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Securities market participants in the United States include corporations and governments issuing securities, persons and corporations buying and selling a securitythe broker-dealers and exchanges which facilitate such trading, banks which safe keep assets, and regulators who monitor the markets' activities.
Investors buy and sell through broker-dealers and have their assets retained by either their executing broker-dealer, a custodian bank or a prime broker. These transactions take place in the environment of equity and equity options exchangesregulated by the U. For transactions involving stocks and bonds, transfer agents assure that the ownership in each transaction is properly assigned to and held on behalf of each investor.
Supporting these transactions, there are three central securities depositories and four clearing organizations that assure the settlement of large volumes of trades. Market data consolidators inform investors and regulators in real time of the bid and offer prices of each security through one of two securities information processing systems.
The basis for these transactions is controlled both through self-regulatory organizations and the two securities commissionsthe SEC and the CFTC. This article covers those who deal in securities and futures in US markets. Securities include equities stocksbonds US Government, corporate and municipaland options thereon. Derivatives include futures and options thereon as well as swaps. The distinction in the US relates to having two regulators.
Markets in other countries have similar categories of securities and types of participants, though not two regulators. Parties to investment transactions include corporations and governments which raise capital by issuing equity and debt, the selling and buying investors, the broker-dealers and stock exchanges that have the means to transact those deals. An issuer is a corporation or government which raises capital by issuing either debt or equity.
They can also be referred to as the surplus unit of the economy. Issues may be sold privately to investors, or sold to the public via the various markets described below. An investor is a person blue sky option trade market co ltd corporate entity that makes an investment by buying and selling securities. Investors may not be members of stock exchanges.
Rather they must buy and sell securities through broker-dealers which are registered with the appropriate regulatory body for that purpose.
In accepting investors as clients, broker-dealers take on the risks of their clients not being able to meet their financial obligations. Hence retail individual investors generally are required to keep their investment assets in custody with the broker-dealer through which they buy and sell securities. A broker-dealer would normally not accept an order blue sky option trade market co ltd buy from a retail clients unless there is sufficient cash on deposit with the broker-dealer to cover the cost of the order, nor sell unless the client already has the security in the broker-dealer's custody.
Institutional investors buy and sell on behalf of their individual clients, be they pension funds, endowments and the like, or pooled funds such as mutual funds, unit trusts or hedge funds. As such, their client assets are safe kept with either custodian banks or broker-dealers Prime brokerage. Furthermore, institutional investors may buy and sell through any number of broker-dealers which in turn settle such trades at the designated custodians and prime brokers.
Investment managers generally differ from hedge funds on how much risk each pursues in its investment strategies. For example, investment managers generally do not sell shortbut hedge funds do.
Buying and selling can be either long or short: Retail clients may buy or sell short only under specific agreement with their broker-dealers under a margin accountin which case the broker-dealer either finances the buy or borrows the security for blue sky option trade market co ltd sell.
Institutional investors must inform their executing broker-dealers as to whether orders are long or short, since those brokers have no way of knowing their clients' positions are in each security. Were investors able either to buy short naked without borrowing money to payor sell short naked without borrowing securities to blue sky option trade market co ltdsuch practices could easily lead to market manipulation of stock prices: Naked short buying is not a problem because custodians and prime brokers have their own finances from which to lend money to their clients in order to settle the trades.
Naked short selling can be a problem. It occurs when a prime broker is unable to borrow the stock simply because there is none available for that purpose. Hedge funds are expected to find sources of stock which can be borrowed before executing short sell orders. If they fail to do so, and their prime broker cannot borrow for them, then the settlement of such trades cannot take place on the settlement date. Whether such a "fail" is due to poor blue sky option trade market co ltd among the various parties hedge fund, lending entity and prime broker or to a naked short blue sky option trade market co ltd is impossible to determine.
In the US the SEC effectively ended such instances by making the cost of a failed short sell too expensive for the hedge fund to risk. If on the morning the short sell is scheduled to settle the prime broker cannot deliver the securities blue sky option trade market co ltd the executing broker, then the latter is obligated to buy-in the shares in effect, making the delivery.
The buy-in occurs at the then prevailing market price. This may be much higher than the price at which the hedge fund first sold the securities, resulting in a potentially substantial loss to the hedge fund. Firms may register both as a broker-dealer and a commodity broker. In addition, blue sky option trade market co ltd person employed by these firms who deals with the public must pass industry examinations such as the Series 3 for futures, Series 4 for options and Series 7 exam for equities and bonds.
A stock exchange is a physical or digital place to which brokers and dealers send buy and sell orders in stocks also called sharesbondsand other securities. Price discovery is optimized by bringing together at one point in time and place all buy and sell orders for a particular security.
Securities traded on a stock exchange include stock issued by listed companies, unit blue sky option trade market co ltdderivatives blue sky option trade market co ltd, pooled investment products and bonds.
Stock exchanges often function as "continuous auction" markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange. To qualify for trading on an exchange, a security must first be listedhaving met the requirements of the listing exchange. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and " dark pools " have taken much of the trading activity away from traditional stock exchanges.
US government debt does not trade on exchanges. Rather there are a number of primary dealers which buy directly from the government and resell to other broker-dealers and institutional investors. Custodian banks, prime brokers, transfer agents, and central securities depositories provide a medium for performing trades and providing safekeeping of securities. Custodian banks offer active safekeeping and administration of clients' securities portfolios.
Banks also offer passive safekeeping with safety deposit boxes, but this service is limited to clients' accessing their rented storage boxes. Active safekeeping custody involves: Clients of custodians are generally institutional investors. Prime brokers are broker-dealers which offer custody and other services to hedge funds. Prime brokerage has generally been considered as more risky than traditional custody, primarily because hedge funds have been viewed as more risky than institutional investors.
But in the settlement process, those trades become the trades of the prime broker, as though the hedge fund had executed the trades only through that broker. The risk of the hedge fund's inability to settle those trades becomes that of the prime broker. The blue sky option trade market co ltd in the term originally referred to a hedge fund having one broker-dealer for its custody and borrowing purposes.
With the events ofmost large hedge funds have diversified their holdings among several prime brokers in an effort to limit their risks of a prime broker's failure, such as with Lehman Brothers Europe in Transfer agents provide a variety of services to issuing companies, including: For example, a company has issued 10 million shares.
One hundred thousand have been issued in certificated form to a variety of investors. The transfer agent keeps detailed records of these, and verifies the legitimacy of any certificate presented to it. The other 9, have been purchased by investors who hold them in book entry form through accounts at broker-dealers retailcustodians and prime brokers institutional.
US equities, corporate and municipal bonds can be issued in certificated form, though this practice has been largely replaced due to the costs and inefficiencies of keeping them. Rather holdings are kept as "immobilized" or "street name", with the beneficial owners keeping them in accounts at broker-dealers and banks, just as they do for currencies. Each day DTCC reconciles with the relevant transfer agent the number of shares held in its accounts for its member banks and broker-dealers.
In turn, other banks and broker-dealers hold accounts with DTCC member firms, creating a chain of ownership down to the beneficial owner. The great advantage of this approach is the efficiency and low cost involved in settling blue sky option trade market co ltd volumes of trades.
For purposes of sending proxy notices and other communications with beneficial owners, the transfer agent, acting on a request of the issuing corporation, sends an inquiry to DTCC, which in turn sends inquiries to its members and so on down the chain. Options, futures and other derivatives are traded based on contracts, rather than certificates.
US government bonds and notes blue sky option trade market co ltd uncertificated dematerializedwhich means that certificates are never issued. Instead, the clearing brokers keep book entry positions at the Federal Reserve on behalf of their various clients. The Financial Stability Oversight Council has designated each of these institutions, with the exception of the Federal Reserve, as a Systemically important financial market utility .
Market data consolidators address the needs of investors and regulators who wish to know, at any instant during the trading day, what the National Best Bid and Offer is for any security, the last sale price and other pertinent information related to trading the security.
Since both the equity and equity options markets have multiple exchanges, quotation and last trades data from all must be consolidated in real time to provide a market view, rather than an individual exchange view.
All the equity and equity options exchanges broadcast in real time their quotations, last trade and other data to these organizations, which in turn calculate the best bid and offer and redistribute the data to market participants.
The names for these organizations originated several decades ago, when the NYSE and American Stock Exchange were the two venues for corporations to list their stocks.
At the time, Nasdaq was a quotation system and not an exchange. This explains the name still used: Revenues from market data amount to a half billion dollars a year, apportioned to each exchange based on the amount of quote and other data broadcast by each. A group of companies, under the banner NetCoalition,  along with the Securities Industry and Financial Markets SIFMA tried to force the exchanges to price market data based on their costs of producing it, but ultimately lost the argument before the SEC in The securities markets are overseen by the SEC, by individual state securities commissions established under blue sky lawsand the self-regulatory organizations, which are overseen by the SEC.
The exchanges and clearing organizations are self-regulatory organizations SRO'sas are the three sector agencies: There are two commissions regulating the trading of securities, the U. Securities and Exchange Commission SECwhich governs equities, equity options, corporate bonds, and municipal bonds,  and the Commodity Futures Trading Commission CFTCwhich governs activities in the derivatives markets generally.
It holds primary responsibility blue sky option trade market co ltd enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.
The CFTC oversees designated contract markets DCMs or exchangesswap execution facilities SEFsderivatives clearing organizationsswap data repositoryswap dealers, futures commission merchantscommodity pool operators and other intermediaries.
From Wikipedia, the free encyclopedia. Securities and Exchange Commission. Retrieved 19 May Boston University Law Review. The General Securities Principal Examination. US Securities and Exchange Commission.
A company that issues and invests in securities. The three types of investment companies are mutual funds, blue sky option trade market co ltd funds, and unit investment trusts.