Stock markets are financial markets. They exist to provide a
means of trading for equity securities. Each security represent
units of ownership in a business.
A stock exchange is a place where investment dealers act on
behalf of clients to find buyers for clients' securities. A stock
exchange does not set prices for securities, however, the stock
exchange set rules governing the trading of equity securities.
Companies must apply to list their shares for trading on an
exchange. Each Exchange has regulation than qualify whether the
company's shares will be accepted for listing. If the company is
listed, it must abide by the rules of the exchange. Companies
receive a number of benefit from listing on the Stock Exchange. The
most important is that marketability of the shares is increased.
Stock Overview.
Securities can be divided into two basic groups:
-
Stocks (shares) - represent a degree of
ownership.
- Bonds
- represent debt obligation of the issuers of
the bonds.
There are two main type of stocks:
- Common
shares
- Preferred
shares
"Stock
Certificates" are the paper representation of en
equity ownership interest in an incorporated
company.
-
Private Corporation - the stock is usually
owned by a small group of person and is not
traded with members of the public.
-
Public Corporation - the stock is usually
available for sale to the general public, via a
stock exchange or the over-counter-market.
All corporations
are authorized to issue stock (shares) and may be
also authorized to issue debt-type securities, such
as bond.
Authorized stock
(capital stock) is the maximum number of shares
the corporation may issue or sell. Any authorized
stock that was not sold is commonly referred to as
unused stock, or treasury stock. Issued stock is
authorized stock that has been sold to an individual
person or other corporation. Individuals who buy
shares of stock are known as shareholders.
Over-the-counter Markets (OTC
Markets).
The shares of publicly traded
companies that are not listed on a stock exchange
may still be traded on an OTC market. An
over-the-counter stock market is a network of
brokers and dealers that trade stocks and bonds that
are not listed on an Exchange. Sometimes companies
prefer to be listed on an OTC market instead of
listing on a stock exchange. There are some of the
reasons why:
- unwillingness to abide by the information
disclosure rules of an exchange
- low volume of share trading
- inability to meet the listing requirements
of an exchange
The OTC market ha s role to play in the primary
market. Many new stock issues are sold
over-the-counter initially. Large block of
outstanding shares offered for a sale by a single
investor, whether listed on an exchange or not, are
sometimes sold in the OTC stock market.
The disclosure standards for the OTC market are
not as stringent as those imposed by a stock
exchange. Corporation whose shares are listed on an
exchange are generally not allowed to list or trade
on the OTC market and vise versa.
