2nd week: Equity Market

Question 1

What is an equity?

Answer 1

A share in the ownership of a company, entitling the owner to payment of dividends and also to the right to vote at annual general meetings.

anyone can buy Public equity

Question 2

What is Public Equity?

Answer 2

listed on a stock exchange and ‘admitted’ for trading

Question 3

What is Private Equity?

Answer 3

Not publicly listed or traded

Held by special individuals

Question 4

What is Market Cap?

Answer 4

The total value of shares according to market price

Question 5

How do you calculate Market Cap?

Answer 5

share price * Total No. of issued shares

Question 6

What is each share measured in?

Answer 6

british pennies

Question 7

What is the Ex-dividend?

Answer 7

A point in time where if you buy that stock after that time you cannot receive the nearest dividend.

e.g. the last day they collect orders for closest payout

Question 8

How often is a dividend paid?

Answer 8

full dividend: 12 months

interrim: 6 months

Question 9

what is Stock BETA

Answer 9

Elasticity measure of the average percentage increase in share price when 1% rise in broad index of market prices

Question 10

What is a defensive stock?

Answer 10

• Shares with BETA less than 1
• Not alter too much when theres a downturn

Tissue industry, everyone wants tissue whether its in a reccesion or a boom

Question 11

What is a cyclical stock?

Answer 11

• Shares with BETA greater than 1
• Alters a lot when theres a downturn
  e. g. tech industry, a lot of fluctuations depending on expectations

Question 12

What is the calculations for P/E?

Answer 12

P/E =share price divided by eps

EPS is earnings per share

Question 13

What is the role of the broker?

Answer 13

An exchange member executing one of these stock orders on behalf of a client

Their duty is to buy or sell at the best possible price: as high price as they get when selling
or as a low a price as they can get when buying.

Question 14

What are the differing types of brokers?

Answer 14

Sales and trading:
execute trades on behalf of clients are usually described in their own earnings statements and annual reports as ‘sales and trading’divisions.

Retail broker
helping retail customers buy and sell equities and other securities and also manage their portfolios. (best descirbed as retail broker)

Corporate broker A specialised market niche, largely advisory, helping large companies, “ A uniquely UK concept, corporate brokers advise public companies on
everything from pitching their equity story to building a diverse shareholder register, navigating listing rules to managing results announcements

Question 15

Why have Sales and Trading Brokers started to focus more on client trades and less on trading on their own behalf (proprietary trading)?

Answer 15

• the ‘Volcker rule’ in the 2013

- US Dodd-Frank act

Question 16

what is the Vlocker rule

Answer 16

Federal regulation that generally prohibits banks from conducting certain investment activities

• -> aim to protect bank customers by preventing banks from making speculative investments
• -> prevent Investments which contributed to the 08 F.crisis

Question 17

What is the Dodd-Frank Act?

Answer 17

legislation passed by Obama in response to 08 crisis

• -> target agents which were believed to cause the 08 crisis
• ->including banks, mortgage lenders, and credit rating agencies.

Question 18

What are the ways to get direct access to the market without being a part of the LSE?

Answer 18

• -> dont have to be a member of the LSE

- -> • High-frequency trading funds: they use artificial intelligence to conduct short term proprietary trades

Question 19

What are Order books?

Answer 19

n order book is an electronic list of buy and sell orders for a specific security or financial instrument organized by price level.

Question 20

What does a level 1 screen show

Answer 20

• Bid offer spread
• Shows the best bid price (highest bided price)
• Shows the best offer price (lowest offer price)

Question 21

what does a level 2 screen show

Answer 21

• Bottom half is different compared to the Level 1 screen
• Displays limit orders: shares waiting to be matched on the system/ orders waiting to be executed –> a buyer and seller has to matched in price for it to work
•
• Buyers and seller have a choice
• Patient: add to limiting book and their order may not be executed –>put out a price, and wait for the market to move in your direction
• Impatient: add to the market order, agreeing to match limit orders on the book at the book prices  this is often more expensive

Question 22

what is NMS

Answer 22

( normal market price)= approx.. the amount of share you can purchase on the given day, without moving the best bid or ask price –> there is a given amount, you can sell or buy to prevent price being to high.
Price is volatile due to the liquidity

Question 23

What is the Regulation NMS (US) and the “Markets and

Financial Instruments Directive” (European Union)?

Answer 23

Regulation NMS
• Supported competition amongst multiple trading revenues for order flow
Since 1980s there has been a shift towards electronic trading
Regulation
• Played a huge part in these developments
• Removed monopolies on providing electronic order books
• Electronic books are regulated for being too expensive for what they order

Question 24

what is algoritmic trading

Answer 24

uses a computer program that follows an algorithm to place a trade.
Faster than humans