Thursday, December 2, 2010

How do stock prices effect Mortgage rates? How do Stocks get bought and sold on Wall Street?

With the announcement of Quantitative Easing 2 (QE2) by the Federal Reserve Bank three weeks ago, the Fed has included a four fold purpose in spending money (buying bonds).  The $600 Billion will be put to work to meet specific Fed Goals. 

One of the goals of QE2, which gives rise to my question in the Title of this Blog Post of "how are stocks bought and sold on Wall Street?", is that QE2 wants to push stock prices higher.  The additional goals of QE2 are to increase employment, increase inflation (to fight deflation), and to devalue the dollar (to make our goods cheaper and more inviting to foreign markets).

All of the stated goals or purposes of QE2 are arch enemies to Bond prices and with falling Bond prices, if QE2 is successful in reaching its goals, we will see higher interest rates.

Call me if you would like to visit about your refinance or purchase mortgage options before rates increase from these historically low levels.  :)

Following is an interesting discussion of how Stocks are bought and sold on Wall Street...


The New York Stock Exchange (sometimes referred to as "the Big Board") provides a means for buyers and sellers to trade shares of stock in companies registered for public trading. The NYSE is open for trading Monday through Friday between 9:30am – 4:00pm ET, with the exception of holidays declared by the Exchange in advance.

On the trading floor, the NYSE trades in a continuous auction format, where traders can execute stock transactions on behalf of investors. They will gather around the appropriate post where a specialist broker, who is employed by an NYSE member firm (that is, he/she is not an employee of the New York Stock Exchange), acts as an auctioneer in an open outcry auction market environment to bring buyers and sellers together and to manage the actual auction. They do on occasion (approximately 10% of the time) facilitate the trades by committing their own capital and as a matter of course disseminate information to the crowd that helps to bring buyers and sellers together. The auction process moved toward automation in 1995 through the use of wireless hand held computers (HHC). The system enabled traders to receive and execute orders electronically via wireless transmission. On September 25, 1995, NYSE member Michael Einersen, who designed and developed this system, executed 1000 shares of IBM through this HHC ending a 203 year process of paper transactions and ushering in an era of automated trading.

As of January 24, 2007, all NYSE stocks can be traded via its electronic Hybrid Market (except for a small group of very high-priced stocks). Customers can now send orders for immediate electronic execution, or route orders to the floor for trade in the auction market. In the first three months of 2007, in excess of 82% of all order volume was delivered to the floor electronically.[16]

The right to directly trade shares on the exchange is conferred upon owners of the 1366 "seats". The term comes from the fact that up until the 1870s NYSE members sat in chairs to trade. In 1868, the number of seats was fixed at 533, and this number was increased several times over the years. In 1953, the exchange stopped at 1366 seats. These seats are a sought-after commodity as they confer the ability to directly trade stock on the NYSE. Seat prices have varied widely over the years, generally falling during recessions and rising during economic expansions. The most expensive inflation-adjusted seat was sold in 1929 for $625,000, which, today, would be over six million dollars. In recent times, seats have sold for as high as $4 million in the late 1990s and $1 million in 2001. In 2005, seat prices shot up to $3.25 million as the exchange was set to merge with Archipelago and become a for-profit, publicly traded company. Seat owners received $500,000 cash per seat and 77,000 shares of the newly formed corporation. The NYSE now sells one-year licenses to trade directly on the exchange.

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