POSLOVNE FINANSIJE_SEMINARSKI

8/13/2019 POSLOVNE FINANSIJE_SEMINARSKI

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POSLOVNE FINANSIJE:

STOCK EXCHANGE AND TRADING ON STOCK EXCHANGE

Name "stock market" is not exactly determined.

The stock exchange is organized place, with stictly defined rules of trading of securities.

A stock market or equity market is a public entity (a loose network of economic transactions, not

a physical facility or discrete entity) for the trading of companystock(shares)andderivativesat

an agreed price; these aresecuritieslisted on astock exchangeas well as those only traded

privately.

The size of the world stock market was estimated at about $36.6 trillion at the start of October

2008. The totalworld derivatives market has been estimated at about $791 trillion face or

nominal value, 11 times the size of the entire world economy. The value of the derivatives

market, because it is stated in terms ofnotional values,cannot be directly compared to a stock or

a fixed income security, which traditionally refers to anactual value.Moreover, the vast majority

of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a

comparable derivative 'bet' on the event notoccurring). Many such relatively illiquid securities

are valued asmarked to model,rather than an actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation ormutual

organizationspecialized in the business of bringing buyers and sellers of the organizations to a

listing of stocks and securities together. The largest stock market in theUnited States,by market

capitalization, is theNew York Stock Exchange(NYSE). In Canada, the largest stock market is

theToronto Stock Exchange. Major European examples of stock exchanges include

theAmsterdam Stock Exchange,London Stock Exchange,Paris Bourse, and theDeutsche

Brse(Frankfurt Stock Exchange). In Africa, examples includeNigerian Stock Exchange,JSE

Limited, etc. Asian examples include theSingapore Exchange, theTokyo Stock Exchange,

theHong Kong Stock Exchange, theShanghai Stock Exchange, and theBombay Stock

Exchange.In Latin America, there are such exchanges as theBM&F Bovespaand theBMV.

Market participants include individual retail investors, institutional investors such as mutual

funds, banks, insurance companies and hedge funds, and also publicly traded corporations
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trading in their own shares. Some studies have suggested that institutional investors and

corporations trading in their own shares generally receive higher risk-adjusted returns than retail

investors.

HISTORY

In 12th century France the courratiers de changewere concerned with managing and regulating

the debts of agricultural communities on behalf of the banks. Because these men also traded with

debts, they could be called the firstbrokers. A common misbelief is that in late 13th

centuryBrugescommodity traders gathered inside the house of a man called Van der Beurze, and

in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an

informal meeting, but actually, the family Van der Beurze had a building inAntwerpwhere

those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that

period, as their primary place for trading. The idea quickly spread aroundFlandersand

neighboring counties and "Beurzen" soon opened inGhentandAmsterdam.

In the middle of the 13th century,Venetianbankers began to trade in government securities. In

1351 the Venetian government outlawed spreading rumors intended to lower the price of

government funds. Bankers inPisa,Verona,GenoaandFlorencealso began trading in

government securities during the 14th century. This was only possible because these were

independent city states not ruled by a duke but a council of influential citizens. Italian companies

were also the first to issue shares. Companies in England and the Low Countries followed in the

16th century. TheDutch East India Company(founded in 1602) was the firstjoint-stock

companyto get a fixed capital stock and as a result, continuous trade in company stock emerged

on the Amsterdam Exchange. Soon thereafter, a lively trade in variousderivatives,among which

options and repos, emerged on theAmsterdammarket. Dutch traders also pioneeredshort

selling- a practice which was banned by the Dutch authorities as early as 1610.

There are now stock markets in virtually every developed and most developing economies, with

the world's largest markets being in the United States, United Kingdom, Japan, India,

China,Canada,Germany (Frankfurt Stock Exchange), France,South Koreaand theNetherlands.
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TRADING

Participants in the stock market range from small individual stock investorsto largehedge

fundtraders,who can be based anywhere. Their orders usually end up with a professionalat a

stock exchange, who executes the order of buying or selling.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a

method known asopen outcry.This type ofauctionis used in stock exchanges andcommodity

exchangeswhere traders may enter "verbal" bids and offers simultaneously. The other type of

stock exchange is a virtual kind, composed of a network of computers where trades are made

electronically via traders.

Actual trades are based on an auction market model where a potential buyer bidsa specific price

for a stock and a potential seller asksa specific price for the stock. (Buying or selling atmarketmeans you will accept anyask price or bid price for the stock, respectively.) When the

bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are

multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and

sellers, thus providing amarketplace(virtual or real). The exchanges provide real-time trading

information on the listed securities, facilitating price discovery.

TheNew York Stock Exchangeis a physical exchange, also referred to as a listedexchange

only stocks listed with the exchange may be traded. Orders enter by way of exchange members

and flow down to afloor broker,who goes to the floor trading postspecialistfor that stock to

trade the order. The specialist's job is to match buy and sell orders using open outcry. If

aspreadexists, no trade immediately takes placein this case the specialist should use his/her

own resources (money or stock) to close the difference after his/her judged time. Once a trade

has been made the details are reported on the "tape" and sent back to the brokerage firm, which

then notifies the investor who placed the order. Although there is a significant amount of human

contact in this process, computers play an important role, especially for so-called "program

trading".
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TheNASDAQis a virtual listed exchange, where all of the trading is done over a computer

network. The process is similar to the New York Stock Exchange. However, buyers and sellers

are electronically matched. One or more NASDAQmarket makerswill always provide a bid and

ask price at which they will always purchase or sell 'their' stock.

TheParis Bourse, now part ofEuronext, is an order-driven, electronic stock exchange. It was

automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry

exchange.Stockbrokersmet on the trading floor or the Palais Brongniart. In 1986, theCATS

trading systemwas introduced, and the order matching process was fully automated.

From time to time, active trading (especially in large blocks of securities) have moved away

from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and

Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to

their internal systems. That share probably will increase to 18 percent by 2010 as more

investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities

themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry

consultant.

Now that computers have eliminated the need for trading floors like theBig Board's, the balance

of power inequitymarkets is shifting. By bringing more orders in-house, where clients can move

big blocks of stock anonymously,brokerspay the exchanges less in fees and capture a bigger

share of the $11 billion a year that institutional investors pay in trading commissionsas well as

the surplus of the century had taken place..

MARKET PARTICIPANTS

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. Some studies have suggested that institutional investors and

corporations trading in their own shares generally receive higher risk-adjusted returns than retail

investors.
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A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy

businessmen, usually with long family histories to particular corporations. Over time, markets

have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension

funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds,

investor groups, banks and various other financial institutions).

The rise of the institutional investor has brought with it some improvements in market

operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being

markedly reduced for the 'small' investor, but only after the large institutions had managed to

break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for large

institutions.

However, corporate governance (at least in the West) has been very much adversely affected by

the rise of (largely 'absentee') institutional 'owners'.

THE BEHAVIOR OF THE STOCK MARKET

From experience we know that investors may 'temporarily' move financial prices away from their

long term aggregate price 'trends'. (Positive or up trends are referred to as bull markets;negative

or down trends are referred to asbear markets.) Over-reactions may occurso that excessive

optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices

unduly low. Economists continue to debate whether financial markets are 'generally' efficient.

According to one interpretation of theefficient-market hypothesis(EMH), only changes in

fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share

prices beyond the short term, whererandom'noise' in the system may prevail. (But this largely

theoretic academic viewpointknown as 'hard' EMHalso predicts that little or no trading

should take place, contrary to fact, since prices are already at or near equilibrium, having priced

in all public knowledge.) The 'hard'efficient-market hypothesisis sorely tested by such events as

thestock market crash in 1987,when theDow Jones indexplummeted 22.6 percentthe largest-

ever one-day fall in the United States.
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This event demonstrated that share prices can fall dramatically even though, to this day, it is

impossible to fix a generally agreed upon definite cause: a thorough search failed to

detect any'reasonable' development that might have accounted for the crash. (But note that such

events are predicted to occur strictly bychance,although very rarely.) It seems also to be the

case more generally that many price movements (beyond that which are predicted to occur

'randomly') are not occasioned by new information; a study of the fifty largest one-day share

price movements in the United States in the post-war period seems to confirm this.

However, a 'soft' EMH has emerged which does not require that prices remain at or near

equilibrium, but only that market participants not be able tosystematicallyprofit from any

momentary market 'inefficiencies'. Moreover, while EMH predicts that all price movement (in

the absence of change in fundamental information) is random (i.e., non-trending), many studies

have shown a marked tendency for the stock market to trend over time periods of weeks or

longer. Various explanations for such large and apparently non-random price movements have

been promulgated. For instance, some research has shown that changes in estimated risk, and the

use of certain strategies, such as stop-loss limits andValue at Risklimits, theoretically

couldcause financial markets to overreact. But the best explanation seems to be that the

distribution of stock market prices isnon-Gaussian(in which case EMH, in any of its current

forms, would not be strictly applicable).

Other research has shown thatpsychological factorsmay result in exaggerated(statistically

anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel

out'). Psychological research has demonstrated that people are predisposed to 'seeing' patterns,

and often will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar

shapes in cloudsor ink blots.) In the present context this means that a succession of good news

items about a company may lead investors to overreact positively (unjustifiably driving the price

up). A period of good returns also boosts the investor's self-confidence, reducing his

(psychological) risk threshold.

Another phenomenonalso from psychologythat works against anobjectiveassessment

isgroup thinking.As social animals, it is not easy to stick to an opinion that differs markedly

from that of a majority of the group. An example with which one may be familiar is the
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reluctance to enter a restaurant that is empty; people generally prefer to have their opinion

validated by those of others in the group.

In one paper the authors draw an analogy withgambling.In normal times the market behaves

like a game ofroulette; the probabilities are known and largely independent of the investmentdecisions of the different players. In times of market stress, however, the game becomes more

like poker (herding behavior takes over). The players now must give heavy weight to the

psychology of other investors and how they are likely to react psychologically.

The stock market, as with any other business, is quite unforgiving of amateurs. Inexperienced

investors rarely get the assistance and support they need. In the period running up to the 1987

crash, less than 1 percent of the analyst's recommendations had been to sell (and even during the

20002002 bear market, the average did not rise above 5 %). In the run up to 2000, the media

amplified the general euphoria, with reports of rapidly rising share prices and the notion that

large sums of money could be quickly earned in the so-callednew economystock market. (And

later amplified the gloom which descended during the 20002002 bear market, so that by

summer of 2002, predictions of a DOW average below 5000 were quite

CRASHES

Robert Shiller's plot of the S&P Composite Real Price Index, Earnings, Dividends, and Interest

Rates, fromIrrational Exuberance,2d ed.[21]

In the preface to this edition, Shiller warns, "The

stock market has not come down to historical levels: the price-earnings ratio as I define it in this

book is still, at this writing [2005], in the mid-20s, far higher than the historical average...
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People still place too much confidence in the markets and have too strong a belief that paying

attention to the gyrations in their investments will someday make them rich, and so they do not

make conservative preparations for possible bad outcomes."

Price-Earnings ratios as a predictor of twenty-year returns based upon the plot byRobert

Shiller(Figure 10.1,[21]

source). The horizontal axis shows thereal price-earnings ratio of the

S&P Composite Stock Price Indexas computed in Irrational Exuberance (inflation adjusted price

divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows thegeometric average real annual return on investing in the S&P Composite Stock Price Index,

reinvesting dividends, and selling twenty years later. Data from different twenty year periods is

color-coded as shown in the key. See alsoten-year returns.Shiller states thatthis plot"confirms

that long-term investorsinvestors who commit their money to an investment for ten full years

did do well when prices were low relative to earnings at the beginning of the ten years. Long-

term investors would be well advised, individually, to lower their exposure to the stock market

when it is high, as it has been recently, and get into the market when it is low.

A stock market crash is often defined as a sharp dip in share pricesofequitieslisted on the stock

exchanges. In parallel with various economic factors, a reason for stock market crashes is also

due to panic and investing public's loss of confidence. Often, stock market crashes end

speculativeeconomic bubbles.
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There have been famousstock market crashesthat have ended in the loss of billions of dollars

and wealth destruction on a massive scale. An increasing number of people are involved in the

stock market, especially since thesocial securityandretirement plansare being increasingly

privatized and linked tostocksand bonds and other elements of the market. There have been a

number of famous stock market crashes like theWall Street Crash of 1929, thestock market

crash of 19734,theBlack Monday of 1987,theDot-com bubbleof 2000, and the Stock Market

Crash of 2008.

One of the most famous stock market crashes started October 24, 1929 on Black Thursday.

TheDow Jones Industriallost 50 % during this stock market crash. It was the beginning of

theGreat Depression.Another famous crash took place on October 19, 1987 Black Monday.

The crash began in Hong Kong and quickly spread around the world.

By the end of October, stock markets in Hong Kong had fallen 45.5 %%, Australia 41.8 %%,

Spain 31 %%, the United Kingdom 26.4 %%, the United States 22.68 %%, and Canada

22.5 %%. Black Monday itself was the largest one-day percentage decline in stock market

history the Dow Jones fell by 22.6 %% in a day. The names Black Monday and Black

Tuesday are also used for October 2829, 1929, which followed Terrible Thursdaythe

starting day of the stock market crash in 1929.

The crash in 1987 raised some puzzles-main news and events did not predict the catastrophe

and visible reasons for the collapse were not identified. This event raised questions about many

important assumptions of modern economics, namely, thetheory of rational human conduct,

thetheory of market equilibriumand thehypothesis of market efficiency.For some time after the

crash, trading in stock exchanges worldwide was halted, since the exchange computers did not

perform well owing to enormous quantity of trades being received at one time. This halt in

trading allowed theFederal Reservesystem and central banks of other countries to take measures

to control the spreading of worldwide financial crisis. In the United States the SEC introduced

several new measures of control into the stock market in an attempt to prevent a re-occurrence of

the events of Black Monday.

Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a

more accurate and controlled manner. The SEC modified the margin requirements in an attempt

to lower the volatility of common stocks, stock options and the futures market. TheNew York
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Stock Exchangeand theChicago Mercantile Exchangeintroduced the concept of a circuit

breaker. The circuit breaker halts trading if the Dow declines a prescribed number of points for a

prescribed amount of time.

STOCK MARKET INDEXES

A comparison of three major U.S. stock indices: theNASDAQ Composite,Dow Jones Industrial

Average,andS&P 500.All three have the same height at March 2007. Notice the largedot-

comspike on the NASDAQ, a result of the large number of tech. companies on that index.

A stock market indexis a method of measuring a section of thestock market.Many indices are

cited by news or financial services firms and are used asbenchmarks, to measure the

performance ofportfoliossuch asmutual funds.

Alternatively, an index may also be considered as an instrument (after all it can be traded) which

derives its value from other instruments or indices. The index may be weighted to reflect the

market capitalization of its components, or may be a simple index which merely represents the

net change in the prices of the underlying instruments.

Most publicly quoted stock market indices (like the two quoted below) are weighted.
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DOW JONES INDUSTRIAL AVERAGE

The Dow Jones Industrial Average, also called the Industrial Average, the Dow Jones,

theDow 30, or simply the Dow, is astock market index, and one of several indices created

byWall Street Journaleditor andDow Jones & Companyco-founderCharles Dow. It was

founded on May 26, 1896, and is now owned byDow Jones Indexes,which is majority owned by

theCME Group. The average is named after Dow and one of his business

associates,statisticianEdward Jones. It is an index that shows how 30 large, publicly owned

companies based in the United States have traded during a standard trading session in the stock

market.[1]It is the second oldest U.S. market index after theDow Jones Transportation Average,

which was also created by Dow.

TheIndustrialportion of the name is largely historical, as many of the modern 30 components

have little or nothing to do with traditionalheavy industry.The average isprice-weighted,and to

compensate for the effects of stock splits and other adjustments, it is currently ascaled average.

The value of the Dow is not the actualaverageof the prices of its component stocks, but rather

the sum of the component prices divided by adivisor, which changes whenever one of the

component stocks has a stock split or stock dividend, so as to generate a consistent value for the

index.

Along with theNASDAQ Composite,theS&P 500Index, and theRussell 2000Index, the Dow

is among the most closely watched U.S. benchmark indices tracking targeted stock market

activity. Although Dow compiled the index to gauge the performance of the industrial sector

within theAmerican economy, the index's performance continues to be influenced by not only

corporate and economic reports, but also by domestic and foreign political events such as war

and terrorism, as well as by natural disasters that could potentially lead to economic harm.

Components of the Dow trade on both theNASDAQ OMXand theNYSE Euronext,two of the

largest stock market companies.Derivativesof the Dow trade on theChicago Board Options

Exchangeand through theCME Group, the world's largestfutures exchangecompany, which

owns 90% of the indexing business founded by Dow Jones, including the Industrial Average.
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NASDAQ

The NASDAQ Stock Market, also known as the NASDAQ, is an Americanstock exchange.

"NASDAQ" originally stood for "NationalAssociation

of Securities Dealers Automated Quotations". It is thesecond-largeststock exchange bymarket

capitalizationin the world, after theNew York Stock Exchange.As of January 13, 2011, there

are 2,872 listings. The NASDAQ has more trading volume than any other electronic stock

exchange in the world.

HISTORY

It was founded in 1971 by theNational Association of Securities Dealers(NASD),

whodivestedthemselves of it in a series of sales in 2000 and 2001. It is owned and operated by

theNASDAQ OMX Group,the stock of which was listed on its own stock exchange beginning

July 2, 2002, under theticker symbolNASDAQ:NDAQ. It is regulated by theFinancial

Industry Regulatory Authority(FINRA).
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With the incomplete purchase of theNordic-based operated exchangeOMX, following its

disagreement withBorse Dubai,NASDAQ is poised to capture 67% of the controlling stake in

the aforementioned exchange, thereby inching ever closer to taking over the company and

creating a trans-atlantic powerhouse. The group, now known as Nasdaq-OMX, controls and

operates the NASDAQ stock exchange in New York City the second largest exchange in

theUnited States. It also operates eight stock exchanges in Europe and holds one-third of

theNASDAQ Dubaistock exchange. It has a double-listing agreement with OMX, and will

compete withNYSE Euronextgroup in attracting new listings. Bernie Madoff is a co-founder of

Nasdaq, a former Chairman of the NASD.

When the NASDAQstock exchangebegan trading on February 8, 1971, it was the world's

firstelectronic stock market.At first, it was merely acomputer bulletin boardsystem and did not

actually connect buyers and sellers. The NASDAQ helped lower the spread (the difference

between the bid price and the ask price of the stock) but somewhat paradoxically was unpopular

among brokerages because they made much of their money on the spread.

NASDAQ was the successor to theover-the-counter(OTC) system of trading. As late as 1987,

the NASDAQ exchange was still commonly referred to as the OTC in media and also in the

monthlyStock Guidesissued byStandard & Poor'sCorporation.

Over the years, NASDAQ became more of a stock market by adding trade and volume reporting

and automated trading systems. NASDAQ was also the first stock market in the United States to

start trading online. Nobody before them had ever done this, highlighting NASDAQ-traded

companies (usually in technology) and closing with the declaration that NASDAQ is "the stock

market for the next hundred years." Its main index is theNASDAQ Composite,which has been

published since its inception. However, its exchange-traded fund tracks the large-capNASDAQ-

100index, which was introduced in 1985 alongside the NASDAQ 100 Financial Index.

Until 1987, most trading occurred via the telephone, but during theOctober 1987 stock market

crash,market makersoften didn't answer their phones. To counteract this, theSmall Order

Execution System(SOES) was established, which provides an electronic method for dealers to

enter their trades. NASDAQ requires market makers to honor trades over SOES.
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In 1992, it joined with theLondon Stock Exchangeto form the first intercontinental linkage

ofsecurities markets.NASDspun off NASDAQ in 2000 to form apublicly traded company,

theNASDAQ Stock Market, Inc.

In 2006 NASDAQ changed from stock market to licensed national exchange.

On November 8, 2007, NASDAQ bought thePhiladelphia Stock Exchange(PHLX) for US$652

million. PHLX is the oldest stock exchange in Americahaving been in operation since 1790.

To qualify for listing on the exchange, a company must be registered with the United States

Securities and Exchange Commission(SEC), have at least threemarket makers(financial firms

that act as brokers or dealers for specific securities) and meet minimum requirements for assets,

capital, public shares, and shareholders.

In February, 2011, in the wake of an announced merger ofNYSE EuronextwithDeutsche Brse,

speculation developed that Nasdaq andIntercontinentalExchange(ICE) could mount a counter-

bid of their own for NYSE. Nasdaq could be looking to acquire the American exchange's cash

equities business, ICE thederivativesbusiness. As of the time of the speculation, "NYSE

Euronexts market value was $9.75 billion. Nasdaq was valued at $5.78 billion, while ICE was

valued at $9.45 billion." Late in the month, Nasdaq was reported to be considering asking either

ICE or theChicago Mercto join in what would be probably have to be, if it proceeded, an $11-

12 billion counterbid.
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S&P 500

The S&P 500is afree-float capitalization-weightedindexpublished since 1957 of the prices of

500large-capcommon stocksactively traded in theUnited States. The stocks included in the

S&P 500 are those of large publicly heldcompaniesthat trade on either of the two largest

American stock market exchanges: theNew York Stock Exchangeand theNASDAQ.

The index focus is U.S.-based companies although there are a few companies with headquarters

in and/or incorporated in other countries.

After theDow Jones Industrial Average, the S&P 500 is one of the most commonly followed

equity indices, is considered abellwetherfor the American economy, and is included in theIndex

of Leading Indicators. Manymutual funds,exchange-traded funds, and other funds such

aspension funds, are designed to track the performance of the S&P 500 index. Hundreds of

billions of US dollars have been invested in this fashion.

The index is the best known of the many indices owned and maintained byStandard & Poor's,a

division ofMcGraw-Hill.S&P 500 refers not only to the index, but also to the 500 companies

that have their common stock included in the index. Theticker symbolfor the S&P 500 index

varies. Some examples of the symbol are ^GSPC,.INX, and $SPX. The stocks included in the

S&P 500 index are also part of the broaderS&P 1500andS&P Global 1200stock market

indices.

HISTORY

Standard & Poor'sintroduced its firststock indexin 1923. Before 1957, its primary daily stock

market index was the "S&P 90", a value-weighted index based on 90 stocks. Standard & Poor's

also published a weekly index of 423 companies. The S&P 500 index in its present form began

on March 4, 1957. Thanks to the computer technology emerging at the time, this index could be

calculated and disseminated in real time. The S&P 500 is widely employed as a measure of the
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general level of stock prices, as it includes bothgrowth stocksand the generally less

volatilevalue stocks.

The index reached an all-time intraday high (which was not exceeded for over seven years) of

1,552.87 in trading on March 24, 2000, during thedot-com bubble,and then lost approximately50% of its value in a two-yearbear market,spiking below 800 points in July 2002 and reaching a

low of 768.63 intraday on October 10, 2002 during thestock market downturn of 2002.The S&P

500 remained below its year 2000 all-time high somewhat longer than the popularDow Jones

Industrial Averageand the more comprehensiveWilshire 5000.However, on May 30, 2007, the

S&P 500 closed at 1,530.23 to set its first all-time closing high in more than seven years. The

highest point reached was 1,565.15 on October 9, 2007.

In mid-2007, difficulties stemming fromsubprime mortgagelending began spreading to the

widerfinancial sector, resulting in the second bear market of the 21st century. The resulting

crisis became acute in September 2008, ushering in a period of unusualvolatility,encompassing

record 100-point moves in both directions and reaching the highest levels since 1929.[5]On

November 20, 2008, the index closed at 752.44, its lowest close since early 1997.[6]A modest

recovery the following day still left the index down 45.5% for the year. This year-to-date loss

was the greatest since 1931, when the broad market declined more than 50%;[7]the total losses

that ushered in theGreat Depressionexceeded 80% over a three-year period. The market

continued to decline between late 2008 and early 2009 surrounding the events involving

thefinancial crisis of 2008, reaching a nearly 13-year closing low at 676.53 on March 9.

Subsequently, the index has recovered sharply to close at 1,206.07 on December 1, 2010, up over

78% from the low but still down by more than 23% from the 2007 high; this respite has been

alternately characterized as heralding a return to economic growth, or a significant counter-

trendbear market rally.On April 29, 2011, the S&P 500 closed at 1,363.61, its highest close

since June 5, 2008.
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S&P 500 index just for year 2007, throught months.


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SARAJEVO STOCK EXCHANGE

The Sarajevo Stock Exchangeor SASE(Bosnian:Sarajevska Berza) is astock exchangewhich

operates inSarajevo,Bosnia and Herzegovina.

HISTORY AND STRUCTURE

The Sarajevo Stock Exchange was founded in September2001and commenced trading on April

12, 2002, as a central marketplace for trading insecuritiesin the Federation of Bosnia andHerzegovina, which together with theRepublika Srpska, makes up the post-war Bosnia-

Herzegovina. The SASE was founded as ajoint-stock company.It had eight founding members.

According to the Securities Law, SASE members can only be legal entities - brokeragehouses

which sole activity is trading in securities, with headquarters in Bosnia and Hercegovina. The

foundingcapitalof the exchange was BAM 200.000 (1 BAM = 0.51 EUR).
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All SASE members must be licensed for securities trading by the Securities Commission of the

Federation of Bosnia and Hercegovina. Only those brokers authorized by the SASE members,

who have passed a brokers' exam are allowed to trade. The Securities Commission defines the

manner and conditions for taking the exam and for revoking the licence. A broker is required to

hold a valid licence issued by the Agency. The SASE currently has 16 members, whose

headquarters are spread around Bosnia and Herzegovina, the majority being in the capital,

Sarajevo. Theshareholderassembly elects a five-member supervisory board for a four-year term.

The supervisory board appoints the Manager of the Exchange who is in charge of the strategic

planning and daily operations.

The members of the management board of the Sarajevo Stock Exchange and Wiener

Brsesigned a memorandum of understanding on March 21, 2006. This made Bosnia after

Romania,CroatiaandBelgradethe fourth Southeastern European stock exchange to enter into

a cooperation agreement with theBudapest Stock Exchangeand theVienna Stock Exchange.

The memorandum of understanding lays the foundation for closer collaboration between the

exchanges of Sarajevo andVienna.The first joint project is expected be anindex.

The primary index of the Sarajevo Stock Exchange SASX-10, recorded a decrease of

14.6% compared to the end of last year, and Banja Luka Stock Exchange's main index

BIRS by 3.5%.

BIFX, index for investment Funds for SASE, ended year with a decrease of 13.9%, while

the FIRS index for investment funds in RS, had increased by 17.9% to annually.

SASX-10

SArajevo Stock EXchange Index 10SASX-10

The Sarajevo Stock Exchange Index 10 (short form: SASX-10) is the main index on the Sarajevo

Stock Exchange. It depicts the price movement of the top 10 issuers on the Sarajevo Stock

Exchange (excluding investment funds) ranked by market capitalization and frequency of

trading.

SASX-10 is a price index, meaning that no cash dividends are reinvested in the index. It main
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goal is to serve as a general benchmark index. SASX-10 is a (full) market capitalization

weighted index, where the maximum influence of an individual issuer is capped at 20%.

SASX-30

The Sarajevo Stock Exchange Index 30 (short form: SASX-30) is the index of the Primary Free

Market of the Sarajevo Stock Exchange. It depicts the price movement of the issuers on the

Primary Free market, which is reserved for the most liquid issuers from the Free market.

SASX-30 is a price index, meaning that no cash dividends are reinvested in the index. It main

goal is to serve as a general benchmark index. SASX-30 is a unweighted (equally

weighted)index, where all the constitutents have the same influence on the index movement.

In order to be included in the index, an issuer must be listed on the Primary Free market, which

means that his trading algorithm is continuous (MFTS), and the maximum daily price

fluctuations can be +/- 20% from the last day official price.

The base date of the index is March 31st, 2009, and the corresponding base-value was set to

1.000,00 index points.

BIFX

The Bosnian Investment Fund Index (BIFX) is the first index published by the Sarajevo Stock

Exchange. It consists of the shares of the 11 investment funds registered in the Federation of

Bosnia-Hercegovina (formerly Privatization Investment Funds - PIFs).

BIFX is a price index, meaning that no cash dividends are reinvested in the index, therefore it

reflects only the price development of the included shares. By its purpose, it is considered a

benchmark index, whose main goal is to provide investors a general view and evaluation of the

current market trends in the segment of investment funds listed at the Sarajevo Stock Exchange.

BIFX is a (full) market capitalization index with no capping procedures.


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NEW YORK STOCK EXCHANGE

The New York Stock Exchange (NYSE)is astock exchangelocated at 11Wall StreetinLower

Manhattan, New York City, USA. It is by far theworld's largest stock exchangebymarket

capitalizationof its listed companies at US$13.39 trillion as of Dec 2010. Average daily trading

value was approximately US$153 billion in 2008.

The NYSE is operated byNYSE Euronext,which was formed by the NYSE's 2007 merger with

the fully electronic stock exchange Euronext. T

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