Limit Orders
GñkvinieyaKGacbBa¢aTijmankMnt;pgEdr
edayehtuéføCak;lak;EdlBYkeKmanbMNg
Tij b¤lk;mUlbRt.
Investors may also place limit orders, whereby they specify price at which they are willing
to buy or sell a security.
Chapter III: How Securities are Traded?
101
-
A
limit
buys
order:
mann½yfakarbBa¢aedayENnaMQµÜjkNþale
dIm,ITij
sþúkenAeBléførbs;vaFøak;cuHeRkamk
MritBitR)akdNamYy.
A limit buys order: an order instructs the broker to buy stock when its price
falls below a certain level.
-
A
limit
sells
order:
mann½yfakarbBa¢aedayENnaMQµÜjkN
þaledIm,Ilk;
)anqab;nUvsþúkEdl)anekIneLIg
elIéfø)ankMnt;Cak;;lak;.
A limit sells order: an order to instruct the broker to sell as soon as the stock price goes
Chapter III: How Securities are Traded?
102
above the specified limit.
-
A
stop-loss
order:
mann½yfasþúkKWRtUv)anlk;RbsinebIé
førbs;vaFøak;cuH
eRkamkMrit)ancuHkñúgkic©snüa.
A stop-loss order: the stock is to be sold if its price falls below a stipulated level
-
A
stop-buy
order
:
PaBCak;lak;EdlsþúkKYrTijenAeBléførb
s;vaekIneLIgBI karkMnt;Edl)anpþl;[.
karbBa¢aTijman)ankMnt;plEdredaykMLúg
eBlevla
RbsinebImin)anRbtibtþiéf¶enH
karbBa¢aTijRtUv)anrMlayecal.
Orders also can be limited by a time period. If it is not executed on that day, the order is
canceled.
Chapter III: How Securities are Traded?
103
4.5. Settlement
cab;taMgBIExmifuna
qñaM1995
karbBa¢aTij)anRbtibtþielIkaredaHdUrRtUvEt
enAkñúgry³eBl
bIéf¶.
karTamTarenHKWCajwkja:b;eKehAfa T+3.
GñkTijRtUvEtRbKl;sac;R)ak;ehIy
Gñklk;RtUvRbKl;sþúkeTAkan;QµÜjkNþal
Edl Return RbKl;[GñkTijBIQµÜj kNþal.
Since June 1995, an order executed on the exchange must be settled within three
working days. This requirement is often called T+3, for trade date plus three days. The
purchasers must deliver the cash, and the seller must deliver the stock to the broker, who in
return delivers it to the buyer’s broker.
4.6.
karcMNayelIkaredaHdUr Trading Costs
Chapter III: How Securities are Traded?
104
QµÜjkNþalesvaeBj
Edlpþl;PaBepSgKñaénesva
Cajwkjab;sMedAelIRbwkSahirBaØvtßú
RbtibtiþkarbBa¢aTij
karEfrkSa
nigkarrkSaTukmUlbRt
karkm©IbEnßm
viPaK
Short
sales
pþl;dMbUnµan
karBüakarN¾esdækic©TUeTA.
Full service brokers, who provide a variety of services, often referred as a financial
consultants, execute orders, hold & keep securities, extend margin loan, do analyses, short
sales, provide advice, forecast general economics.
4.7.
karTij edayx©IR)ak;bEnßm
Chapter III: How Securities are Traded?
Buying on Margin
105
karTijsþúkelIk
margin
mann½yfa
GñkvinieyaKx©IluymYycMnYnBIQµÜjkNþ
aledIm,I
Tijsþúk.
edaysarEtQµÜjkNþalKµanR)ak;
ehIyedIm,Ipþl;R)ak;dl;GñkvineyaKQµÜjkNþ
al
x©IluyBIFnaKarEdleKehAfaGRtasac;R)ak;e
TAelIhirBaØvtßúTijTaMgenaH
nigkarx©IenaHmankar R)ak; nig service charge
cMeBaHkarxI©.
ral;mUlbRtEdl)anTijelI
margin
RtUvEtman
lkçxNÐCamYyRkumh‘unQµÜjkNþal
Chapter III: How Securities are Traded?
106
edaysarEtmUlbRtTaMgLayKWRtUv)aneRbI
dUcCaRTBü
sm,tþi
b¤
sac;R)ak;)aneRbIR)as;.
Purchasing stock on margin means, the investor borrows part of the purchase price of the stock
from a broker. The broker, in turn, borrows money from banks at the call money rate to finance those
purchases, and charges it clients that rate plus a service charge for the loan. All securities purchased on
margin must be left with the brokerage firm, because the securities are used as collateral for the loan.
RkumRbwkSaPi)alRKb;RKgén Feudal Reserve
System kMnt;elIkkarTamTar margin dMbUgcab;BI
50%
mann½yfaya:gehacNas;man
50%
éføTijRtUvbg;Casac;R)ak;CamYykarx©I
bRgÁb;elIkarTij.
PaKry
margin
KW)ankMnt;CaGRtaéntMélsuT§
Chapter III: How Securities are Traded?
107
b¤tMélRTBüsm,tþiénKNnI
cMeBaHtMél
TIpSarénmUlbRt.
edIm,Ibgðaj
]bmafaGñkvinieyaKbg;dMbUg
$6,000
edIm,ITijsþúkman tMél $10,000 ¬Tij 100 bNѽ
mYybNѽ $100¦ karxI©BIQµÜjkNþal $4,000.
KNenyü mantaragtulüPaBdUcxageRkam.
The Board of Governors of the Feudal Reserve System sets limit on initial margin
requirement is 50%, meaning that at least 50% of the purchase price must be paid for in
cash, with the rest borrowed.
The percentage margin is defined as the ratio of the net worth or “equity value”, of the
account to the market value of the securities. To demonstrate, suppose that the investor
initially pays $6,000 toward the purchase of $10,000 worth of stock (100 shares at $100 per
share), borrowing remaining $4,000 from the broker. The account will have a balance sheet
as follows:
Assets
Value of stock
$10,000
Chapter III: How Securities are Traded?
Liabilities & owner’s equity
Loan from broker
$4,000
Equity
$6,000
108
PaKry Margin dMbUgKW
(The initial percentage margin is)
Margin = Equity in account = $6,000 = 60%
Value of stock
10,000
RbsinebItMélrbs;sþúkFøak;cuH
$70
kñúgmYybNѽKNenyümantulüPaBkøayCa
If the stock’s price declined to $70 per share, the account balance becomes:
Asset
Value of stock
$7,000
Liabilities & Owner’s equity
Loan form broker $4,000
Equity
$3,000
PaKry margin \LÚvKW (The percentage margin now is)
Margin = Equity in account = 3,000 = 43%
Value of stock 7,000
RbsinebItMélsþúkFøak;cuHesµI
$4,000
RTBüsm,tþikøayCaGviC¢man
mann½yfatMélrbs;
sþúkKWminmanRTBüsm,tþiRKb;RKan;edIm,I
Chapter III: How Securities are Traded?
109
bg;elIkm©IBIQµÜjkNþal.
edIm,IFanamansuvtßiPaBeTAelI lT§PaBenH
QµÜjkNþal)ankMnt; maintenance margin. RbsinebI
PaKry margin Føak;eRkamkMrit maintenance
QµÜjkNþalnwgRbkas
margin
call
edIm,ITamTarGñk
vinieyaKbEnßmsacR)ak;
b¤mUlbRtfµIeTAelIKNenyü margin.
If the stock value falls below $4,000, equity becomes negative, meaning that the value of the stock is no
longer sufficient collateral to cover the loan from the broker. To guard against this possibility, the brokers set a
maintenance margin. If the percentage margin falls below the maintenance level, the broker will issue a
margin call requiring the investor to add new cash or securities to the margin account.
]TahrN¾ ]bmafa maintenance margin KW 30%.
etIéførbs;sþúkGacFøak;dl;
b:unµanmuneBlGñkvinieyaKTTYl margin call?
Chapter III: How Securities are Traded?
110
tag
P
Caéførbs;sþúk
tMélrbs;GñkvinieyaKman
100
bN½Ñ
dUcenHKW
100P
nigRTBüsm,tþikñúgKNenyürbs;Kat;KW 100P$4,000. PaKry margin KWdUecñH (100P-$4,000)/100P.
enAeBlEdlPaKry
margin
0.30
KWbgðajedaykaredaH
RsaysMrab;
P
kñúgsmIkar
Example, suppose that the maintenance margin is 30%. How far could the stock price fall before
the investor gets a margin call?
Let P be the price of the stock. The value the investor’s 100 shares is then 100P, and the equity in
his account is 100P- $4,000.the percentage margin is therefore (100P- $4,000)/100P, the at which the
percentage margin of 0.30 is found by solving for P in the equation.
Chapter III: How Securities are Traded?
111
EdledaHRsayKW
P
=
$57.14
RbsinebIéføsþúkFøak;cuHeRkam
$57.14
kñúgmYy bNѽ GñkvinieyaKGacTTYl margin
call. ehtuGVI)anCaGñkvinieyaKTijsþúk nig bond
elI margin?
Which implies that P = $57.14. If the stock price were to fall below $57.14 per share, the investor
would get margin call.
Why does investor buy stocks or bonds on margin?
edIm,Iyl;GMBIrebobKNna
]bmafaGñkvinieyaKmñak;Tijsþúk
IBM
Edlbc©úb,nñlk;
$100
kñúgmYybNѽ.
GñkvinieyaKman
$10,000
edIm,IvinieyaK
nig)anrMBwgTukfasþúknwgekIneLIg
30%.
RbsinebIGñkvinieyaKcMNayEt
$10,000
Chapter III: How Securities are Traded?
112
edIm,ITij 100 bNѽ.
\LÚvsnµtfa
GñkvinieyaKx©IepSgeTot $10,000 BIQµÜjkNþal
nigvinieyaKvakñúg IBM pgEdr. karvinieyaK
srubkñúg IBM man $20,000 ¬sMrab; 200 bNѽ¦.
snµtfaGRta
karR)ak;elIkarkm©I
9%
kñúgmYyqñaM.
etIGñkvinieyaKnwgman
rate
of
return
b:unµan\LÚvenH?
¬edayminKitPaKlaP¦
RbsinebI sþúk IBM ekIneLIg 30% enAcugqñaM.
To see how, let us suppose that an investor on IBM stock, which is currently selling at
$100 per share, the investor has $10,000 to invest and expected IBM stock to go up in price
by 30%, if the investor spent only $10,000 to buy 100 shares. Now let us assume that the
investor also borrows another $10,000 from the broker and invest it in IBM also.
Chapter III: How Securities are Traded?
113
The total investment in IBM would thus be $20,000 (for 200 shares). Assuming an interest
on the margin loan is 9% per year, what will be the investor’s rate of return now (again
ignoring dividends), if IBM stock does go up 30% by the year-end?
cMnYn
200shares
x
$130
=
bg;elIkarx©IrYmtaMgGRtakarR)ak;
sac;R)ak;enAsl;man $26,000-$10,900 = $15,100
$26,000
$10,900
Rate of return = ($15,100 – 10,000)/10,000 = 51%
karekIneLIg
30%
kñúgsþúk
GñkvinieyaKman 51% Ca rate of return
elIkarvinieyaK $10,000.
]bmafaCMnYsBIkarekIneLIg 30% rbs;sþúk
IBM edaykarFøak;cuH 30% KWmantMél 70$
kñúgmYybNѽ.
kñúgkrNIenH
200
Chapter III: How Securities are Traded?
114
bNѽnwgmantMél
$14,000
ehIyGñkvinieyaKKWenA
sl;Et
$3,100
bnÞab;BIbg;elIkm©I
nigGRtakarR)ak;.
CalT§plKWxat ¬mhnþray¦ rate of return Gs; ($3,10010,000)/10,000 = - 69%
The 200 shares will be worth $26,000, paying off $10,900 of principal and interest on the margin
loan leaves $15,100 (26,000-10,900). The rate of return, therefore, will be:
($15,100 – 10,000)/10,000 = 51%
A 30% rise in stock price the investor has a 51% rate of return on $10,000 investment.
Suppose that instead of going up by 30% the price of IBM stock goes down by 30% to $70 per
share. In that case, the 200 shares will be worth $14,000 and the investor is left with $3,100 after paying
off the $10,900 of principal and interest on the loan. The result is a disastrous rate of return.
($3,100-10,000)/10,000 = - 69%
4.8. Short Sale
GnuBaØatGñkvinieyaKcMeNjBIkarFøak;cuH
kñúgéfømUlbRt.
Chapter III: How Securities are Traded?
115
GñkvinieyaKmñak;x©IbNѽsþúkBIQµÜj
kNþal ehIylk;va.
bnÞab;mkGñklk; short
TijbNѽsþúkdUcKña
CMnYs
bN½ÑEdl)anx©I. enH KweKehAfa covering short
position tarag 3.10 eRbob eFobsþúk TijelI short sale.
A Short sale allows investors to profit from a decline in a security’s price. An investor
borrows a share of stock from a broker and sells it. Later, the short seller must purchase a
share of the same stock to replace the share that was borrowed. This is called
“Covering short position”. Table 3.10 compares stock purchase to short sale.
kñúgkarGnuvtþ
short
bNѽEdl)anx©IsMrab;
sale
KWCatYya:g)anpþl;edayRkumh‘unQµÜj
kNþalrbs;Gñklk;
Edlkan;mUlbRtepSgKñaya:geRcInrbs;Gñkvin
Chapter III: How Securities are Traded?
116
ieyaKd¾éTeTot.
m©as;
bNѽnwgminsUm,IdwgfabNѽRtUv)aneK
x©IeTAelI
short.
RbsinebIm©as;manbMNglk;bNѽ
Rkumh‘un
QµÜjkNþalnwgx©IbNѽya:gsamBaØBIGñk
vinieyaKd¾éTeTot. dUecñH short sale Gacman
lkçxNÐminc,as;.
eTaHbICaRbsinebIRkumh‘unQµÜjkNþalmin
GacmanbNѽfµI
edIm,ICMnYsbNѽ
Edl)anlk;
Gñklk;
short
nwgRtUvbg;elIkarx©IvijPøam²
Chapter III: How Securities are Traded?
117
edayTijbNѽkñúgTIpSar
nig
return
eTARkumh‘unQµÜjkNþaledIm,IbiTelIkarx©
I.
c,ab;énkaredaHdUrTamTarfa
nitiviFIBIkarvinieyaK Ebb short sale RtUvEtrkSa
¬Tuk¦ KNenyüCamYyQµÜjkNþal. bEnßm
Gñklk;;
short
KW)anTamTardak;R)ak;kk;CamYyQµÜjkNþ
aledIm,IFanafaBaNiC¢krGacman
lT§PaBbg;kMhat
bg;elIéførbs;sþúkkñúgkMLúgeBl short sale.
In practice, the shares loaned out for a short sale are typically provided by the short
seller’s brokerage firm, which holds a wide variety of securities of its other investors. The
owner of the share will not even know that the shares have been lent to short seller. If the
owner wishes to sell the shares, the brokerage firm will simply borrow shares from another
Chapter III: How Securities are Traded?
118
investors. Therefore, the short sale may an indefinite term. However, if the brokerage firm
cannot locate new shares to replace the one sold, the short seller will need to repay the loan
immediately by purchasing share in the market and returning them over to the brokerage
firm to close out the loan. The exchange rules require that proceed from a short sale must be
kept on account with the broker. In addition, short sellers are required to post margin with
the broker to ensure that the trader can cover any losses sustained should the stock price rise
during the period of short sale.
]TahrN¾ ]bmafaGñke)aHTunelIsþúk IBM
ehIyéføTIpSarbc©úb,nñrbs;va
$100
kñúg
mYybNѽ ehIyGñkR)ab;QµÜjkNþalrbs;Gñk
short sale 1,000 bNѽ.
QµÜjkNþalxI© 1,000
bNѽBIKNenyüepSg²
b¤
BIQµÜjkNþalepSg².
nitiviFIsac;R)ak; $100,000 BI short sale
KWCa\NTancMeBaHKNenyürbs;Gñk
Chapter III: How Securities are Traded?
119
]bmafaQµÜjkNþalrbs;GñkTamTar margin 50% elI
short sale. enHmann½yfa GñkRtUvmansac;R)ak;
b¤mUlbRtkñúgKNenyürbs;Gñkmanya:gehac
Nas; $50,000 Edl GacbMrugdUcCa margin eTAelI
short
sale.
]bmafaGñkman
$50,000
kñúgbNѽrtnaKa.
KNenyürbs;GñkCamYyQµÜjkNþal short sale
KW
For example, suppose that you invest IBM stock, and that its current market price is $100 per
share, you tell your broker to sell short 1,000 shares. The broker borrows 1,000 shares either from
another customer’s account or from another broker.
The $100,000 cash proceeds from the short sale are credited to your account. Suppose the broker
has a 50% margin requirement on the short sales. This means that you must have other cash or securities
in your account worth at least $50,000 that can serve as margin (that is, collateral) on the short sale. Let
us suppose that you have $50,000 in Treasury bills. Your account with the broker the short sale will then
be:
Chapter III: How Securities are Traded?
120
Assets
Cash $100,000
T-bills $50,000
Liabilities & Owner’s Equity
Short position in IBM stock $100,000
Equity
$50,000
PaKry
margin
dMbUgrbs;GñkKWpleFobrbs;RTBüsm,tþikñ
úgKNenyü
Your initial percentage margin is the ratio of the equity in the account:
Percentage margin = Equity/ Value of stock owned
= 50,000/100,000 = 50%
]bmafa GñkKitRtUv ehIysþúk IBM Føak;cuH
$70 kñúgmYybNѽ
GñkGacbiTmuxrbrrbs;
Gñk kñúgR)ak;cMeNj. Cover elI short sale GñkTij
1,000
bNѽedIm,ICMnYselIGñk)anx©I
GñkcMNayelIkarTij $70,000 nigcMeNjrbs;Gñk
Chapter III: How Securities are Traded?
121
. müa:geTot RbsinebIéfø rbs;sþúk IBM
ekIneLIg xN³enaHGñkCa short GñknigTTYl
margin call BIQµÜj kNþalrbs;Gñk
$30,000
Suppose that you are right, and IBM stock falls to $70 per share. You can close your position at a
profit. To cover the short sale, you buy 1,000 shares to replace the one you borrowed, the purchase costs
only $70,000, and your profit is $30,000. On the other hand, if the price of IBM stock goes up while you
are short you will get a margin call from your broker.
Let us suppose that the broker has a maintenance margin of 30% on short sale. How far can the
IMB stock go up before you get margin call?
tag
P
Caéførbs;sþúk
bnÞab;mktMélrbs;bNѽGñkRtUv
1,000P
IBM
return
KW
nig
RTBüsm,tþikñúgKNenyürbs;GñkKW 150,0001,000P muxgar short rbs;GñkelI short manpleFob
margin KWdUecñH
Chapter III: How Securities are Traded?
122
Let P be the price of IBM stock. Then the value of share you must return is 1000P, and the equity
in your account is 150,000 – 1,000P. Your short position margin ratio is therefore.
(150,000 – 1000P)/1000P
(150,000 – 1000P)/1000P
tMélvinicä½yelI P KWdUecñH
Assets/Value of stock owned = (150,000 – 10,000P)/1,000P =0.3
kñúgkarKNna P = $115.38 kñúgmYybNѽ
RbsinebIsþúk IBM
ekIneLIg $115.38 kñúg
mYybNѽGñknwgTTYl margin call.
The critical value of P is thus
Equity/Value of stock owned = (150,000 – 10,000P)/1,000P =0.3
Which implied that P = $115.38 per share. If IBM stock should arise above $115.38 per
share, you will get a margin call.
sMNYr
Chapter III: How Securities are Traded?
123
1>
GVIeTACa
Investment
Banker
ehIyvamantYnaTIGVI?
2>
etI
NYSE
mantYnaTIeFVIGVIxøHenAkñúgTIpSarvinie
yaK?
3>
GVIeTACa
SEC?
etIvamanplRbeyaCn_GVIcMeBaHdMeNIrkar
vinieyaK?
4>
etIsmaCikrbs;
NYSE
manmuxgareFVIGVIxøH? cUrbkRsay
5> etIenAkñúgRbePTénkaredaHdUr Types of
orders kñúgkrNI Limit Orders eKeRbIkñúg
Chapter III: How Securities are Traded?
124
eKalbMNgGVI?
6> etIGVIeTACa Buying on Margin nig Short sales,
eKeRbIkñúgeKalbMNgGVI?
7> etIQµÜjkNþalkMNt; Maintenance Margin & Margin
Call kñúgeKalbMNgGVI?
lMhat;
1. Suppose that Intel currently is selling at $80 per share. You buy 250 shares,
using $15,000 of your own money and borrowing the remainder of purchase price
form your broker. The rate on the margin loan is 8%.
a. What is the percentage increase in the net worth of your brokerage
account if the price of Intel immediately changes to (i) $88; (ii) $72?
Chapter III: How Securities are Traded?
125
What is relationship between your percentage return and the percentage
change in the price of Intel?
b. If the maintenance margin is 25%, how low can Intel's price fall before
you get a margin call?
c. How would your answer to (b) change if you had financed he initial
purchase with only $10,000 of your own money?
d. What is the rate of return on your margined position (assuming again that
you invest $15,000 of your own money) if Intel is selling after one your
at (i) $88; (ii) $80; (iii) $72? What is the relationship between your
percentage return and percentage change in the price Intel? Assume that
Intel pays no dividend.
e. Continue to assume that a year has passed. How low can Intel's price fall
before you get a margin call?
2. Suppose that you sell short 250 shares of Intel, currently selling for $80 per share,
and give your broker $15,000 to establish your margin account.
a. If you earn no interest on the funds in your margin account, what will be
your rate of return after one year if Intel stock is selling at (i) $88; (ii) 80;
(iii) $72? Assume that Intel pays no dividends.
b. If the maintenance margin is 25%, how high can Intel's price rise before you
get a margin call?
Chapter III: How Securities are Traded?
126
c. Redo part (a) and (b), now assuming that Intel's dividend (paid at year-end)
is $2 per share.
3. You are bullish on AT & T stock. The current market price is $50 per share, and you
have $5,000 of your own to invest. You borrow an additional $5,000 from your broker
at an interest rate of 8% per year and invest $10,000 in the stock.
a. What will be your rate of return if the price of AT & T stock goes up by
10% during the next year? (Ignore the expected dividend)
b. How far dose the price AT & T stock have to fall for you get a margin call
if the maintenance margin is 30%?
4. You've borrowed $20,000 on margin to buy shares in Disney, which is now selling at
$80 per share. Your account starts at the initial margin requirement of 50%. The
maintenance margin is 35%. Two days later, the stock price falls to $75 per share.
a. Which you receive margin call? Find Maintenance Margin of Investor?
b. How low can the price of Disney shares fall before you receive a margin
call?
5. You are bearish on AT&T stock and decide to sell short 100 shares at the current
market price of $50 per share.
a. How much in cash or securities must you put into your brokerage
account if the broker's initial margin requirement is 50% of the value of
the short position?
b. How high can the price of the stock go before you get a margin call if
the maintenance margin is 30% of the value of the short position?
Chapter III: How Securities are Traded?
127
GñkvinieyaK
Devid
)anbBa¢aeGayQµÜjkNþalrbs;xøÜn Shot Sell
cMnYn
1,500bNѽ
.
eKdwgfaéførbs;Rkumh‘un Neikki bc©úb,nñ $125
6.
Chapter III: How Securities are Traded?
128
kñúgmYybNѽ.
enAkñúgdMeNIrkarkic©RBmeRBog
QµÜjkNþal)anTamTareGayGñkvinieyaK
dak;edImTuntMkl;
60%
edIm,IkMueGaymanhaniP½y
dl;xøÜn
ehIyenAkñúgedImTuntMkl;
60%
KWGñkvinieyaK)anx©IBI
FnaKar
35%
edaymankardak;
bB¢aaMEdlmanGRtakarR)ak; 14.5%.
1> etI Rate of Return b:unµan? RbsinebI 9
ExknøgputeTA
Chapter III: How Securities are Traded?
129
k>
RbsinebIéførbs;Rkumh‘unFøak;mkRtwm
$108
x>
RbsinebIéførbs;Rkumh‘unekIndl;Rtwm $135
2>
edIm,IkMueGaymanhaniP½y
QµÜjkNþal)ankMNt; maintenance margin 46%
etIéførbs;Rkumh‘un Neikki
ekIndl;b:unµaneTIbeyIgTTYlnUv margin call ?
Chapter III: How Securities are Traded?
130
3>
RbsinebImYyqñaM
knøgputeTA
snµtfaRkumh‘un
RtUvbg;
Dividend
$5
kñúgmYybNѽ
nigéfø
rbs;b½NÑesµI
$126
.
etIGñkTTYlnUv margin call Edlb¤eT? ehtuGVI?
enAkñúgdMeNIrkarkic©RBmeRBog
QµÜjkNþal)anTamTareGayGñkvinieyaKdak;
edImTuntMkl;
65%
edIm,IkMueGay
manhaniP½ydl;xøÜn
ehIyenAkñúgedImTuntMkl;
65%
KWGñkvinieyaK)anx©IBI
FnaKar
35%
7.
Chapter III: How Securities are Traded?
131
edaymankardak;bB¢aaMEdl
manGRtakarR)ak; 12%. GñkvinieyaK Somaly
)anbBa¢aeGayQµÜjkNþalrbs;xøÜn Short Sell
cMnYn
1,600bNѽ
.
eKdwgfaéførbs;Rkumh‘un Neikki bc©úb,nñ $150
kñúgmYybNѽ
ehIy
Dividend
$5
kñúgmYybNѽ.
1> etI Rate of Return b:unµan? RbsinebI 9
ExknøgputeTA
k>
RbsinebIéførbs;Rkumh‘unFøak;mkRtwm $125
Chapter III: How Securities are Traded?
132
x>
RbsinebIéførbs;Rkumh‘unekIndl;Rtwm $170
2>
edIm,IkMueGaymanhaniP½y
QµÜjkNþal)ankMNt; maintenance margin 34%
etIéførbs;Rkumh‘un Neikki
ekIndl;b:unµaneTIbeyIgTTYlnUv margin call ?
3> etIGñkTTYlnUv margin call Edlb¤eT?
ehtuGVI?
RbsinebImYyqñaM
knøgputeTA
snµtfaRkumh‘un nigéfø rbs;b½NÑesµI $129 .
Chapter III: How Securities are Traded?
133
]bmafaenAkñúgkarbBa¢aTijedayeRbIR)as;
Buying
on
Margin
GñkvinieyaK)ansMerc
citþTijsþúkrbs;Rkumh‘un
saCIvkmµ
Intel
EdlmantMél $104 kñúgmYybN½Ñ GñkTij
350bNѽ.
kñúgdMeNIrkarTijGñkvinieyaK)ancuHkic©R
BmeRBogCamYyQµÜjkNþaledayx©IR)ak;m
YycMnYnedIm,IbMeBjdMeNIrkarelI
Margin
enH.
kñúgdMeNIrkarenHQµÜjkNþal)anTamTareG
ayGñkvinieyaK
dak;Tun
55%
8.
Chapter III: How Securities are Traded?
134
ehIysac;R)ak;x©IbMeBjRbtibtþikarenH
manGRtaeTAelIkarx©IenHKW 14%.
k> RbsinebIéfø Intel ERbRbYlekIneLIg
$105 enAExTI 9 cUrrk Rate of Return?
x> tamsMNYr k Rbsin maintenance margin KW 35%
etIéførbs; Intel Føak;cuHya:gdUcemþc
¬esµIbu:nµan¦eTIbGñkTTYl margin call?
K>
ebIsineyIgbnþeTot
edaysnµtfamYyqñaMknøgputeTA etIéførbs;
Intel Føak;cuHya:g
dUcemþcmuneBlGñkTTYl margin call?
RbsinebIPaKlaPTTYl)an $7 kñúgmYyb½NÑ.
Chapter III: How Securities are Traded?
135
X>
Ep¥ktamsMNUr
K
kñúgkrNIRbsinebIéførbs;sþúkFøak;esµI $82
etIGñkTTYlnUv margin call Edlb¤eT?
ehtuGVI ?
9. ]bmafaenAkñúgkarbBa¢aTijedayeRbIR)as;
Buying
on
Margin
GñkvinieyaK)ansMerccitþ
Tijsþúkrbs;Rkumh‘unsaCIvkmµ
Intel
EdlmantMél $94 kñúgmYybN½Ñ GñkTij
450bNѽ.
kñúg
dMeNIrkarTijGñkvinieyaK)ancuHkic©RBme
RBogCamYyQµÜjkNþal
edayx©IR)ak;mYycMnYnedIm,I
Chapter III: How Securities are Traded?
136
bMeBjdMeNIrkarelI
Margin
enH.
kñúgdMeNIrkarenHQµÜjkNþal
)aneGayGñkvinieyaKx©IR)ak; cMnYn 35%
manGRtaeTAelIkarx©IenHKW 12%.
k> RbsinebIéfø Intel ERbRbYlekIneLIg
$106 enAExTI 9 cUrrk Rate of Return?
x>
tamsMNYr k Rbsin maintenance margin KW 38%
etIéførbs; Intel Føak;cuHya:gdUcemþc
¬esµIbu:nµan¦ eTIbGñkTTYl margin call?
K>
ebIsineyIgbnþeTot
edaysnµtfamYyqñaMknøgputeTA etIéførbs;
Intel Føak;cuHya:gdUc
Chapter III: How Securities are Traded?
137
emþcmuneBlGñkTTYl
margin
call?
RbsinebIPaKlaPTTYl)an $6 kñúgmYyb½NÑ.
X>
Ep¥ktamsMNUr
K
kñúgkrNIRbsinebIéførbs;sþúkFøak;esµI $65
etIGñkTTYlnUv margin call Edlb¤eT?
ehtuGVI ?
10.
Rkumh‘unsaCIvikmµ
IBM
kñúgqñaMenHmanR)ak;cMeNj
$8,890,000
ehIy)anykR)ak;cMeNj
45%
EbgEcksMrab;PaKlaP
bnÞab;eFVIkarTUTat;eTAelIkarR)ak;rbs;
Corporate
Bond.
kñúg
Chapter III: How Securities are Traded?
138
enaHRkumh‘un)ansMerccitþpþl;PaKlaP 20%
énéførbs; Preferred Stock. eKdwgfaRkumh‘un man
Total
Asset
$35,000,000
ehIyman Liabilities $18,000,000.
kñúgdMeNIrkaredaHdUr
Rkumh‘un)ansMusiT§IBI SEC kñúgkare)aH
Preferred
Stock
60,000Shares
ehIyCak;Esþg)an
dMeNIrkarelITIpSarcMnYn 50,000Shares nig Common
Stock
60,000shares
ehIy)ane)aH
lk;enAelITIpSarcMnYn
55,000shares
ehIykñúgkaredaHdUr
Common
Stock
enHRkumh‘un)an TijmkvijcMnYn 5,000Shares.
cMENkÉ
Corporate
Bond
Chapter III: How Securities are Traded?
139
Rkumh‘un)ankMBugdMeNIrkar
elITIpSarcMnYn
20,000shares
nigéføkñúgmYybN½ÑcMnYn
$900
EdlmanGRtakarR)ak; 10.5%.
1> KNna Dividend nImYy²rbs; Preferred Stock.
2> KNna Dividend nImYy²rbs; Common Stock.
3>
KNnatMél
Book
Value
rbs;Stocks
bnÞab;BIeFVIkarTUTat;elIkarR)ak;
nigPaKlaP.
Chapter III: How Securities are Traded?
140
eKdwgfaRkumh‘unsaCIvikmµ IBM man Total
Asset
$45,000,000
ehIy
Liabilities
$25,500,000
enAkñúgqñaMenHRkumh‘unmanR)ak;cMeNj
$10,125,000
ehIy)anykR)ak;cMeNj
eFVIkarTUTat;eTAelIkarR)ak;rbs; Corporate Bond
ehIybnÞab;mkykR)ak;cMeNjenAsl; edayyk
45%
sMrab;EbgEckPaKlaP.
kñúgenaH
Rkumh‘un)ansMerccitþpþl;PaKlaP
15%
énéførbs;
Preferred
Stock.
kñúgdMeNIrkaredaHdUrRkumh‘un)ansMusi
T§IBI SEC kñúgkare)aH Common Stock 60,000shares
ehIy)ane)aHlk;enAelITIpSarcMnYn 55,000shares
ehIykñúg
karedaHdUr
Common
Stock
11.
Chapter III: How Securities are Traded?
141
Rkumh‘un)anTijmkvijcMnYn
Preferred
Stock
nig
15,000Shares
60,000Shares
ehIyCak;Esþg)andMeNIrkarelITIpSarcMnYn
60,000Shares
nigcMENkÉ
Corporate
Bond
Rkumh‘un)ankMBugdMeNIr
karelITIpSarcMnYn
30,000shares
nigéføkñúgmYybN½Ñ
cMnYn
$850
EdlmanGRtakarR)ak; 12%.
1> KNna Dividend nImYy²rbs; Preferred Stock.
2> KNna Dividend nImYy²rbs; Common Stock.
Chapter III: How Securities are Traded?
142
3>
KNnatMél
Book
Value
rbs;Stocks
bnÞab;BIeFVIkarTUTat;elIkarR)ak;
nigPaKlaP.
Chapter III: How Securities are Traded?
143