Understanding Stock Market



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Chapter 3 : Understanding Stock Market



Understanding Stock Market arrow_upward


  • A Stock Market Overview
  • The stock market is a series of exchanges where the trading of equities (companies' stocks) takes place.
  • Exchanges, entities that bring together buyers and sellers in an organized manner, are where stocks are listed and traded. Globally there are many well-known finance centers such as New York, London, Tokyo and Germany.
  • In the United States, stocks are traded on exchanges such as the New York Stock Exchange (NYSE), which is located on Wall Street.
  • In addition to the NYSE, there is also the NASDAQ exchange.
  • The NASDAQ originally featured over-the-counter (OTC) securities, but today it lists all types of securities.
  • Stocks can be listed on either exchange if they meet the listing criteria, but in general technology firms tend to be listed on the NASDAQ.

  • Oversight and Regulation arrow_upward


  • The Securities and Exchange Commission (SEC) is the regulatory body that is charged with overseeing the stock market.
  • The SEC is a federal agency that is independent of the political party in power.
  • The agency states that its "mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

  • An Overview of the SEC arrow_upward


  • Shortly after the stock market crash of 1929, a regulatory body called the Securities & Exchange Commission (SEC) was born.
  • Its goal was to restore investor confidence and faith in a financial sector that was notorious for fraudulent activities, easy credit and hazardous investments.
  • Two significant proposals by the U.S. Congress, the Securities Act of 1933 and the Securities Exchange Act of 1934, led the way to the formation of the SEC and, ultimately, a structured financial industry under government supervision.
  • The aim of both of these acts was to protect investors from any indiscretions that could arise from:
    • Fraudulent and questionable public companies.
    • Dishonest and unscrupulous individuals dealing in the securities markets.

    Divisions of SEC arrow_upward


  • The SEC is divided into four main divisions. They work together, but have specific areas in which they mandate and ensure compliance.
  • These departments are:
    • Corporate Finance
    • Market Regulation
    • Investment Management
    • Enforcement

    Conclusion arrow_upward


  • The SEC is on your side.
  • Whether you are a large investment firm or just the average investor, the SEC tries to make sure that all public companies provide accurate information so that investors can make educated decisions.
  • While large-scale cases of fraud occur from time to time, the SEC, by and large, is there to protect individual investors.
  • By maintaining accurate records, inspecting company reports and keeping a watchful eye over market activity, the SEC acts as a police force, a lawmaker and sometimes even a court for the securities market.

  • Types of Securities arrow_upward


  • There are two general types of securities that are most frequently traded:
    • Over-the-counter securities.
    • Listed securities.

    Over-the-counter securities

  • Over-the-counter securities are traded directly between parties, usually via a dealer network, and are not listed on any exchange, although these securities may be listed on pink sheets.
  • OTC securities do not need to comply with SEC reporting requirements, thus finding credible information on these securities can be difficult.
  • The lack of information makes investing in pink sheet securities similar to investing in private companies - investors need to look closely at the company to ascertain the securities' quality.

  • Listed securities

  • Listed securities are those stocks traded on exchanges.
  • These securities need to meet the reporting regulations of the SEC as well as the requirements of the exchanges on which they are listed.


  • Thank You from Kimavi arrow_upward


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