4 - The trading of equities

Abstract

This chapter presents a discussion on the trading of equities. Shares, or equities, traded in an exchange are financial assets that represent property rights on companies. These generally entitle holders to a share in the corporation's profits and, in the event of liquidation, in the remains of its net assets after other stakeholders are satisfied. Shares generally provide holders with a part in the ownership of the corporation whereas, in the case of debt securities, holders are creditors. The class quoted or listed shares covers all shares with prices quoted on a recognized stock exchange or other forms of regulated market. Trading in an exchange involves only listed securities. There are conditions that lead a stock exchange to delist one or more of the securities on which trading has been taking place. All companies listed in an exchange have to look out for reasons that might lead to their delisting. When any reason is found, it has to be addressed through immediate damage control action and periodic progress reviews. Being listed in one or more exchanges is not a right. It is a privilege for which a listed company may no longer qualify. In a broad sense, the over-the-counter (OTC) market includes distribution of new securities to investors through underwriting operations as well as through other means: (1) the making of a direct, off exchange market for securities that are already outstanding, and (2) trading in derivative financial instruments, many of which are designed to fit counterparty's trading or investment requirements. The chapter concludes with a discussion on European market indices.