 Welcome back everyone. So this week we're going to look at equity markets. We will have a look at what equity markets are, what stock exchanges are, the difference between the two. Then we'll look at the transactions that take place at the stock markets. After this we'll move on to understanding what the efficient market hypothesis is all about and how it relates to the equity markets. And then finally, we'll see how stocks are issued. We'll look at the different ways that companies can raise capital through equity financing. So first things first, if we want to look at stock markets and stock exchanges, you may recall a few weeks ago when we had a chat about what are stock markets. So now we're going to delve a little deeper into this and we will see what stock markets actually are and how they look like. So basically stock exchanges are these kinds of trading floors where you have different buyers and sellers of securities they meet up and they trade with these securities. Now these kinds of exchanges are composed of two different types of exchanges. So you'll have secondary markets and then primary markets. Of course we're going to have a look at what primary markets look like and what secondary markets are. We will see the different transactions just shortly from now. Normally stock exchanges, the way that they function is that they act like a platform that gives investors with all the information that they need to learn about the stocks, to learn about the performance of the securities, so that when they make their investments, they make an informed decision based on the data that is available for them. And so because of this, when we look at stock markets and we try to understand what stock markets are, we can see that stock markets are basically exchanges and markets together. So these are basically places or platforms where the trading and different securities take place. So here when we're talking about securities, we're talking about stocks and we're talking also about bonds. So not only in equity security, not only in equity financing but also we're talking about debt financing options. Normally if we want to issue stocks or if we want to start trading with stocks, as we said there is primary markets and there are secondary markets, something that we will be looking into together today. But in general, what you have, we have different types of financing options through equity financing. The first one is through initial public offering. Here is when a company decides to issue stocks for the very first time and they decide to sell these stocks to sell these shares for the public. So for the general public, anyone can subscribe to it. And this is basically the very first time someone buys the shares of this particular company or this particular organization. So basically they are the first owners. Relatively speaking, they become the first owners of the shares of the newly issued shares. If we're talking about the secondary offering, secondary offering is the sale of an already sold or an already issued security. So here what we're talking about, remember when we said that initial public offering is basically when you start selling the shares for the very first time of a particular company. Now here is basically when you start trading with these shares that were already purchased by particular investors. So now these investors who bought the shares for the very first time are offering the shares for other investors who are interested in buying these shares. Now if we're talking about private placements could be a primary market offering, a primary market or a secondary market kind of offering. We will look into how this happens again within today's presentation. However, for us to understand right now the general notion of private placement is when a company decides to issue specific shares and these shares are to be sold for specific pre-selected investors. So these could be institutional investors like hedge funds, equity, like private equity funds or even to investment banks. So these are pre-selected organizations or institutions or even high net worth investors. So it could be individuals. These pre-selected individuals are offered the opportunity to buy into the stocks of these of the company that is issuing the stocks. So basically here it's issuance of stocks but the sale of the stocks is for pre-selected group of investors. So for private investors put it this way rather than issuing it for the general public like an IPO. Now stock buyback is a little different from all these three financing options that we looked into. So stock buyback is basically when an organization decides that they want to buy back all the shares that were already sold for the public or maybe even through private placement. So if there are shares that are being traded on the trading floors, if there are shares that are already owned by institutional investors or by private investors, then the organization may decide to take these shares and put it back to buy them back again so that the company would return to become private rather than become a publicly held organization or a publicly held company. Now these are the different kinds of these are the basically the differences between between stock exchanges and stock markets. Now if we want to understand a little deeper about the kind of transactions that happen within the stock markets, here we can divide them into two parts. You have primary market transactions and then secondary market transactions. If you remember from what we just seen together about IPOs and private placements and stock buyback and also secondary offerings, these are now allocated and as we will see they take specific they are traded in specific markets. So if we're talking about primary market transactions here is basically when initial public offering takes place. As we said initial public offering is the very first time that the organization issues its shares for the public and so the trading that happens is a trading market transaction in this kind of situation. Now when we spoke about private placement is also a primary market transaction because the shares initially were issued for the very first time from the organization itself and it becomes a primary market transaction. And as we said there is an exception sometimes these transactions so for private placements sometimes these could be secondary market transactions but these are very rare and very specific and there are specific basically rules for you to become a secondary market transaction. But the general notion is that private placement is a primary market transaction. Now if we're talking about secondary market transactions basically when you have already had the shares issued for the very first time now these already owned shares, publicly owned shares become traded in secondary markets on trading floors in the Europe stock exchange for example where the first owners of these shares would offer them to other investors who are interested in buying the shares of the specific company or organization that the primary investor have held the shares for. So this is where the secondary market this is where secondary market takes place secondary market transactions take place. Another way or another kind of transaction that takes place in the secondary markets is basically when you have a secondary offer. Now we've looked at a primary at a private placement and initial public offering so initial public offering when the shares were very first introduced and for the public for the very first time secondary offering is basically when you resell these already sold that these already owned shares again in the stock markets for the second time basically. Now stock buyback as we explained in the previous slide is when an organization decides that it wants to buy back again the shares that were already traded and that were already traded and owned by different investors so it purchased them back again and then it becomes a private institution. But the question is how do I know if a the market that I'm trading in is a good market or a strong market how will I know if all the data that is being given to me as an investor is actually all the data I need to make an informed decision or not. Basically this is where the efficient market hypothesis comes into play so the efficient market hypothesis takes all the data and all the information about a specific company about the securities of these organizations any security that is traded in the stock exchanges in the stock markets and looks at this data to help assist investors make an informed decision about the particular price of the security whether that securities price is justified based on the data or maybe it is inflated so investors in this instance are able to make a very informed decision about their investments so what it does it it gives investors the opportunity to make them their informed decision about a particular investment about a potential investment that they are interested in and for us to see whether this is something tangible or not as investors we can measure the efficient market hypothesis in three different ways so we have a strong measurement and then we have a weak one and then we have a semi-strong one so if we're talking about a strong strong markets or a strongly efficient markets here that means to us that all publicly available data and all private data have been shared and the price basically reflects all these publicly available and privately available data and that means in situations like these or in markets basically like these there isn't any room for someone to make access returns on the basis that they have maybe some information that wasn't available that wasn't available to other investors and this means that the room for insider information here that affects the share price is null now if we're talking about weak markets that means that basically the prices of the price of the securities we've traded within this markets are reflected only based on past available past publicly available data or information so it's we're not talking here about data that is updated we're talking about data that is that happened in the past so we're collecting past data and this past data has effects basically the share price or this the price of the security and because of this here normally the room to make access returns is a little difficult to find so it is minimal again but insider information could help particular investors maybe gain a little advantage why because already the information that is there would does not at the insider information that a particular individual have could have an effect on how the price of the share or the price of security could could fluctuate on the other hand if we're talking about a semi strong markets here we're talking about markets that their prices or the shares of these the prices of these securities are only affected by past publicly available data and past publicly available information and because of this the changes and the price of these securities is going to be very much dependent on the amount of data that is being fed on the new data that is being fed into the market now here normally making returns or making excess returns could be achieved by taking risk that is higher or by using maybe non publicly available information so these are basically the measurements of how we can measure a strength of a market or an exchange but if we want to look at the way that stocks are issued remember when we said we have primary market transactions and then we have secondary market transactions now we're going to delve a little deep into these what are primary market transactions so here again we try to re-emphasize what we discussed before that primary market transactions are stocks that are being traded for the very first time that are being issued for the very first time to the public and here buyers of the buyers of these shares of the security of these stocks are first time owners of the stocks that were issued this could happen through initial public offering or through private placement secondary market on the other hand is as we explained these already sold stocks or already issued stocks or share or securities are being resold to new owners so the first owners are now reselling these securities to secondary owners or to other owners and here we have different types of markets so we have a broker's markets which basically are exchanges where buyers and sellers meet together on a trading floor through a particular broker and this broker on a centralized floor makes a transaction on behalf of these two parties for broker's markets we have two types of that they are divided into two main types of markets so we have national exchanges and then we have regional exchanges if we want to understand what national exchanges are think about New York Stock Exchange if you want to to learn if you want to differentiate between what national exchanges and regional exchanges think about regional exchanges as the Boston Stock Exchange now on the other hand to the to the broker's markets we have the dealer's markets so we said if there in the broker's markets there is a particular centralized floor where the buyers and sellers meet together and the broker basically facilitates the exchange of the shares of the money and the shares or the stocks between the buyers and the sellers in a dealer's market there is a floor there is a trading floor but this trading floor is not centralized like in the broker's market this one is mostly decentralized and the fact that it is decentralized means that it utilizes or it uses the it benefits from the telecommunication networks to facilitate any trade in these stocks or shares and in this particular instance these dealers could be on a national level so that we don't have a regional or national markets rather it's all the transactions take on a national level and they take a place on what we call over-the-counter transactions or over-the-counter markets so OTC basically stands for over-the-counter this is what we wanted to discuss for for this week about how shares are issued the types of secondary markets and the different types of exchanges and stock markets and also how we can measure the efficiency of exchanges and markets but before I leave you I'd like for you to have a thought about a particular thing so if we want to if we want to assess private and public data for a particular security as an investor what would you what kind of measurement would you do what kind of data would you prefer to have access to so as an investor for you to make an informed decision what kind of data do you think you would need to make an informed decision and subsequently to purchase a particular stock or invest in a particular security think about this and I look forward to seeing you next week