StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Securities Investor Protection - Essay Example

Summary
The paper “Securities Investor Protection”  is a relevant example of a finance & accounting essay. Security trading forms part of the wider financial market which involves selling and buying of securities between economic subjects based on demand and supply. The security market comprises bond markets, equity markets, and derivatives markets…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER99% of users find it useful

Extract of sample "Securities Investor Protection"

Security Trading Student’s Name Institutional affiliation Security trading Security trading forms part of the wider financial market which involves selling and buying of securities between economy subjects based on demand and supply. Security market comprises of bond markets, equity markets, and derivative markets where both professional and non-professional participants meet, and prices are specified. These markets consist of many professional participants such as market makers, brokerages, investment managers, broker-dealers, speculators, and those involved in the provision of infrastructures like securities depositories, and house clearing. The paper examines security markets, its professional participants, aims of financial regulations and the existing control structures. Security markets are significant in an economy to enhance transfer of real assets to financial ones, attract new capital, balance demand and supply through sustainable prices, and boost long and short-term investment (U.S. Securities and Exchange Commissions, 2016). Therefore, All the participants in security market come together to ensure: Commercial functionality through profit generation in the market. Sustainable market regulations are determined in the form of trade rules, priority determination, and contention control. Valid price determination to avoid securities mispricing and ensure a balance of supply and demand. The participants also ensure successful transfer of bonds and stock from willing sellers to buyers. Long-term and short-term security investment to generate profitability. Clearing Agencies They are charged with the responsibility of clearing activities in defining mutual obligation. They ensure collection, correction, and collation of vital information concerning security deals as well as preparing bookkeeping documents during securities delivery. Clearing agencies also consist of depositories responsible for warehouse activities. Their services include ensuring that security certificates are kept safely, and documenting and transfer of security rights. Depositories also provide safe keeping of securities’ owner's register. The task involves fixing, collection, storage, processing and provision of data in the register of securities’ owners (U.S. Securities and Exchange Commissions, 2016). Investment Advisor They constitute the firms or individuals operating the business of offering investment advice to investors. They also provide reports or in-depth analyses about securities to potential investors to guide them in decision making. Their services are however subject to compensation. Transfer Agents Transfer agents are responsible for tracking and recording changes of security ownership, issuing and cancelling certificates, keeping issuer’s security holder documents, and distributing dividends. They stand between security holder and the issuing company to ensure smooth and transparent transaction. Credit Rating Agencies They offer crucial information used to determine the creditworthiness or security of a company. They ascertain the quality of credit through grading. Credit ratings help distinguish between non-investment grade and investment grade. For instance, a top investing category may be represented by a triple A and non-investing grade may be represented by a double-B credit rating. Broker-dealer A broker- dealer is a firm or an individual operating the business of selling and buying securities. He/she can serve as a dealer or a broker based on the type of transaction. A brokerage operates as a dealer when it transacts for its account and as a broker when it operates on behalf of a client. Broker-dealers perform significant functions in a security market or financial industry at large (U.S. Securities and Exchange Commissions, 2016). They are involved in offering investment advice to customers, enhancing trade activities, supplying liquidity, publishing investment research, and generating capital for companies. The above definition of a dealer is insufficient in that it involves the activities of a typical trader rather than a dealer. This is because persons involved in sales of securities for themselves are referred to as traders and not dealers. A dealer can be identified for instance, if the individual or firm publicly advertises that it participates in making market in securities. Characteristics of a dealer include: Individuals involved in business transactions with the general public either institutional or retail. Persons letting others know that they participate in the business of selling and buying securities. Firms or individuals who make the market, or suggest the price for sales and purchases of securities. People involved in underwriting securities or selling group. Individuals writing derivative contracts in security trading industry. Firms or individuals offering services to investors including extending credit, handling securities and money and providing investment advice to investors. However, security market issuers cannot be considered as either brokers or dealer. They do not qualify as brokers because they are involved in securities’ selling for themselves and not for others. Additionally, they cannot act as dealers because they do not participate in buying and selling of securities as part or regular business for themselves. Some issuers buy securities from investors, and those operating markets effectively in their securities or those whose term can be altered. However, the employees or individuals assisting an issuer to sell its securities can be referred to as a broker especially when the issuer compensates them for their services. Market Maker A market making security is a designated security for tick rule or short selling exemption. A security market maker is thus responsible for offering a bid, providing enhanced liquidity and asking prices for Exchange Traded Funds (ETFs) to ensure continuity in security trading. The services of market makers are essential especially in the absence of active sellers and buyers leading to limited less liquid ETFs. Moreover, actively traded ETFs gain additional liquidity from security market makers when there are numerous task queues and orders at the bid. Aims of Financial Regulations Financial regulations are carried out especially in security market mainly to ensure protection for investors, reduce systemic risks and ensure transparency, fairness, and efficiency in financial markets. Investor Protection It is important that financial services sector be kept at high standards based on consumer protection and market conduct. Efficient market conduct among the financial services would help solve the high risks faced by investors (Securities Investor Protection Corporation Accessed, 2016). Securities regulations, in particular, would protect investors from manipulative, misleading or fraudulent activities such as front running, insider trading as well as misuse of client assets. Such regulations are aimed at compelling the securities market participants such as the brokers and dealers to comply with state requirements for conducting business. It aims at making accessible the neutral mechanism for addressing issues of misconduct in the market to the investors for appropriate action to be taken. Ensuring Fairness, transparency and efficiency in the market The regulations aim to provide fundamental operation rules and to license of exchanges to ensure fair securities market. The rules also aim to ensure efficiency and transparency in the market by providing equitable access to market facilities and information by the investor and other entities. Systemic Risk Reduction The regulations aim at minimizing the risk of failure of the financial market as well as averting the failure when it occurs to reduce spreading to other institutions. Through effective and efficient risk management tools it promotes comprehensive risk management by ensuring adequacy of financial requirements. Regulation Structure The financial management body consists of non-government or government organizations involved in monitoring and enforcing laws. The financial regulatory structure comprises: Supervisor of stock exchange: which is an exchange act for controlling exchange trading by ensuring that it is carried out correctly regarding execution, pricing process and trade settlement Supervision of listed companies: It is the responsibility of trading regulators to ensure that companies listed under market participant adhere to trading act provisions. Supervision of investors: Ensuring smooth operation of investment and asset management. Supervision of financial service providers and bank: The regulations under banking acts mitigates inappropriate developments interfering with bank operations. References Securities Investor Protection Corporation Accessed: April 6, 2016. Retrieved from: http://www.sipc.org U.S. Securities and Exchange Commissions. Market participants, Accessed: April 6, 2016. Retrieved from: http://www.Sec.gov/divisions/marketing/mrclearing.shtml North American Securities Administrators Association. The voice of state and provincial securities regulators. Accessed: April 6, 2016 Retrieved from: http://www.nasaa.org Read More

CHECK THESE SAMPLES OF Securities Investor Protection

The Issue of Disclosing the Information to Investors - Dynomine Company

The arguments that have been said in support for the disclosure requirement is that investor protection argument should be done to protect investors from making investment on the basis of fraudulent corporate practice.... The other argument that has been done in support of the investor market is that the investors will not be feeling threatened about securities and the security market.... he policy that underlies the corporate and securities legislation in Australia is that corporations will be required to disclose information about the business and financial structure to the public....
8 Pages (2000 words) Essay

Different Measures of Bond Yield

It is at this issue price that the investor can now calculate their expected returns from their investment choice.... The maturity period is the period with which the issuer has to repay the full amount to the investor.... On the other hand, the coupon rate or the interest rate is the rate by which the issuer of the bond pays the investor or the bondholder.... This means that investors have varied options where they can invest their funds in the securities markets....
6 Pages (1500 words) Essay

Imprudent Mortgage Lending, Poor Risk Management

… The paper "Imprudent Mortgage Lending, Poor Risk Management" is a good example of a macro & microeconomics essay.... nbsp;The global financial crisis of 2008 was a situation characterized by the massive collapse of stock prices worldwide mainly in the major stock markets of the US and Eurozone....
8 Pages (2000 words) Essay

Relationship of Interest Rates, Term to Maturity, and Marketability Financial Instruments

arketability is the ability of the investor selling their financial instruments quickly at fair market value and a lower transaction cost.... Higher marketability of the securities is achieved when their costs are low.... In a competitive financial market, the relationship between marketability and securities are varied inversely to interest rate and yields (Gogas, Papadimitriou, & Chrysanthidou, 2015).... In reality, the United States Treasury Bills are the securities that have the largest and most attractive secondary market....
6 Pages (1500 words) Coursework

Collateralized Debt Obligation

Such an organization launches a unique purpose vehicle like maybe a trust which is responsible for holding the guarantee and consequently issuing the necessary securities (Douglas 2003).... These mortgages are then packaged and granted like mortgaged back securities (MBSs)....
10 Pages (2500 words) Coursework

Managerial Accounting - Margin of Safety

The margin of safety in the stock market is regarded as an investment principle where an investor only buys securities when the market price is considerably below the intrinsic value.... This is because every investor contains a varying way of computing the intrinsic value that might or might not be accurate.... In this regard, Graham established that an investor can substantially reduce his or her risk by purchasing stock at a discount to its true value....
7 Pages (1750 words) Assignment

Effects of Crowd Funding on Business

nbsp; The authors note that crowdfunding permits an opportunity to test the marketability aspect, easier access to capital while its core weaknesses arise whenever investor protection from fraud is deemed imminent and its internet-based nature might limit investors from accessing pertinent advice.... To investors, crowdfunding could possibly foster investor-related education and an active stock market participation process.... he article notes that;  'Investment capital is just about everything for an entrepreneur but an investor's experience, contacts and mentoring can make all the difference to a start-ups success of failure'(Crowd Funding Alternative: Why Small Businesses Owners & Entrepreneurs Prefer Funding Through Business Angel Investors, 2014)....
5 Pages (1250 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us