Stock Exchange | Jamb Commerce

What is Stock Exchange

1. Definition of Stock Exchange: A stock exchange is a regulated market where securities such as stocks, bonds, and other financial instruments are bought and sold.
2. Purpose of Stock Exchange: It serves as a platform for companies to raise capital by issuing securities and for investors to buy and sell securities.
3. Liquidity: Stock exchanges provide liquidity to the market by allowing investors to buy and sell securities quickly.
4. Regulation: Stock exchanges are regulated by governmental and independent agencies to ensure fairness, transparency, and accountability in transactions.
5. Price Discovery: Stock exchanges enable the process of price discovery, where the prices of securities are determined based on supply and demand dynamics.
6. Market Access: Stock exchanges provide access to global financial markets, allowing international investors and companies to participate in trading.
7. Transparency: Transactions on the stock exchange are made public, ensuring transparency in pricing and operations.
8. Organized Marketplace: It is an organized and controlled marketplace where financial instruments are traded.
9. Market Participants: Participants include individual investors, institutional investors, brokers, dealers, and market makers.
10. Market Capitalization: Stock exchanges play a significant role in determining the market capitalization of companies listed on them.
11. Market Depth: Stock exchanges help create a deep and diverse market, with a range of securities catering to different types of investors.
12. Accessibility for Investors: Through stock exchanges, both institutional and individual investors can buy and sell securities easily.
13. Global Connections: Stock exchanges facilitate international trade and investment through cross-border listings and global market linkages.
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Importance and Functions of Stock Exchange

14. Capital Formation: The stock exchange helps in capital formation by providing companies with the opportunity to raise funds from the public.
15. Investment Opportunity: It offers investors the opportunity to invest in a variety of securities, enhancing their portfolio diversification.
16. Economic Growth: The efficient functioning of the stock exchange supports economic development by channeling savings into productive investments.
17. Price Discovery: It allows for the determination of the value of securities based on market demand and investor sentiment.
18. Liquidity Provision: The stock exchange ensures that there is liquidity in the market, enabling investors to buy and sell securities at fair prices.
19. Investor Confidence: By providing transparency and regulation, stock exchanges help build investor confidence in financial markets.
20. Risk Diversification: Investors can diversify their risk by investing in various types of securities available on the stock exchange.
21. Market Integrity: Stock exchanges play a crucial role in maintaining the integrity of financial markets by preventing fraudulent activities and ensuring compliance with regulations.
22. Resource Allocation: It helps in the optimal allocation of resources by directing capital to productive enterprises and industries.
23. Information Dissemination: Stock exchanges provide real-time market data and corporate information, helping investors make informed decisions.
24. Government Revenue: Stock exchanges contribute to government revenues through taxes on transactions and corporate listings.
25. Corporate Governance: Listing on a stock exchange often requires companies to adhere to higher standards of corporate governance and transparency.
26. Investor Education: Stock exchanges often promote investor education through workshops, seminars, and publications to help individuals make informed investment decisions.
27. Price Transparency: Stock exchanges offer transparency in pricing, allowing for fair and competitive trading.
28. Market Regulation: Stock exchanges are regulated by securities commissions and other regulatory bodies to ensure market integrity and fairness.
29. Economic Indicator: The performance of a stock exchange often reflects the overall health of an economy, with indices serving as key economic indicators.
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Types of Securities

30. Equity Securities: Securities that represent ownership in a company, such as stocks and shares, entitling the holder to a portion of the company’s profits and assets.
31. Debt Securities: Securities representing borrowed funds that must be repaid with interest, such as bonds and debentures.
32. Derivative Securities: Financial instruments whose value is derived from the price of an underlying asset, such as futures and options.
33. Preferred Shares: A type of equity security that entitles the holder to a fixed dividend and has priority over common stock in the event of liquidation.
34. Convertible Bonds: Bonds that can be converted into a specified number of shares of the issuing company.
35. Government Securities: Bonds and other debt securities issued by the government to raise capital.
36. Corporate Bonds: Debt securities issued by corporations to finance their operations or expansions.
37. Municipal Bonds: Bonds issued by local government entities to finance public projects, offering tax advantages to investors.
38. Exchange-Traded Funds (ETFs): A type of security that tracks an index, commodity, or a group of assets and is traded on a stock exchange.
39. Mutual Funds: A pool of funds from multiple investors, managed by a professional fund manager to invest in various securities.
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Stocks

40. Definition of Stocks: Stocks represent a share of ownership in a company, giving the holder voting rights and the opportunity to receive dividends.
41. Common Stocks: The most common type of stock, giving shareholders voting rights and dividends based on company performance.
42. Preferred Stocks: These stocks offer fixed dividends and have priority over common stock in case of liquidation, but typically do not come with voting rights.
43. Growth Stocks: Stocks of companies expected to grow at an above-average rate compared to other companies in the market.
44. Value Stocks: Stocks that are undervalued in price relative to their earnings or book value, often offering high dividend yields.
45. Dividend Stocks: Stocks that regularly pay dividends to shareholders, offering income along with potential capital appreciation.
46. Small-Cap Stocks: Stocks of companies with a small market capitalization, typically under $2 billion, offering high growth potential but higher risk.
47. Blue-Chip Stocks: Stocks of large, established companies with a history of stability, reliable earnings, and dividend payments.
48. Penny Stocks: Stocks with low prices, often below $5 per share, typically belonging to small or emerging companies.
49. International Stocks: Stocks from companies based outside the investor's home country, offering diversification into global markets.
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Shares

50. Definition of Shares: Units of ownership in a company, representing a claim on part of the company’s profits and assets.
51. Rights Shares: Additional shares offered to existing shareholders at a discounted price to raise capital.
52. Bonus Shares: Additional shares given to existing shareholders as a bonus, usually in proportion to the number of shares they already own.
53. Stock Split: A corporate action where a company increases the number of shares in circulation by issuing more shares to existing shareholders.
54. Shareholder Rights: Shareholders have rights such as the right to vote in shareholder meetings and the right to receive dividends.
55. Non-Voting Shares: Shares that do not grant voting rights in shareholder meetings, but may still entitle holders to dividends.
56. Preferred Shares: Shares that offer fixed dividends and are given priority in the event of liquidation, but typically lack voting rights.
57. Redeemable Shares: Shares that a company can buy back from shareholders at a specified time and price.
58. Founders’ Shares: Shares issued to the founders of a company, often granting them special voting privileges or additional rights.
59. Voting Shares: Shares that grant shareholders the right to vote in important company decisions, such as electing directors.
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Bonds

60. Definition of Bonds: Debt securities issued by corporations, municipalities, or governments, promising to pay a fixed amount of interest and repay the principal at maturity.
61. Government Bonds: Bonds issued by a government, considered low-risk investments, and offering various maturities and interest rates.
62. Corporate Bonds: Debt securities issued by corporations to raise capital, with interest paid to bondholders periodically.
63. Municipal Bonds: Bonds issued by local government authorities to fund public projects, offering tax advantages to the investor.
64. Treasury Bonds: Long-term debt securities issued by the national government, often regarded as a safe investment.
65. Coupon Bonds: Bonds that pay interest to the holder at regular intervals (typically semi-annually) until maturity.
66. Zero-Coupon Bonds: Bonds that do not pay periodic interest but are issued at a discount to their face value, with the full value paid at maturity.
67. Convertible Bonds: Bonds that can be converted into a specified number of shares of the issuing company.
68. Callable Bonds: Bonds that can be redeemed by the issuer before their maturity date, typically at a premium.
69. Perpetual Bonds: Bonds that do not have a maturity date and pay interest indefinitely, often with a fixed rate.
70. Junk Bonds: High-risk, high-yield bonds issued by companies with lower credit ratings, offering higher returns to compensate for the risk.
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Debentures

71. Definition of Debenture: A long-term debt instrument issued by corporations, often unsecured, that pays interest at regular intervals.
72. Convertible Debentures: Debentures that can be converted into shares of the issuing company at a later date, usually at a pre-determined price.
73. Secured Debentures: Debentures that are backed by the issuer’s assets, providing additional security for investors in case of default.
74. Unsecured Debentures: Debentures not backed by any specific assets, meaning investors face a higher level of risk.
75. Fixed Rate Debentures: Debentures that pay a fixed rate of interest over the life of the bond.
76. Floating Rate Debentures: Debentures with interest rates that are linked to a benchmark rate, such as LIBOR, and can fluctuate over time.
77. Redeemable Debentures: Debentures that can be redeemed by the issuing company before their maturity date at a specified price.
78. Irredeemable Debentures: Debentures that do not have a maturity date and cannot be redeemed before the company’s liquidation.
79. Debenture Holders: Investors who hold debentures, receiving periodic interest payments and the principal repayment at maturity.
80. Debenture Issuance: Companies issue debentures to raise capital for expansion, acquisitions, or other business activities.
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Procedure of Transactions and Speculations on the Stock Exchange

81. Placing an Order: Investors place orders with brokers to buy or sell securities, specifying the quantity and price.
82. Market Orders: A type of order where securities are bought or sold immediately at the prevailing market price.
83. Limit Orders: Orders that specify a maximum price for buying or minimum price for selling securities, ensuring the transaction happens only at the desired price.
84. Brokerage Firms: Intermediaries who facilitate buying and selling of securities on behalf of investors, earning a commission for their services.
85. Clearing and Settlement: After a transaction, clearing and settlement processes ensure that securities are transferred and payments are made.
86. Stock Market Speculation: Investors buying securities with the expectation of profiting from future price movements, often in the short term.
87. Margin Trading: Borrowing money from a broker to purchase securities, amplifying both potential gains and risks.
88. Short Selling: Selling securities not owned by the investor, hoping to buy them back at a lower price to make a profit.
89. Market Makers: Firms or individuals who provide liquidity by standing ready to buy and sell a particular stock on the exchange.
90. Arbitrage: The practice of buying and selling the same asset in different markets to profit from price differences.
91. Hedging: Investors use derivative securities, such as options or futures contracts, to reduce potential losses from adverse price movements.
92. Insider Trading: The illegal practice of buying or selling securities based on confidential, non-public information.
93. Speculative Investments: Investments made with the expectation of high returns, often accompanied by a high level of risk.
94. Tick Size: The minimum price increment at which a security can be traded on the stock exchange.
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Second-Tier Securities Market

95. Definition of Second-Tier Market: A market for securities that are not as widely traded as those in the primary or top-tier market, offering growth potential for smaller companies.
96. Emerging Markets: The second-tier market often involves emerging companies or industries that have the potential for substantial growth but may carry higher risk.
97. Listing on Second-Tier Markets: Companies can list on the second-tier market if they do not meet the requirements for the primary market but still seek public investment.
98. Growth Opportunities: The second-tier market is an avenue for smaller businesses to raise capital and expand operations.
99. Liquidity Risk: Securities on the second-tier market may have less liquidity, meaning it could be harder to buy or sell in large volumes.
100. Investment Opportunities: The second-tier market provides opportunities for investors to diversify their portfolios and potentially capitalize on the growth of small companies.
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Listing Requirements

101. Regulatory Compliance: Companies must comply with specific regulatory requirements to be listed on a stock exchange, including financial disclosures and governance standards.
102. Minimum Market Capitalization: Exchanges often require a minimum level of market capitalization for a company to be eligible for listing.
103. Financial Reporting: Companies must submit regular financial reports, including quarterly and annual earnings statements, to remain listed.
104. Governance Standards: Publicly listed companies are required to have a board of directors and follow corporate governance practices that protect shareholders.
105. Audit Requirements: Listing on a stock exchange often requires companies to undergo independent audits of their financial statements.
106. Liquidity Requirements: Companies must demonstrate sufficient trading volume to ensure liquidity in the market.
107. Investor Protection: Listing rules are designed to protect investors by ensuring companies provide accurate and complete information.
108. Financial Health: Companies must show financial stability and growth potential to meet the listing criteria.
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Types of Companies for the Market

109. Public Limited Companies: Companies that have shares listed on a stock exchange, allowing the public to buy and sell shares.
110. Private Companies: Companies that are not listed on a stock exchange and are owned by a small

Advantages and Operating Regulations of the Market

115. Capital Access: The stock exchange provides companies with access to capital by allowing them to sell shares and bonds to the public.
116. Liquidity: Investors can quickly buy and sell securities, providing liquidity to the market.
117. Diversification: Investors can diversify their portfolios by purchasing different types of securities.
118. Market Efficiency: The stock exchange facilitates the efficient allocation of resources by matching buyers and sellers in a transparent marketplace.
119. Increased Visibility: Listing on the stock exchange increases a company’s visibility and credibility, attracting potential investors and customers.
120. Operating Regulations: Stock exchanges have stringent rules to ensure fairness, transparency, and efficiency in the market, including the prohibition of insider trading and market manipulation.

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