A very interesting read about Exchanges.....
Greetings, cousin!
I trust your week was as good as mine!
Yes, I very much enjoyed the Mystery Science Theater 3000 rendition of "The Beginning of the End". Thanks so much for sending me that videotape.
And thanks for not sending the pictures of Snookiepoo.
My buddy Jorj suggests that you may want to look at investing in a DVD player at some point, by the way.
Yes again, I can fill you in a bit on the different ways that stocks trade in the United States. No, I will not discuss Canadia. That's different.
Anyway, it's not Canadia. It's Canada.
C eh? N eh? D eh?
You are right about one thing; the entire subject of stock exchanges and markets and what they do requires a different language. I'll try and do the best I can for you.
Eh?
A stock exchange is a place where securities are bought and sold. (You'll remember the definition of a "security" from my letter of February 24th.) In the U.S. there are several stock exchanges, such as the Philadelphia Stock Exchange (PHX), the Pacific Stock Exchange (PCX), and the American Stock Exchange (AMEX).
The PHX is the oldest, established in 1790. The PCX was formed in 1957 by the merger of the San Francisco Stock and Bond Exchange (founded in 1882) and the Los Angeles Stock and Oil Exchange (founded in 1899).
The biggest exchange is the New York Stock Exchange in New York City, also known as "The Big Board" because a long time ago, before Microsoft, there was a Big chalkboard on a Big wall, with a tiny fellow writing down the changing prices all day long. The NYSE started back before cars, with a bunch of guys who formed a club and decided that only members of the club could meet under a big tree to swap stock for themselves and their customers. One day they got rained on (or snowed on, or spit on, I can't remember exactly) and decided to move indoors. They now have electricity and indoor plumbing and computers and personalities from CNBC reporting live and No Spitting on the Trading Floor and everything.
The NYSE has rules that must be met if a company wants to "list" (make available for sale) their stock on the exchange.
Since we're on the subject, the phrase "ticker symbol" has its origin connected to the NYSE. Back when the old brokers were young brokers, even BTI, (before the Internet) there was a little machine in every brokerage firm that slowly ejected a little piece of paper tape with holes punched in it. (Unpunched holes were known as "hanging chadmeisters" back then.)
The holes spelled out letters and numbers, and the brokers could "read the tape" to see the updated [almost real time] price changes of the stocks being traded on the exchange. The machine was known as a "ticker" (from the sound it made as it punched the holes in the tape), the tape was called "ticker tape" (yes, the same stuff they threw out of the windows when The War Was Over), and the symbol used for each different stock was the "ticker symbol".
Anyway, where was I? Oh, yes.
Stock exchanges "list" stocks to be traded on their exchange. Those stocks are called "listed securities", and the market they trade on is called the "exchange market". .
"But Mr. Chicken Brains," you might ax, "What if the stock is not listed on an exchange? What market does it trade on then?"
Eh?
The dealer market that trades "unlisted" (not listed by an exchange) securities is called the "over the counter (OTC) market."
You've heard that many times, I'm sure, but you may not have really understood what the OTC market is. A "market", in the sense we are using it here, is a system for trading stocks. The biggest market has always been the "exchange market", which means the stock is trading on an exchange, like the NYSE or the PHX.
Stay with me now, cuz. If you missed something, go back and reread it.
"Over the counter" originally meant, "not quite up to the standards required to be listed on an exchange like the New York Stock Exchange". That's why you might have heard the phrase used despairingly by some old white-haired fossil stockbroker. To him, an "OTC" stock was something you bought in an alley from some smelly guy with cheap shades and a greasy trench coat.
That's all changed, now. The guys have really nice suits and CNBC personalities reporting live and No Spitting on the Computer and everything!
But they have no floor! I mean they have no "trading floor", like the one at the NYSE where everyone walks around and yells and throws little bits of paper on the floor.
They have no floor because the OTC market is a telephone, (and now also computer) based market between about 700 securities dealers across the country. About 17,000 securities, including all U.S. government securities, are traded "OTC". There are rules for trading OTC stocks. The rules are enforced, (I use the term loosely), by The National Association of Securities Dealers (NASD). The NASD was formed in 1939. Its job is to regulate the OTC market.
Not so long ago, in order to bring some sanity (as opposed to buying things from oily guys in alleys) to the OTC market, the NASD created what they call the "NASD Automated Quotation System", or "NASDAQ". (That's "the Nazz" to you, cuz.)
Even though the NASDAQ performs many of the same functions as the New York Stock Exchange, the NASDAQ is not technically an exchange, it is a system used to create a market in certain stocks. The NASDAQ is a computer-linked system for "making a market in", (trading) OTC stocks. That's why brokerage firms that buy and sell stocks on the NASDAQ are called "market makers". And yes, a brokerage firm can be a member firm of the NYSE and also "make a market" in OTC stocks. In fact, all the big firms do both.
Confused yet? It gets even better!
Stocks and other securities that are listed (included for possible trading) on the NASDAQ system must be "authorized" by the NASD. In order to qualify for a listing on the NASDAQ market system, a security has to meet certain minimum requirements relating to the company's debt, assets, and stockholders, among other things.
And like the NYSE, the NASDAQ requires that the company register its securities under the Securities Exchange Act of 1934, or the Investment Company Act of 1940. Authorization does not automatically guarantee that the security can be traded forever; the company can be "delisted" if the minimum requirements are continuously met.
A company can have its securities registered under security law and still (for some reason) not trade on the NASDAQ or a national exchange. Such a stock is called a "non-NASDAQ security. The NASD (not the NASDAQ) provides an electronic price and volume reporting system for trading such a stock. That reporting system is called "The OTC Bulletin Board", or "Bulletin Board".
Bulletin Board quotes can be entered on the NASDAQ computer system, but if you've ever heard someone say, "It's listed on the NASDAQ Bulletin Board", you know they are either confused or you are in a dark and unpleasant corner of the alley and have not realized it. The NASD is a regulatory agency, but it does not regulate the OTC Bulletin Board. That's why trading on the Bulletin Board is much more speculative and potentially dangerous than buying or selling a stock that trades on the NASDAQ or an exchange. (As if buying some freakazoid NASDAQ listed Internet tech stock isn't potentially dangerous.)
So there you go! That's the short answer, believe it or not, but that's enough to get you into worse trouble than you already are.
I see that you did not click on the ad like I axed you.
You can make up for it by clicking on it twice now, and actually buying something. Remember, these people are just wonderful. They might even trade on the NASDAQ or something for all I know.
Have a great week, cuz!
Your loving cousin,
Tastes Like Chicken
