The Stock Market
by MaestriBecause the primary objective of ?nancial management is to maximize the ?rm’s stock price, a knowledge of the stock market is important to anyone involved in managing a business. The two leading stock markets today are the New York Stock Exchange and the Nasdaq stock market.
The New York Stock Exchange
The New York Stock Exchange (NYSE) is a physical location exchange. It occupies its own building, has a limited number of members, and has an elected governing body— its board of governors. Members are said to have “seats” on the exchange, although everybody stands up. These seats, which are bought and sold, give the holder the right to trade on the exchange. There are currently 1,366 seats on the NYSE, and in August 1999, a seat sold for $2.65 million. This is up from a price of $35,000 in 1977. The current (2002) asking price for a seat is about $2 million.
Most of the larger investment banking houses operate brokerage departments, and they own seats on the NYSE and designate one or more of their of?cers as members. The NYSE is open on all normal working days, with the members meeting in a large room equipped with electronic equipment that enables each member to communicate with his or her ?rm’s of?ces throughout the country. For example, Merrill Lynch (the largest brokerage ?rm) might receive an order in its Atlanta of?ce froma customer who wants to buy shares of AT&T stock. Simultaneously, Morgan Stanley’s Denver of?ce might receive an order from a customer wishing to sell shares of AT&T. Each broker communicates electronically with the ?rm’s representative on the NYSE. Other brokers throughout the country are also communicating with their own exchange members. The exchange members with sell orders offer the shares for sale, and they are bid for by the members with buy orders. Thus, the NYSE operates as an auction market.3
Taken From : Five-Minute MBA – Corporate Finance
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