Develpment ofequity markets.pptVIP

Development ofequity markets Jeppe Ladekarl Financial Sector Department The World Bank Structure of presentation Overview of key building blocks for the development of an equity market What characterizes a “good” market Case: the US equity market Should equity market development be a public policy priority? What are the common (mainly regulatory) problems we see in emerging equity markets? The building blocks of the market Issuers Investors Intermediaries “Soft” infrastructure (legal, regulation supervision, accounting, taxation) “Hard” infrastructure (trading, clearing settlement, securities depository) Instruments Overview of the key components Desirable Market Characteristics Transparent: Timely and accurate information about prices and volume, as well as trends in supply and demand should be available Efficient: “Internally efficient”: low direct and indirect transaction cost (commissions, taxes, market impact costs) “Externally efficient”: market prices adjust “quickly” to new information (prices are fair). “Farma efficiency” Liquid: Market liquidity is not easily defined. Three factors are usually considered: tightness, depth and resiliency. A note on market liquidity Tightness is how far transaction prices diverge from mid-market prices. (bid-ask spreads). Market depth usually refers to the volume of trades possible without affecting market prices. (Amount of orders on the order book; market impact: fluctuation in quotes or bid-ask spread resulting from a trade). Market resiliency is the speed with which imbalances in the market are absorbed. (The speed of the restoration of normal market conditions (such as bid-ask spread and order volume) after trades). Case: The U.S. Equity Market - I Market venues: National exchanges: NYSE, Amex Regional exchanges: Boston, Chicago, Cincinnati, Philadelphia, and Pacific Stock Exchanges Over-the-counter markets: (NASDAQ, …) Brokered institution OTC market (NYSE Intermarket, Nasdaq intermarket,…) Direct institutional t