Registered Representatives, Market Makers and Specialists

Registered Representatives
A registered representative is an individual who has passed the CSE's registration process and is therefore licensed to work in the securities industry. The process includes an examination that tests the candidate's knowledge of securities and markets. Further, the registration agreement requires that the candidate agree to follow the rules of the CSE.
Registered representatives sell to the public; they do not work on exchange floors.

Market Makers
Market makers are firms that maintain a firm bid and offer price in a given security by standing ready to buy or sell at publicly-quoted prices. The CSE / Nasdaq is a decentralized network of competitive market makers. Market makers process orders for their own customers, and for other broker/dealers; all securities are traded through market maker firms. Market makers also will buy securities from issuers for resale to customers or other broker/dealers. About 10 percent of  CSE firms are Market Makers; a broker/dealer may become a Market Maker if the firm meets capitalization standards set down by the CSE.

Specialists

Specialists keep markets for securities orderly and continuous. This means they must buy when there are others selling without buyers, and they must sell when others are buying without sellers. They must maintain their own inventories of securities that are large enough for sizable trades. Specialists both buy and sell out of these inventories and mediate between other customers.
Specialists work on the exchanges where they hold seats. Among their duties is buying and selling odd-lots (trades of less than 100 shares) for exchange members. To trade a security, a specialist must be able to keep a position on it with at least 5,000 shares. Specialists, like others, who buy and sell for the public, are subject to rules and regulations. Specialists often choose to keep inventories in multiple securities, often in more than one market sector.

Stock Market Players

As an investor, you need to be familiar with the different players in the investment arena and how they buy and sell securities. Broker-dealers, registered representatives and the others have specific roles in clearing the way for commerce in securities.
This tutorial will cover the following topics:
• Broker-Dealers
• What Broker-Dealers Are Not Allowed to Do
• Other Broker Services
• Registered Representatives, Market Makers and Specialists

Broker-Dealers

A broker is a person or firm that facilitates trades between customers. A broker acts as a go-between and, in doing so, does not assume any risk for the trade. The broker does, however, charge a commission. A dealer is a person or firm that buys and sells for his or her own inventory of securities and for others. A dealer therefore assumes risk for the transactions. Dealers may mark securities up or down to make a profit on their transactions.
Many publications or websites use the term broker-dealer. A broker-dealer is allowed to operate in either role, but never as both at the same time.
To be involved in the buying, selling or trading of securities, a person or firm must be registered with the CSE The CSE is a self-regulatory organization created by the Securities and Exchange Commission (SEC). Brokers and dealers must follow all rules of the CSE and SEC, including the SEC,s Conduct Rules and its rules for arbitration, complaints and dealings with the public

 

Broker-dealer status can be revoked for freely breaking securities rules; for having been expelled or suspended from any self-regulatory organization; for making misleading statements to the SEC or the CSE; or for having committed felonies or misdemeanors in the securities industry.

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What Broker-Dealers Are Not Allowed to Do
The following are practices that broker-dealers are forbidden to do:
• Churning: Excessive trading of a client's discretionary account to increase the broker's commissions.
• Use deception or manipulation to trade securities, or failing to state material facts
• Recommending low-priced, speculative securities without determining whether they are suitable for the customer
• Make unauthorized transactions
• Guarantee that loss will not occur
• Try to talk clients into buying mutual funds inappropriate for their means and goals
• Use fictitious accounts to disguise trades
• State that the SEC has approved or judged positively either the security or the broker
• Not promptly transmitting the client's money or securities
Broker-dealers convicted of any of these actions may be expelled or suspended by theSEC.
Because brokers have so much control over other people's money, their activities are highly regulated.

Other Broker Services

Brokers, when authorized by the client, may set up discretionary accounts. These accounts allow brokers to buy and sell securities for a client's account without contacting the client for each transaction. The authorized broker may determine the security traded, how much of it may be traded, the price and the time of transaction.
Brokers may lend funds to customers who have margin accounts. With margin accounts, customers can buy additional securities with money borrowed from a broker.

Initial Public Offerings (IPOs)

The very first sale of stocks to the public is called an initial public offering (IPO), and occurs on the primary market. This tutorial will cover the following factors involved in initial public offerings:
• The Process of Issuing Securities
• The Basics of Underwriting
• Types of Underwriting Arrangements
• The Prospectus
• Ways a Stock May Be Advertised Before it is Sold
• Newly Issued Stocks: Getting the Names Straight

The Process of Issuing Securities

Corporations sell stock to the public as one way to raise capital. Before it can issue new stock, a corporation must first file registration statements with the Securities and Exchange Commission (SEC).The issuing company may make their registration statement public with a preliminary prospectus called a red herring that summarizes the registration statement. Basic information about the new offering is also provided, including how many shares are being offered and which brokerage companies will distribute the stock to the public. At the time of issue, a final prospectus is presented. This includes the price of the stock (its offering price).

The Basics of Underwriting

A Corporation going public hires an investment banker to help it sell its stock. This process is called underwriting. The investment banker functions as an intermediary between the issuing corporation and the public. In most cases, the underwriter (investment banker) purchases the stocks from the company for resale to the public. To reduce its own risk, the investment banker may form an underwriting syndicate of other investment bankers to co-purchase the shares. The underwriting syndicate forms a selling group to sell specified allotments of the issue. The investment banker (underwriting syndicate) then marks up the price of the offering. This markup represents the fee for the syndicate's service. The difference between the price the underwriter pays and the price the public pays is called the underwriting spread.

The syndicate manager may bid on the stock in the offering to "stabilize" the price. This bid must be less than or equal to the offering price. By law, the prospectus must make this attempt to stabilize the stock price known to the public.
The SEC also requires the underwriter to investigate the issuing company-particularly any audits, how it uses proceeds, its financial statements and the management team. This process is called due diligence.

Types of Underwriting Arrangements

A stock issue can be underwritten by several methods.
The underwriter can act as an agent, in which it tries to sell as much of the issue as it can at market prices. This is a best effort arrangement.
The issuing company can also agree to issue new stock on the condition that all of it is sold. If all of the stock is not sold, then it will withdraw the issue. This is an all-or-none arrangement.
A negotiated underwriting is when the issuer and the corporation negotiate the terms of the issue, the price, the size and other details.
The issue may be subject to competitive bids from investment bankers. The top bidder underwrites the issue and resells it to the public.
When a public company issues more of its stock, it must first offer that stock to existing shareholders; that is their preemptive right. A standby is the public sale of whatever stock the existing shareholders have not yet purchased.
A firm commitment arrangement is when an investment banker buys all of the stock from the corporation and then resells it to the public at a higher price.
A private placement is an offering in which the company sells to private investors and not to the public. Private placements do not have registration fees.

The Prospectus
Prospectuses are legal documents that explain the financial facts important to an offering. They must precede or accompany the sale of a primary offering. The law requires companies selling
primary offerings to send prospectuses to anyone who wants to buy a primary offering. Prospectuses may also be used to solicit orders. Customers should read a prospectus carefully before purchasing any primary offering.
Prospectuses include but are not limited to the following:
• Offering price
• Legal opinions about the issue
• Underwriting method
• The history of the company
• Other costs related to investing in the stock
• The management team
• The handling of proceeds
The prospectus must be provided to customers before they complete any transactions. It must also include the SEC's disclaimers that it does not approve or disapprove of the stock being offered, and that it does not judge the prospectus' statements for accuracy.

Ways an Issue May Be Advertised Before it is Sold

A new issue of stock is allowed to be advertised before it is actually sold, although it may not be sold during the actual registration period.
Registered representatives are allowed to accept oral solicitations from clients. They are not allowed to sell any shares of the new stock. Neither are they allowed to affirm any offers of sale.
Registered representatives may send red herrings, or preliminary prospectuses, to clients. Information in these documents will discuss why the stock is being sold and the offering timetable. Red herrings are only issued for information purposes.
Tombstone advertisements are ads that announce the new stock. Their sole purpose is to function as communication. They are not prospectuses. They are called tombstones because they provide prospective buyers with the "bare bones" information: the name of the stock, the issuer and how to obtain a red herring.

How the Stock Market Works

Why Do Companies Issue Stock?

Companies throughout the world issue new stock shares every day. But what is stock, and why does a company issue it?  to better understand these important concepts we will discuss about below tropics one by one

• What is Capital?
• Equity vs. Debt
• Why Do Corporations Issue Stock?
• Advantages for Stock Holders
Let us begin by defining the word capital.

What Is Capital?

Let's imagine that you decide to start up your own ice cream shop business. You will need to invest in equipment, food supplies and property. All the money that you invest to start your business is called capital. Essentially, the capital of a business consists of all of its assets (or items to assist in the creation of wealth).
What if it dawns on you that you don't have enough cash to buy all the needed assets? Let's see how new businesses and companies deal with this problem.

Equity vs. Debt

To start a new business (or fund a new project) a company can raise money in two ways - by selling shares of equity or by incurring debt. If the owner of our ice cream parlor invested all their own savings to buy the materials necessary to start the business, they made an equity investment in the company. Equity is simply ownership of a corporation. Typically, ownership units in a corporation are referred to as stock.
However, if our owner did not have necessary funds to start their own business they could finance their operation in one of two ways:

1. Issue stock (or certificates of partial ownership in his company) to people who may be interested in helping their venture out in return for a proportional share of the profits that the company might generate.
2. Borrow money that will need to be paid back with interest.

So, what are the advantages of selling stock?

Why Do Corporations Issue Stock?
Businesses issue stock to raise capital.
Advantages of issuing stock:
1. A Company can raise more capital than it could borrow.
2. A Company does not have to make periodic interest payments to creditors.
3. A Company does not have to make principal payments.
Disadvantages of Issuing Stock:
1. The principal owners have to share their ownership with other shareholders.
2. Shareholders have a voice in policies that affect the company operations.


Advantages for Stockholders

As part owner of a corporation, you may be entitled to share in the profits of the company. There is also a chance that the company will grow and the price of the stock may rise.
If the company achieves economic success, the stock value will go up and stockholders will benefit. For example, if you invested $1,000 to buy 100 shares of a company at $10 each and the shares rose to $13 each you would gain $300. This is equivalent to a 30% return. In cases like this, both the stockholders and the business would be pleased.

Why the Stock market is down

The experts views are given below as the news websites has published. They says

Main reasons are govt intervention and Broker's reaction

Under the Govt Intervention they lists down following major points:
(1)Buying shares To show upward trend for political reasons
(2)Regulation introduced by CSE to control Brokers

Under the Brokers Reaction they lists down following major points:
(1)Giving incentives to individuals involved in purchasing of shares in govt institutions and selling at abnormal prices
(2) Providing unlimited credit facilities to certain parties To manipulate the market
(3)Selling shares at low price to react CSE Regulations

As the Solution , the experts proposes that the govt role should be providing facilities for favorable Business environment and not buying shares To show artificial upward trend in the market.

Colombo Stock Exchange(කොලඹ කොටස් වෙලඳපොල)

The Colombo Stock Exchange (CSE) is the main stock exchange in Sri Lanka. As of 31st May 2005, the exchange has 243 listed companies, and 20 business sectors are represented. It has a market capitalization of over 497 billion rupees (over US $ 4.9 billion) and this corresponds to approximately 24% of the country's GDP. Two indices currently exist in the CSE - The All Share Price Index ( ASPI) and The Milanka Price Index (MPI). It became the first South Asian member of the World Federation of Stock Exchanges in 1998 and it is also a founding member of the South Asian Federation of Exchanges (SAFE).

The Colombo Stock Exchange is organised in the form of limited liability company under the Companies Act, and it functions as a non-profit organisation. It has a mutual ownership structure and to date, has a membership of 15. All members are corporate bodies, and each is licensed to carry out the duties as a stock broker.

The Board of Directors is the policy making body of the CSE, which consists of 9 directors, and amongst the 9, one is elected as the Chairman. Of the nine directors, five are elected by the members, and the Minister of Finance appoints the other four.

The CSE has proven itself to be one of the top Emerging Markets stock exchange in the world, with a recorded consistent annual growth of over 30% in 2002-2004, and in 2006, an annual growth of 41.6% was attained. It continued to achieve strong growth in 2007, which saw the stock exchange achieve a historic milestone - ASPI surpassed the 3000 mark for the first time in history. The excellent performance of CSE has been attributed to its advanced infrastructure of a fully automated trading platform, therefore enhancing its competitive edge and efficiency among the modern exchanges today.