Content

Introduction...............................................................................................................3

1. Securities on the stock market...............................................................................4

2. The definitions of Dealers and Brokers.................................................................6

3. Organization of the NYSE....................................................................................8

4. NASDAQ Operations..........................................................................................10

5. Stock Market Reporting......................................................................................11

6. Concept Questions of stock market.....................................................................12

7. Questions and Problems of stock market............................................................15

8. Mini Case: Stock Valuation at Ragan Engines...................................................18

Conclusion...............................................................................................................21

Bibliography............................................................................................................24

2
Introduction

Stock market is a scope for limitless earnings, raising funds and competent
investment and capital increase. On the other hand, it is the opportunity to lose
everything in one impulsive and wrong decision.
It is considered that the concept of stock market was first introduced in France
in the thirteenth century. In 12th century France the courretiers de change were
concerned with managing and regulating the debts of agricultural communities on
behalf of the banks. Here, modern securities specialists were preceded by medieval
money changers (appeared in 1304). In 1639, the money changers were renamed
"exchange agents".
Some believe that the stock market is responsible only for securities, but this
is wrong. Just look at what is traded on the stock exchanges and everything
becomes clear. There are currency, raw materials, securities and derivative
financial instruments that facilitate financial trading.
At the same the phrase stock market was also previously interpreted as a
securities market. But now, with the development of modern technologies, we
come to the understanding that it is impossible to divide the three components of
one market into separate areas, so the concept of the stock market defines the
majority of "goods" for investment.
The stock market, which is also called the securities market, is an important
part of the entire financial market, as all securities are traded here.
The main financial instruments of stock markets are:
ordinary and preference shares;
bonds. Bonds are certificates of indebtedness of the issuer to the holder. They
are a type of loan, where big corporations or governments act as the borrower and
the general public acts as the lender (i.e. creditor). Hence, the sale of bonds is also
referred to as debt finance.
Futures - fixed-term contracts that require the completion of the transaction at
previously agreed prices (gas, oil, currency) within a certain period;

3
 Options - fixed-term contracts that give the right to buy or sell securities at a
specific time with a profit.
The economic functions of securities are as follows:
- They are the object of sale, exchange, pledge, means of payment;
- Through the market value of securities, investors are informed about the
economic feasibility (inexpediency) of capital investments in certain industries,
activities, countries, etc.;
- A sharp change in the market value of securities indicates a change in the
economic situation in the country;
- Securities indicate the state of the economy. Thus, stable rates or their
increase indicate the normal economic condition of the country or firm, and the
decline in exchange rates-a sign of deterioration of the economic situation;
- The security provides certain additional rights to its owners, in addition to
the right to capital, such as the right to participate in the management, the right to
receive relevant information and the like;
- The security provides income on the capital and (or) preservation and return
of the capital;
- Securities are a link between state, political and public institutions, on the
one hand, and aggregate economic relations, on the other;
- Issue of securities-a source of attraction and mobilization of additional
capital of enterprises;
- The introduction of various types of securities in the financial and monetary
turnover allows without increasing the money supply to increase the mobility of
financial resources, focusing them on the most important areas of production,
circulation.
2. The function of the stock market
The primary function of stock markets is to serve as a mechanism for
transforming savings into financing for the real sector.
Stock markets can accelerate economic growth by mobilizing and boosting
domestic savings and improving the quantity and quality of investment.
4
 Stock markets can perform an “act of magic” by permitting long-term
investment to be financed by funds provided by individuals, many of whom wish
to be able to withdraw them at will1.
The stock markets play an important informational role.
Well-functioning stock markets collect information about the prospects of
firms whose shares are traded and make it available to creditors and investors. By
improving the flow of information about firms and simplifying takeovers, well-
functioning stock markets may contribute to corporate control and thus lead to
greater managerial competency. Better corporate control and firm management
will, in turn, promote investment and efficiency.
In addition, stock markets can increase the efficiency of the financial system
through competition among different classes of financial instruments. This, in turn,
can augment the return on savings for those who save, and can as well lower the
cost of raising funds to borrowers.
Stock markets also may improve accounting and tax standards as investors
request more and better information in order to compare different corporations’
performance. It logically follows that, as a result, it would be in the corporation’s
best interest to provide that information to facilitate thorough comparisons between
competing corporations.

2. The definitions of Dealers and Brokers 

Stock market participants can be divided into several categories:

Issuers-persons who issue securities;
Investors-persons who buy securities.
There are also two special categories of participants:
Broker – a person carrying out operations on purchase / sale of securities on
behalf and at the expense of the client.

1
Baumol, J.W. The Stock Market and Economic Efficiency. - New York: Furham University Press, 1960.
5
 Dealer – a person carrying out operations of purchase/sale of securities on its
own behalf and at its own expense by public announcement of the purchase / sale
price.
These are professional market participants who require a license to carry out
their operations. The Bank shall regulate the conditions for obtaining such
licenses.One of the most important elements of the infrastructure required for stock
market development is the existence of experienced “dealers”. The activities of
dealers and brokers make equity significantly more attractive to investors and
companies as they facilitate the exchange of shares.
A professional securities market-maker engaged in dealings is called a dealer.
A dealer shall have the right to announce, in addition to prices, other essential
terms and conditions of the contract of sale of securities, the minimum and
maximum number of securities being bought and/or sold, and also the period of
time during which the declared prices are valid.
The broker is a specially authorized intermediary for trading on the exchange.
The broker is a professional participant of the securities market, carrying out this
activity. In the provision of broker services on placement of securities the broker
may purchase at their own expense are not located at the stated maturity, securities.
The broker accepts stock orders from the client and then executes these directly on
the exchange2. Brokers make transactions on behalf of the client and at his
expense, as well as on their own behalf and at the expense of the client. Thanks to
brokerage services, anyone can get access to trading securities, currency and
precious securities.
Brokers can act as:
1) brokerage firm is a legal entity specializing in stock trading;
2) brokerage office is a branch or other separate division of enterprises,
institutions, organizations;

2
Chami, R., Fullenkamp, C., Sharma, S. A Framework for Financial Market Development - IMF Working Paper ,
20009.- 59p
6
 3) independent broker is an individual registered in accordance with the
established procedure as entrepreneurs carrying out their activities without forming
a legal entity.
The main features of brokerage mediation are the following:
1) brokerage mediation occurs and is implemented within the framework of
exchange trading;
2) brokerage activities are subject to mandatory licensing;
3) brokerage mediation is a business activity, is not limited to the conclusion
of transactions, and brokers carry out any legal actions, and for registration of the
relationship is used a contract for brokerage services.
Brokers make transactions:
1) on behalf of the client and at his own expense;
2) on behalf of the client and at his expense;
3) on its own behalf and at the expense of the client;
4) on its own behalf and at its own expense for the purpose of resale on the
exchange (dealer activity). Many companies engage in both broker and dealer
operations, making them broker-dealers. When combining the activities of the
broker and the dealer, if there is a conflict of interest between the broker and his
client, which led to the client's losses, the broker is obliged to compensate them in
the manner prescribed by the civil legislation of the Russian Federation 3.
Transactions carried out on behalf of clients, in all cases are subject to priority
execution in comparison with the dealer operations of the broker.

3. Organization of the NYSE 

The New York Stock Exchange (NYSE) is the world’s

largest securities exchange. It provides a marketplace for buying and selling 9.3
million corporate stocks and other securities a day. It lists 82 percent of the S&P
500, 90 percent of the Dow Jones Industrial Average, and 70 of the world's largest

3
Federal Law. №. 39-FZ of April 22, 1996. On the Securities Market. – Pp.6- 8.
7
corporations. It is a publicly-traded company with nearly 3,000 employees. Its
ticker symbol is NYSE: ICE4.
The New York Stock Exchange (NYSE) - the USA stock exchange is widely
known in the world and has the largest turnover (about $ 60 billion per day). It is
a symbol of stability and power of the financial industry in General and the USA
in particular. It is characterized by large capitalization (more than 60% of all
shares of the world are traded here), high liquidity and reliability.
NYSE Company has more than two hundred years of history:
In 1792, on 17 may a group of brokers of 24 people signed a deal, the essence
of which is to trade shares only with each other. The new Treaty was nicknamed
"the Agreement under plantata". The meeting of brokers was conducted under
platinovym tree. The official name of the document is "Buttonwood Agreement".
The conclusion of this transaction was the first step towards the creation of a new
exchange.
The 1817 year is the date of birth of the first Constitution of the exchange
under the working name " New York Stock & Exchange Board».
In 1863the company was named NYSE, known today. Full name of the
exchange is New York Stock Exchange.
The 1867 year is the year of the first Ticker.
The NYSE specialist arose following the advent of continuous trading in
1871. In 1871 the NYSE allowed stocks to trade simultaneously in a continuous
auction throughout the day, making it impossible for a broker to observe or
participate in the trading of every stock. In this environment, independent floor
brokers discovered they could profitably “specialize” in a particular stock by
working orders for other brokers and exchange members from a fixed position on
the exchange floor. Since 1871, the NYSE has altered its constitution three times
to reflect the evolution of specialist firm organizational form in response to

4
Kimberly Amadeo. What Is the New York Stock Exchange?//The balance. – 2018. - March of 21.

8
changing market conditions. On February 20, 1953, the NYSE approved an
amendment to its constitution allowing member firms to incorporate5.
In 1896 the DJIA (Dow Jones) got to the pages of the main edition of the
Wall Street Journal.
The 29 of October in 1929 is a day, known in history, as"Black Tuesday."
The stock market collapsed, the Dow Jones index fell by 12.5%. Many traders
went bankrupt, known cases of suicide.
The 1934- is the year of creation of the securities Commission and the
beginning of cooperation with it NYSE.
In 1934 the women received the right to work on the stock exchange.
In 1953 was defined the number of individual members per NYSE (1,366
people).
The NYSE also amended its constitution on March 5, 1970, allowing member
corporations to sell securities to the public.
In 1977 brokers from other countries gained access to NYSE.
In 1975 NYSE became a non-profit organization.
In 1980 appeared a new York futures exchange.
In 1995DJIA index exceeded 5000 points.
In 1996 appeared the first real-time tickers.
In 1999 Dow Jones index crossed the mark of 10 thousand points.
Today, NYSE Arca is the leader among all American exchanges in terms of
listing and trading volumes.

4. NASDAQ Operations 

NASDAQ is a will established exchange containing about 3,200 publicly

traded companies. It is the second largest stock exchange and the largest electronic
stock market. Trades consist of consumer goods, energy, finance, healthcare,
public utilities, technology, transportation and of course high-tech companies.

5
Jay Coughenour, Daniel Deli. Liquidity Provision and the Organizational Form of NYSE Specialist Firms// The
Journal of Finance. – 2002. - №2. – P. 841 – 869.
9
 The NASDAQ was founded in the year 1971 by the NASDAQ OMX Group,
which began trading electronically for the first time in the world. Although the
NYSE leads the stock market in market capitalization, the NASDAQ is the leader
when it comes to market share and the sheer volume traded.
NASDAQ, the global and the largest electronic stock market today was first
established in United States at the time when computers were not as developed as
they are today. The main exchange of NASDAQ is in United Sates while its
branches can be found in Canada and Japan and it is also linked to markets of
Hong Kong and Europe. NASDAQ functions by purchasing and selling the over-
the- counter or OTC stocks6.
The NYSE and Nasdaq exchanges are worth a collective $32 trillion in
market capitalization, making up a sizable portion of the global equities market.
They are both large American stock exchanges also very different in how they
work.

5. Stock Market Reporting 

A stock market report is an information-based document issued by a variety of

organizations and directed to various segments of an investment pool.
A stock market report provides investors and institutions with valuable
information concerning the overall performance of the stock market and more
specifically, the performance of individual companies or stocks. Furthermore, a
stock market report will analyze the strength of particular sectors and offer the
public fundamental information concerning the particular industry.

6
Nasdaq: A History of the Market That Changed the World/ Mark Ingebretse– 2002. - April 23.

10
 A stock market report may be issued by a new agency or a financial services
firm; any institution that possesses resources to effectively evaluate or administer
information to the public may produce a stock market report.
When the aforementioned agencies or financial services firms distribute a
stock market report, the information in the document is used to measure and
evaluate the performance of the marketplace. As a result of this characteristic, a
stock market report is an effective indices to analyze the stability and vitality of a
market place or specific sector.
Regardless of the information in broad based stock market reports, each stock
market report will reveal the state of the economy and thereby prompt a fluctuation
in investor confidence.
Stock market reports may also give potential investors valuable information
regarding investments made in a particular industry, such as the motor vehicle
industry or the financial sector.
Individual companies may also issue stock market reports to reveal and
elucidate upon their performance and the particular investments they made. These
forms of stock market reports aid investors in regards to the management structure
of a particular organization and the possible fluctuations that the stock price may
undergo in the future.
The majority of stock market reports are created following a thorough review
of a proven index. Indexes measure the performance of a particular sector within
an exchange. In the United States for example, the Dow Jones Industrial Average
and the S&P 500 are the primary indexes that stock market reports will use to
evaluate a particular sector or company.
The primary challenge for a stock market report revolves around weighting
stocks. The practice of weighting stocks will give different values to certain stock
listings within a particular index, meaning a price change in a heavily weighted
stock, the effects of the broader index would shift more considerably than if the
stock’s value was reported based on its true or actual value.

11
6. Concept Questions of stock market

Stock markets grow as a result of participation by both issuers (supply), and

investors (demand).Issuers and investors will participate in a stock market if they
expect economic benefits (e.g., a lower cost of finance for issuers and a better
return-risk structure for investors.) Further, participation will occur where a fairly
comprehensive range of economic and institutional factors exist. Put differently,
supply and demand may be considered the “building blocks” of any market.
However, the mere presence of supply and demand does not guarantee that the
market will function efficiently. For such a market to prosper, there should be what
might be called “supporting blocks”. These supporting blocks could include factors
such as economic policies conducive to investment and an adequate institutional
context. If the supporting blocks are inadequate, the market may exist, but most
likely it will not function well and will not become a developed market. This
paper proposes that there are four broad factors which influence the development
of stock markets: supply factors, demand factors, institutional factors, and
economic policies.
Generally, there are three main types of cost commonly associated with
issuing shares. First, there is the cost of distributing dividends to shareholders,
which is generally done on a continuous basis, in contrast to a debt contract (e.g.
issuing bonds). Second, since equities are among the riskiest assets, investors will
not hold shares unless the expected return is significantly higher compared to other
investment alternatives. Third, equity issuance is more costly than debt due to the
underwriting commission1 and the cost of information7. Further, to raise capital in
stock markets, companies must meet the listing requirements of stock exchanges
for publicly traded companies as well as the financial reporting and control
requirements imposed by securities market regulations. The explicit compliance
cost of these requirements is significantly high. More to the point, raising capital in
stock markets has several costly implications for corporate governance:

7
Chami, R., Fullenkamp, C., Sharma, S. A Framework for Financial Market Development. - IMF Working Paper
2009. – 59P.
12
1) decisions and actions of the company’s managers become more
visible as the company’s financial data is disclosed through financial statements
and other required filings;
2) another layer of management is imposed on the firm, namely representatives of
shareholders on the board of directors;
3)time and effort must be devoted by the firm to managing its relationship
with shareholders8. These requirements and responsibilities imply both a
significant cost and a certain loss of control for both owners and managers of the
company. Although firms may be the only source of issued shares, which in light
of the above discussion might imply that the cost of financing could be the most
significant or even the only determinant of the supply of shares, it should be
pointed out that in general, there are a number of macroeconomic factors that
significantly affect the supply of shares and thereby the development of stock
markets.
Underdeveloped economies usually have a volatile investment environment,
weak institutional and legal frameworks, poor governance, lack of transparency,
and above all low levels of per capita income. All these factors impede stock
market development and at times even make the establishment of a stock market
superfluous.
Stock market development requires a deep and diverse investor base. The lack
of a diversified investor base and heavy reliance on captive sources of funding are
two of the main factors behind the shallowness and insufficient liquidity of stock
markets. The investor base should be diversified and composed of institutional
investors (e.g. mutual funds, pension funds and insurance companies) and other
financial institutions dealing in different levels of risk and targeting different
economic sectors. These institutional investors can play a crucial role in the
accumulation of funds and their channeling into stock markets. Institutional
investors are, in fact, usually the largest investors in stock markets in developed
8
Chami, R., Fullenkamp, C., Sharma, S. A Framework for Financial Market Development. - IMF Working Paper
2009. – P.56.

13
economies. In general, institutional investors can support the development of
stock markets in various ways:
1) they enhance market competition and act as a balancing influence in bank-
dominated financial systems and represent an alternative savings vehicle to banks
for individual investors;
2) institutional investors also help to address the problem of information
asymmetry between company management and individual investors as they impose
discipline on company management via transactions in company stocks;
3) institutional investors may encourage more issuance of shares, which in
itself increases the liquidity of the market;
4) a wide range of investors who differ in their risk preferences and
expectations results in rapid price discovery from trading and reduces vulnerability
to shocks that would otherwise destabilize the market; and
5) institutional investors also support the emergence of market makers, which
improves market liquidity9.
However, institutional investors should not be so large that they dwarf and
dominate the market but large enough to take risks and position themselves
advantageously.

7. Questions and Problems of stock market

One of the most important aspects of stock market development is liquidity.

Liquid markets offer a number of benefits:
1) they render financial assets more attractive to investors, who can
transact in
them more easily. In addition, liquid markets allow investors to switch out of
equity if they want to change the composition of their portfolio;

9
Iorgova, S., Ong, L.L. The Capital Markets of Emerging Europe: Institutions, Instruments and Investors// IMF
Working Paper. -2008. - P.103.

14
 2) liquid markets permit financial institutions to accept larger asset-
liability
mismatches;
3) they allow companies to have permanent access to capital through
equity
issues; and
4) liquid markets allow a central bank to use indirect monetary
instruments and
generally contribute to a more stable monetary transmission mechanism.
More liquid markets could ease investment in long-term, potentially more
profitable projects, thereby improving the allocation of capital and enhancing
prospects for long-term growth. The more liquid the stock market, the larger the
amount of savings that are channeled through stock markets. While economists
advance many theoretical definitions of “liquidity”, there is no single
unambiguous, theoretically correct or universally accepted definition of liquidity.
Analysts generally use the term to refer to the ability to easily buy and sell
securities.
Liquidity of securities is easiest to estimate by trading volume - the larger
the volume, the more liquid the paper. Low liquidity of securities also means
large spreads - a large difference between the purchase price and the sale price.
Under the market risk implies the risk of reducing the value of the asset.
Volatility is the degree of fluctuations in the market value of an asset, is used
to assess market risk. The greater is the range of price fluctuations, the risk is the
asset. For example, a share whose price for the year ranged from -5% to +5% is
less risky than a share whose price ranged from -10% to +10%.
There are five dimensions of market liquidity, which are: tightness, depth,
immediacy, breadth and resiliency. Tightness refers to low transaction costs,
such as the difference between buy and sell prices. Immediacy represents the speed
with which orders can be executed and settled, and thus reflects among other
things, the efficiency of the trading, clearing and settlement systems. Depth refers
15
to the existence of abundant orders, either actual or easily uncovered of potential
buyers and sellers, both above and below the price at which a security would be
trading on the market. Breadth means that orders are both numerous and large in
value with minimal impact on prices, and resiliency usually denotes the speed with
which price fluctuations resulting from trades are dissipated.

Traded value is a volume-based indicator. Volume-based indicators are most

useful in measuring market breadth, i.e. the existence of both numerous and large
orders in volume with minimal transaction price impact. Traded value/GDP equals
the total value of shares traded on the stock market divided by GDP. It measures
the organized trading of shares as a percentage of national output and therefore
should positively reflect stock market liquidity on an economy-wide basis.
Turnover Ratio Since traded value can be given more meaning by relating it
to the value of outstanding volume of shares being considered, turnover ratio is
commonly used as a second indicator of liquidity. Turnover ratio gives an indicator
of the number of times the outstanding volume of shares changes hands. Turnover
ratio equals the value of total shares traded divided by market capitalization. In
some sense, turnover ratio as an indicator of liquidity complements traded
value/GDP.
A small, liquid market will have a high turnover ratio but a small traded
value/GDP ratio. A high turnover ratio is often used as an indicator of low
transaction cost.Some analysts consider turnover as a good indicator of speculative
activity in a given market. As noted earlier, the turnover is derived by dividing the
one-year average market capitalization by total annual traded value.
Finally, making use of both indicators – traded value/GDP and turnover ratio
– can provide a more comprehensive picture of the liquidity of stock markets than
the information provided by the use of only one of them.
The relationship between stock prices and real economic activity is circular.
On the one hand, stock prices depend on a company’s performance and its growth
16
prospects so that to the degree that a company’s performance improves and the rate
of return increases, stock prices rise in turn. On the other hand, stock prices should
reflect the present discounted value of expected future dividends or expected future
growth. From this perspective, stock prices serve as a leading indicator of future
changes in real economic activity.
Generally, there are three main channels whereby stock prices can affect real
economic activity:
1) the wealth effect: under the life cycle/permanent income, higher stock
prices and increased wealth in stocks lead investors to increase their consumption.
This increase in consumption will be more significant in countries where the stock
ownership base is large;
2) cost of capital: with stock prices increasing, the cost of new capital
relative to existing capital decreases, more companies go public and raise funds for
investment through public offerings. In addition, a good performance on the stock
market might attract foreign capital, which would allow interest rates to go down
(ceteris paribus); and iii) the confidence effect/expectation effect: a highly
performing stock market might improve overall expectations, which might induce
economic growth through more investment as part of a positive feedback effect.
Moreover, stock prices signal faster growth of companies and as a result a possible
growth of future real individuals’ income might also induce more consumption.

8. Mini Case: Stock Valuation at Ragan Engines

Background of the Studies Valuation is the first step toward intelligent

investing. When an investor attempts to determine the worth of her shares based on
the fundamentals, it helps her make informed decisions about what stocks to buy or
sell. Without fundamental value, one is set adrift in a sea of random short-term
price movements and gut feelings.

17
 The foundation of valuation theory is that the market value of securities
measures the present value of future payouts. To the extent that this proposition
fails, the approach in this paper will mis-measure the quantity of capital. It is
useful to check the valuation relationship over the sample period to see if it
performs suspiciously.
Some reported data related to valuation move smoothly, particularly
dividends. Consequently, economists not ably Robert Shiller have suggested that
the volatility of stock prices is a puzzle given the stability of dividends10.
Modern valuation theory proceeds in the following way.
vt = value of securities, ex dividend, at the beginning of period t
dt = cash paid out to holders of these securities, at the beginning of period t.
There are significant implications surrounding stock market volatility, given
that it affects incentives to save and to invest. Theoretically, all other things being
equal, the more volatile the stock market, the fewer savers will save and hence the
less investment there will be. Excessive stock market volatility would lead
investors to demand a higher risk premium, increasing the cost of capital which in
turn would impede investment and hamper economic growth. In addition, this
volatility might lead to a shift of funds to less risky assets which –once again – will
cause companies to pay more for access to capital11.
Stock market volatility might result from the volatility of underlying
economic fundamentals, in particular, the volatility of the real output flow whose
present discount value that the stock price is supposed to reflect should matter.
Volatility means the fluctuation of prices. The larger the range, the higher is
the volatility. Stock market volatility may also be caused by the arrival of new,
unanticipated information that alters expected returns on stocks12.
10
Shiller, Robert E. Market Volatility. - Cambridge: MIT Press, 1989.
11
Arestis, P., Demetriades, P.O., Luintel, K.B. Financial Development and Economic Growth: The Role of Stock
Markets//Journal of Money, Credit and Banking. – 2001. - №33. – P.16-41.

12
Engle, R.F., Victor, K.Ng. Measuring and Testing the impact on Volatility// The Journal of Finance. – 1993. -
№48. – P. 1749-1778.

18
 In turn, volatility is an indicator of the degree of change in the value of an
asset. Another definition of volatility is the amplitude of fluctuations in price
positions and the difference between the highest and lowest values within a certain
period of time. Assets in this case can be currency, goods or other values, and the
indicator is measured as a percentage of the asset value.
The American market is historically less volatile than the Russian one, the
annual fluctuations of which may well reach 30%. Other emerging markets, such
as Brazil or China, are also highly volatile.
There are the simple to use ones, such as the comparable method, and there
are the more involved methods, such as the discounted cash flow model. Regan
Thermal System was founded 9 years ago by brother and sister Carrington and
Genevieve Regan. The company manufactures and installs commercial heating,
ventilation, and cooling (HVAC) units. Ragan has experienced rapid growth
because of a propriety technology that increases the energy efficiency of its
system. The company is equally owned by Carrington and Genevieve. The original
agreement between the siblings gave each 50,000 shares of stock. In the event
either wished to sell the stock, the shares first had to be offered to the other at a
discounted price. Although neither siblings wants to sell any shares at this time,
they have decided they should value their holdings in the company for financial
planning purposes. To accomplish this, they have gathered the following
information about their main competitors: macroeconomic, analysis of directions,
analysis of a particular company.
Some traders mistakenly believe that the fundamental analysis of the stock
market is reduced exclusively to a statistical slice. That is, they are trying to trade
on single news, believing that by doing so, turn to fundamental analysis. But this
technique is defined as work on the news and only partly refers to the fundamental.
The activity of a company is very closely connected with the economy of an
individual state, and with the world economy as a whole. In general, if the situation
in the economy is stable and there is growth, we can say that individual enterprises
will also grow. On the other hand, if there are problems in the economy, companies
19
are unlikely to develop significantly. In fact, it all depends on the scope of the
enterprise. For example, IT companies can continue to develop even in times of
crisis.
The monetary policy pursued by the Central banks has a great influence on
the stock market quotes. The main directions that should be paid attention to in the
analysis: the dynamics of GDP; employment indicators; the dynamics of business
activity; consumer demand; decisions of Central banks. All these indicators
generally reflect the state of the economy of individual States. The purchased
company may grow in price on the stock market (as expected financial injections
into it). The issue of new shares indicates the attraction of additional investments.
This is a good sign for buyers. The same applies to the repurchase of their shares
by companies. Finally, if a firm receives a government order, its shares may also
rise in price. The fact is that the volume of such orders is usually very significant.
Therefore, the company will get a good profit and may expand its capacity.

Conclusion

This paper analyzes the features of function and tools of the stock market.
There are 60 major stock markets in the world, 16 of which have a market cap of
over $ 1 trillion. This market is traded by major players such as banks, mutual
funds and small investors. The stock market operates on a supply and demand
basis and provides opportunities for long-term investors and intraday traders.
The paper concludes by emphasizing three principles.
The securities market is one of the key components of a stable financial
market, serves as a tool for the redistribution of financial resources in the economic

20
environment of the state, attracts both national and foreign funds. The securities
market and its processes often reflect the economic situation in the country.
In modern conditions, stock exchanges, brokerage houses, clearing houses
and depositories are an integral part of the stock market and ensure its effective
functioning. It should be noted that there is a very close relationship between the
stock market and its functional infrastructure. The development of the stock market
is impossible without proper organization of transactions for the purchase and sale
of securities, which accelerates the cycle of financial resources in the stock market
and can be provided only by infrastructure institutions. At the same time, the
infrastructure institutions themselves exist and develop only at the expense of the
stock market, since the profitable activity of technical intermediaries is provided
by the income received from operations in the stock market.
Brokerage firms and dealers, who are the main professional participants of the
stock market and relate to its infrastructure, form the demand for financial assets
and thus determine the equilibrium market price for them.
Brokers and dealers, commercial banks belong to the group of professional
stock market participants. They play a key role in the stock market, as they are
direct participants in stock trading and provide most of the operations with
securities in the market.
The main forms of professional activity in the stock market are: securities
trading, Depository activities, organization of trade in the stock market, clearing
activities, asset management of institutional investors.
Broker is a person performing the conclusion of civil contracts (on the basis
of Commission agreements or orders) with respect to securities on its own behalf
(on behalf of another person), on behalf and at the expense of another person. The
broker acts as an intermediary, an agent of the investor acting on behalf of the
client and on his behalf and receives remuneration in the form of commissions.
Dealer is a person engaged in the conclusion of civil-legal agreements
regarding securities on its own behalf and for its own account for resale. Dealer
activity involves trading securities by public announcement of the purchase and
21
sale prices of securities with the obligation to buy and sell these securities at the
announced prices.
Dealers in the stock market provide liquidity and market stability. Price
fluctuations that could occur are mitigated by the operations carried out by dealers.
Dealers also provide information services to market participants, and in some
markets act as leading auctions on exchanges. Those who deal in the market are
often called speculators or market makers. Securities traders who combine
brokerage and dealer activities are called traders.
The regulation of the stock exchange involves all its participants: issuers,
investors, professional stock intermediaries, market infrastructure organizations.
European stock exchanges differ from Russian stock exchanges in that they
have insurance companies in the stock market, thanks to which the risks associated
with the process of conducting transactions are minimized. Another guarantee of
the absence of risk is the use of a special mechanism of transactions, which, thanks
to the level of education of the people of European countries every year is
becoming more debugged.
The USA stock market consists of well-known exchanges such as the
NASDAQ Stock market and New York Stock Exchange (NYSE).
NASDAQ means "Automated quotes from the national Association of
securities dealers". This market has become the world's first fully electronic stock
market. Another revolutionary innovation - NASDAQ-is the presence of a large
number of competing market makers (liquidity providers). Users of the
decentralized system have the opportunity to get the best quotation. NASDAQ
specialized on trading high-tech stocks. More than three thousand issuers have
passed the listing procedure. The NASDAQ automated quote system received the
status of a licensed exchange and became the second largest us financial market.
Liquidity is the ability to quickly sell an asset without discounts. The faster
this can be done, the higher the liquidity of the asset. Stock market instruments-
stocks and bonds are the most liquid assets for an investor. When the exchange is

22
running, securities can be sold without problems by simply opening a terminal or
calling to broker.
The market is considered highly liquid if it regularly enters into transactions
and the difference between the prices of buy and sell orders is small. At the same
time, there should be many such transactions, so that each small transaction does
not affect the price of the goods.
The liquidity of the instrument in the stock market is estimated by the number
of transactions (that is, by the volume of trades) and the size of the spread. Spread
is the difference between the maximum prices of buy orders and the minimum
prices of sell orders. The more trades and the smaller the difference, is higher the
liquidity.

Bibliography

1. Adarov, A., Tchaidze, R. Development of Financial Markets in Central

Europe: the Case of the CE4 Countries// IMF Working Paper. – 2011. –
P.101.
2. Arestis, P., Demetriades, P.O., Luintel, K.B Financial Development and
Economic Growth: The Role of Stock Markets.Journal of Money// Credit
and Banking. -2001. - № 33. – P.16-41.
3. Arestis, P., Demetriades, P.O., Luintel, K.B. Financial Development and
Economic Growth: The Role of Stock Markets//Journal of Money, Credit
and Banking. – 2001. - №33(2). – P.16-41.

23
4. Asli Demirgüç-Kunt, Vojislav Maksimovic, Stock Market Development and
Corporate Finance Decisions// Finance & De velopment.- 1996. - June. – P.
47 – 49.
5. Baumol, J.W. The Stock Market and Economic Efficiency. - New York:
Furham University Press, 1960.
6. Bernardo, A. E., and I. Welch. Liquidity and Financial Markets Run//
Quarterly Journal of Economics. – 2004. – P. 135–158.
7. Chami, R., Fullenkamp, C., Sharma, S. A Framework for Financial Market
Development. - IMF Working Paper 2009. – P.156.
8. Economic Growth. - Princeton, N.J.: Princeton University Press, 2007. – P.
178 – 182.
9. Engle, R.F., Victor, K.Ng. Measuring and Testing the impact on Volatility//
The Journal of Finance. – 1993. - №48(5). – P. 1749-1778.
10.Federal Law. №. 39-FZ of April 22, 1996. On the Securities Market. – Pp.6-
8.
11.Iorgova, S., Ong, L.L. The Capital Markets of Emerging Europe:
Institutions, Instruments and Investors// IMF Working Paper. -2008. P.103.
12.Jay Coughenour, Daniel Deli. Liquidity Provision and the Organizational
Form of NYSE Specialist Firms// The Journal of Finance. – 2002. - №2. – P.
841 – 869.
13.Kamal A. El-Wassal. The Development of Stock Markets: In Search of a
Theory// International Journal of Economics and Financial Issues. 2013. -
No. 3. - pp.606-624.
14.Kimberly Amadeo. What Is the New York Stock Exchange?//The balance. –
2018. - March of 21.
15.Nasdaq: A History of the Market That Changed the World/ Mark Ingebretse–
2002. - April 23.
16.Rodrik, Dani. One Economics, Many Recipes: Globalization, Institutions,
and
17.Shiller, Robert E. Market Volatility. - Cambridge: MIT Press, 1989.
24
25