securities trading


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securities trading,

financial activity involving transactions of property such as stocks, bonds, commodities, and currency (see securitiessecurities,
in finance, instruments giving to their legal holders rights to money or other property. Securities include stocks, bonds, notes, mortgages, bills of lading, and bills of exchange. See speculation and stock exchange.
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). Although the trading of stocks and bonds dates back several centuries in many Western nations, the development of the securities industry since World War II has been sweeping. The advent of new technologies, particularly in computers and telecommunications, has brought about a new era in securities trading. Traditional stock exchangesstock exchange,
organized market for the trading of stocks and bonds (see bond; stock). Such markets were originally open to all, but at present only members of the owning association may buy and sell directly.
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, while still vitally important in major cities around the world, now compete with such over-the-counterover-the-counter,
method of buying and selling securities outside the organized stock exchange. Unlike an organized stock exchange, the over-the-counter market is composed of dealers who negotiate most transactions by telephone and computer.
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 trading organizations as the National Association of Securities Dealers Automated Quotations (NASDAQ). NASDAQ and other similar systems allow computerized trading, linking investors with brokers and dealers both on a domestic and an international level. Such systems quote the highest bids and lowest asking prices on all securities, giving investors the opportunity to make optimum deals. In 1986, the London Stock Exchange created a computer-based network similar to NASDAQ with its deregulation move called "Big Bang." It connected London to a group of international securities dealers, making the city's trading floor largely obsolete. In the United States, such over-the-counter trading was at least partially responsible for the problems associated with program tradingprogram trading,
a form of securities trading, also known as index arbitrage. Program traders exploit the price discrepancies between indexes of stocks and futures contracts by using sophisticated computer models to hedge positions.
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 that arose in the 1980s and the collapse of the stock market in Oct., 1987. These events highlighted the weaknesses of computerized networks like NASDAQ. The 1980s were a decade of unprecedented volume and activity in securities trading because of technological innovation and new financial products. Securities fraud, particularly the insider-trading scandal, became a major issue. Insider trading, or the private trading of securities based on information that has not yet been made public, became an issue in the mid-1980s with the prosecution of such investors as Dennis Levine (1986) and Michael MilkenMilken, Michael Robert
, 1946–, American financial executive, b. Van Nuys, Calif. Nicknamed the "junk bond king," he was an executive at Drexel Burnham Lambert, Inc., where he transformed corporate takeovers and financing by the use of high-yield junk bonds.
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 (1988). Many contended that securities fraud of this sort was a result of deregulation of the securities industry since at least the early 1980s, with an attendant relaxation of supervision by the U.S. Securities and Exchange Commission (SEC). The 1990s saw a renewed and accelerated effort by the SEC and other regulatory agencies to regulate the securities industry. In the early 21st cent. regulation once again eased while a number of widely traded financial products relating to securities, such as credit default swaps, remained unregulated; this, in addition to the housing bubble and resulting credit crunch, were widely regarded as contributing to the stock market meltdown in Sept.–Oct., 2008.

Bibliography

See A. Pessin, The Illustrated Encyclopedia of the Securities Industry (1988), M. Torosian, Securities Transfer (1988), and E. F. Fama, Foundations of Finances (1976).

References in periodicals archive ?
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