The oldest stock exchange in the world, New York, 225 years old. In that distant 1792, its founders - two dozen merchants - agreed to meet from time to time to jointly resolve common financial issues. In warm weather - under the poplar, in the rain - in the tavern. Then the rules of the game with securities and the principle of deduction of commissions were established. Two centuries later, they practically did not change.
Regulated by the state
The exchange is capable of ruining one, and making the other a millionaire. Who is lucky. Rather, how competent a stock employee will be - a professional participant in the securities market. This is the trustee of the owner of the shares or foreign exchange savings, which manages the assets of the client. Legal entities that have obtained licenses for one or several types of activity are entitled to conduct transactions on the market: securities management, dealership, depository or brokerage. The general management of the successful functioning of the site is supported by bidders.
The performance of the exchange is regulated by the state. In 1996, the Federal Law “On the Securities Market” was published in the Russian Federation - 39 Federal Laws. It defines the structure issuing permission to applicants to carry out activities on the trading floor. They became the Federal Executive Authority for the Securities Market. In addition to the independent issuance of licenses, he can appoint, on the basis of a power of attorney, authorized persons who have the same authority to issue permits as the parent body. The main structure and its principals provide oversight of securities market participants. If they violate the law, the licenses are revoked.
Allowed and forbidden combinations
Regular exchange players have a lot of diverse and extremely necessary information for their work that can affect the mood of the market. In addition to the state of current quotes, they should be able to predict their growth or decline in the very near future, in order to understand on the purchase or sale to provide their client with income, and themselves - a reward from him. A financial market consultant, as a rule, combines several exchange professions in his practice. A broker can simultaneously be a dealer. In addition, he has the right to combine custody activities with securities management. For each of these four types of activities, he must have an appropriate license. In addition to the above combinations, it is permissible to carry out a clearing position with a depository. Also, Federal Law 39 allows you to simultaneously have licenses of the organizer of trading and clearing.
But in order to avoid a conflict of interests among shareholders, the law prohibits certain types of activities on the exchange from being conducted in parallel. It also contains a list of operations that cannot be performed by specialists who have several licenses at once. Thus, he has the right to conduct securities management activities simultaneously with depository or clearing, but he is no longer entitled to organize centralized depository or clearing services for transactions or to transfer securities to depositary or clearing accounts. In order to understand what is possible and what is not possible when combining activities on the stock exchange, the Federal Law “On the Securities Market” is important to thoroughly study before obtaining the appropriate licenses. The above example is just a small part of what you need to know. As for the leading registers of securities owners, the law categorically forbids them to combine several professions in the market.
Closed Open Society
It is quite difficult for an accidental person to understand the upheavals of the exchange, and he often has a feeling of controlled chaos in the bowels of the trading platform. However, its hierarchy for those who have a license of a professional participant in the securities market is simple and understandable. The main thing is to thoroughly know the rules of the game, all their associated factors and pitfalls in the form of unforeseen changes in trends. Not everyone can manage all this. It is not enough here to have an analytical mindset and fluently solve complex mathematical examples without a calculator. You need to have a kind of small computer in your head. Because there are not so many successful players. Often they are combined into commercial companies. For example, brokerage.
Large organizations prefer the form of a closed joint-stock company and differ in a multi-level internal system. Depending on the number of customers, their solvency, the need to conduct business in world markets, brokerage companies can have from several hundred employees to several thousand. Financial support is provided by the Bank of Russia. Professional participants in the securities market should not be individual entrepreneurs or employees of credit companies. This requirement is spelled out in the 39th Federal Law.
A standard brokerage company consists of a front office, back office, accounting and analytical services. The first division carries out transactions in the market. The second - provides support for front-office employees within their own company, maintains a general record of operations by type of securities, etc. The main function of the analytical service is market research, development of a stock movement strategy. For accounting - reporting.
How lucky with a broker
Without a doubt, the most prominent person on the exchange is a broker. His activity is carried out at the expense of the employer (client) and is provided with his assets. Brokerage in the securities market depends on many subtleties and, in addition to the appropriate permission, is regulated by agreements with principals depending on the types of transactions they need. The broker works with securities of legal entities and individuals, as well as assets of the state, its entities and municipalities. A broker is a kind of intermediary between persons wishing to purchase and sell securities. He can simultaneously conduct business of several clients. His services are determined by the individual requirements of each particular employer.
The most common type of activity of an employee of a brokerage company is carrying out operations with shares or currency. As the requirements for professional participants in the securities market are constantly growing, the list of their services is expanding. It all depends on the needs of the client. One is limited to extensive consultation with a discussion of possible investment risks. The second is necessary to provide both legal and accounting support for operations with securities. A third may require competent insurance of all their operations. But most often, the client hires a broker to carry out transactions on the sale of securities with the greatest benefit for themselves.
A broker can combine several professions and simultaneously be a dealer, depository, securities manager. He conducts his activities under contracts of commission, commission or agency. Each of them has its own characteristics and rarely one is similar to the other.
Tenant Risks
Depending on the type of contract concluded between the client and the professional player, their rights and obligations to each other are regulated. Brokerage in the securities market is characterized as an intermediary between the client and the subject of the stock market trading. The client buys other people's assets or sells his own, in the end, despite the activities of the broker, he remains at his own - money or securities. The probability of enrichment or the possibility of ruin are the risks of the employer, no matter how the intermediary works. For the profit brought by the broker, the client pays him the due reward. However, if the intermediary did not work in the best way, which led to the financial loss of his employer, the broker is not liable for damages.
A professional participant in the securities market is not so much a trustee of a client as his financial manager, whose well-being depends on its loyalty. The game on the market is not only “for” the asset holder, but also “against”. If an intermediary conspires with persons interested in ruining his employer, losses from operations with securities are inevitable and may lead to complete ruin of the principal. Financial risks entirely fall on the asset holder, no matter what contract he concludes with the broker: instructions, commissions or agency services. Some guarantees to the client against possible losses can be provided by orders - one-time instructions for carrying out a particular operation. They are carried out within the contract and have their own distinctive features.
Equal - to order
As already mentioned, the broker's main activity is the sale and purchase of securities. His relationship with the client is regulated by the contract, and interaction - by orders. The following details shall be reflected in them: type of security (may be indicated by a symbol), quantity (in units), type of account (cash or margin), as well as the person in whose name the acquired assets will be registered. It may be a financial advisor or a trustee of the employer.
The algorithm for interacting with orders is as follows. The broker receives recommendations from the client indicating the operation with securities. The contractor studies them, analyzes and carries out a transaction on them, after which the employer reports on it. After the calculation, the securities are re-registered to a new person, which may be a professional participant in the securities market. This condition must necessarily be fixed in the order. Without it, the broker is not entitled to record the acquired assets on himself.
There are four types of orders: market, limit, stop order and stop limit. The first involves buying securities at the lowest market price, and selling at the highest. The initial value of the securities is not known to either the client or the broker. The fixed value is reflected in the limit order. He gives clear instructions no higher than what price to buy and no lower than what to sell stocks or currency. Stop order and stop limit order have their own characteristics and are focused on unforeseen market fluctuations. Depending on the terms of execution, they are divided into urgent and open. The choice in favor of one or the other is the prerogative of the client.
Your own dealer
Like any other professional activity at the RZB (securities market), the dealership is also regulated by Federal Law 39 and a specialized license. It is issued for three years, during which the legal entity that received it has the right to carry out transactions on the exchange for the purchase and sale of corporate assets of private entities, as well as government securities. For each of these two types of exchange practices, you must have a separate license.
Dealer activity in the securities market is carried out both at the expense of equity and at the expense of the client. In the first case, he acts as a trader, earning on the difference in the sale of goods, in the second - as a professional participant in the securities market, having income from client compensation. Unlike a broker, a dealer can perform operations on his own behalf, and most importantly, set and publicly announce the price of securities depending on the demand for them, maintain their liquidity. In other words, ensuring the active and successful functioning of the market depends entirely on the dealer. He must have sufficient means for this to smooth out the situation on the stock exchange at any time if the market demand for certain securities changes dramatically.
As a rule, dealers are large law firms with large net worth. Their solvent reputation is important, giving confidence that at the right time they can get the support of banks. In this case, the company may have unlimited funds to maintain reliable market functionality in any negative situation. Like other types of professional participants in the securities market, the dealer may limit himself to the role of a financial consultant for his clients, but such a fate gives an unstable and small income. Because dealers combine several types of activities. They can also be brokers, securities managers, depositories.
Managers and depositories
With the exception of registrars of registries and trade organizers, other exchange employees can combine several specializations in their securities management activities. This often happens. The role of managers and depositories is played by large investment companies and commercial banks, which conduct operations at the expense of investors. Responsibility to each other they determine in the contract containing the investment declaration. Most successful shareholders and bondholders hire professional managers to manage their own funds. This minimizes the risks of losses when investing in risky operations.
As for depositories, they work with client-issued securities certificates. In addition, they keep records and custody accounts of financial assets of depositors. The dishonest activity of depositories to their principals can lead to the fact that they will be held accountable on completely legal grounds, because not every bank decides to conduct exchange practice. It must have the status of a self-regulatory organization of professional participants in the securities market and have the appropriate licenses.
Aside from vigorous activity - the registrar
Fluctuations in quotes, anxiety about the success or failure of invested assets have little impact on such direct exchange specialists as registrars of registers of securities owners. Their task is timely and meticulous fixing, as well as processing the data of investors whose assets are rotating in the market. The register is filled in accordance with a specific system and has its own characteristics. Professional participants of the Russian securities market are familiar with them firsthand, therefore it is forbidden by law to be a registrar and conduct other exchange activities in parallel. The rule was introduced to protect confidential data on the financial condition of shareholders and investors.
Registers are necessary so that at the right time it can be easily identified on the market the owners of the invested assets and to fulfill certain obligations in relation to them. These may be dividends from concluded transactions, ensuring the participation of shareholders in the general meeting, etc. The registries are conducted solely on issuing registered securities. Issuers can also deal with them, but only if the number of asset owners with whom they collaborate is kept within 50 people. Over this amount, registries are maintained by other professional participants in the securities market. They are just the registrars. Moreover, the trustee of the asset holder can cooperate with only one registrar, the same, for its part, can conclude agreements with any number of issuers.
