42. The global equities market: size, indicators, principles of organization.

Equity market (stock market) is a public entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008.

Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.

The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organizations specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. Stock markets that have a physical location include the New York Stock Exchange, Chicago Mercantile Exchange, Tokyo Stock Exchange and London Stock Exchange. These organizations incur operating expenses, such as rent and utilities. Other securities markets lack physical substance and operate "over-the-counter," or OTC, trading platforms. An example is the National Association of Securities Dealers Automated Quotation, also known as NASDAQ. OTC markets incur fewer operating expenses, although their information-technology costs may run higher.

The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange affords the investors gives them the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. Some companies actively increase liquidity by trading in their own shares

Indicators for equity markets

Traditional: Market capitalization to GDP, Tunover ratio, Stock traded to GDP

New: Access: Market capitalization, trading volume of top 10 firms. Efficiency: Liquidity, Transaction costs, private information trading; Stability: Volatility, price earnings ratios, duration, vulnerability to earning manipulation.

Principles of organization

Organizations play the stock-market game by issuing stocks and bonds on securities exchanges. Stock or bond issuance enables a company to tap into a deep liquidity pool, helping the firm fund its short-term activities or long-term expansion plans. Institutional investors, such as banks and hedge funds, work in tandem with portfolio managers and traders to inject liquidity into the market. A liquid exchange allows sellers and buyers to trade assets quickly and at market prices. Individual investors also buy and sell financial products on stock market, an important process that helps people meet their retirement goals.

Government agencies monitor stock-market players' actions, ensuring that investors maintain high standards of conducts when trading. Regulatory oversight ensures a level playing field in securities exchanges, barring shrewd participants from manipulating prices and reaping ill-gotten profits. The most important U.S.-based stock-market regulators include the Securities Exchange Commission, Commodities Futures Trading Commission and Financial Industry Regulatory Authority.