This document provides an overview of a seminar on financial markets from Saunders Learning Group. The seminar aims to provide a simple guide to investing in financial securities and how financial markets work. Saunders Learning Group offers various training programs, workshops and seminars targeted towards the financial services industry.

1. The Beginning Investor Series.
Figuring Out
Financial Markets
Seminar
A simple guide to investing in financial securities and how financial markets work.
Saunders Learning Group, LLC May 2012

2. Training from Saunders Learning Group
Saunders Learning Group provides a variety
of training programs, workshops and
seminars targeted to the financial services
industry.
Programs are available in a wide range of
topics, and we are specialists in developing
custom programs that are targeted to your
needs.
Contact the founder, Floyd Saunders at
316-680-6482 or at
floyd@floydsaunders.com for more
information.
Saunders Learning Group, LLC, Andover, KS
2

3. All About Figuring Out Wall Street ...
Everything has changed in the
financial services industry and it
affects your financial well-being.
From bank failures, to record
unemployment, home foreclosures
and panic around the world, Figuring
Out Wall Street, is the concise guide
to help everyone from first time
investors to veterans of banking
understand what to do to persevere
and restore our faith in our financial
systems.
Published by Saunders Learning Group.
Training for financial professionals and consumers. If your interest is financial turn to
Saunders Learning Group for your training needs.
Contact information: email: floyd@floydsaunders.com mobile: 316-680-6482
Saunders Learning Group, LLC, Andover, KS 3

4. Stock Market Defined
 The Stock Market refers to equities where actually stocks and derivatives are
traded.
 In the U.S.A. we think the stock market is the New York Stock Exchange on Wall
Street.
 But it also includes the over-the-counter market, NASDQ and regional exchanges.
 The New York Stock Exchange may have stocks listed that are listed on other major
stock markets.
 In fact there are major Stock Markets in Hong Kong, Hamburg, London, Paris,
Canada, Japan, India and others that influence one another and impact the
financial markets around the global.
 A company headquartered in Amsterdam may be listed on multiple stock
exchanges.
 Many foreign organized companies are listed on the New York Stock Exchange.
 There is a tremendous value for foreign companies to be listed on an exchange in
the U.S. The exposure and knowledge of a foreign company has a face on the
New York stock market.
An example would be a China stock, Baidu. This information and search
company has grown in leaps and bounds since it being listed on the New York
market.
Saunders Learning Group, LLC, Andover, KS

5. Financial Exchanges
 An organized market for trading stocks, bonds, options, futures, money market
funds, commodities and other securities
Wall Street, the symbolic home of American Capitalism
Saunders Learning Group, LLC, Andover, KS

6. Securities Exchanges
 A marketplace where member brokers who
represent investors, meet to buy and sell
securities.
 The securities sold at an exchange must be
listed, or accepted for trading, at the
exchange.
 The Over-the-Counter (OTC) market.
— Network of dealers who buy and sell the stocks
of companies not listed on a securities
exchange.
— Most OTC securities are traded over the
NASDAQ which is an electronic marketplace for
approximately 2,700 stocks.
Saunders Learning Group, LLC, Andover, KS

7. What is a Market?
A market is a public place where products or services are sold, either directly or through
intermediaries.
To get a sense for the relative size of global financial markets, review the view of the worldwide web in terms of
financial assets.
Saunders Learning Group, LLC, Andover, KS

8. Money vs. Capital Markets
 Money Market – Short-term, high quality debt securities are traded here.
 Capital Market – Long-term securities trade in the capital markets.
Saunders Learning Group, LLC, Andover, KS

9. Stock Market Defined
 The Stock Market refers to a place where actually stocks, bonds,
derivatives, options, futures, and other securities are traded.
 In the U.S.A. we think the Stock Market is the New York Stock
Exchange on Wall Street.
 In fact there are major Stock Markets in Hong Kong, Hamburg,
London, Paris, Canada, Japan, India and others that influence
one another and impact the financial markets around the
global.
 The New York Stock Exchange may have stocks listed that are
listed on other major Stock Markets.
 A company headquartered in Amsterdam may be listed on
multiple stock exchanges.
 Many foreign organized companies are listed on the New York
Stock Exchange.
 There is a tremendous value for foreign companies to be listed
on an exchange in the U.S. The exposure and knowledge of a
foreign company has a face on the New York Stock Market.
An example would be a China stock, Baidu. This information and search company
has grown in leaps and bounds since it being listed on the New York Market.
Saunders Learning Group, LLC, Andover, KS

10. U.S. Stock Exchanges
The Stock Market is basically a place where buyers and seller of a piece of a company come
together and in the process the company hopefully raises some cash or other value.
In the United States
the New York Stock
Market is comprised of
the NASDAQ, NYSE
and the newly created
combination of the
NYSE Group with
Euronext in April,
2007.
The Euronext holding company is a synergy between Paris and the
NYSE whose history goes back to 1792.
The Euronext is a combination of derivatives, currency and equities.
Saunders Learning Group, LLC, Andover, KS

11. How the Stock Market Works
 Role of the market is to facilitate
exchange between buyers and sellers
 2 types of exchanges in the U.S.:
physical(NYSE), virtual (NASDAQ)
 NYSE: Place and order through
your broker, firm send order to the
floor, which goes to a specialist.
 Price determined at an auction.
 NASDAQ: An Over The Counter
market: no central location, trade
done through network of dealers.
Saunders Learning Group, LLC, Andover, KS

12. Primary and Secondary Markets
 Primary market.
 A market in which an investor purchases
financial securities through an investment
bank, or other representative, from the
issuer of those securities.
 An investment bank is a financial firm that
assists corporations in raising funds,
usually by helping to sell new security
issues.
 An IPO occurs when a corporation sells
stock to the general public for the first
time.
 Secondary market.
— A market for existing financial securities
that are currently traded among investors
through brokers.
Saunders Learning Group, LLC, Andover, KS

13. Primary vs. Secondary Markets
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14. Organized vs. OTC Markets
Organized Markets Over the Counter Markets
Organized markets are Over the Counter (OTC) markets
those which have a physical do not have physical locations.
Instead, they are characterized
location where all trading by networks of dealers who are
takes place. For example, connected by telephone or
the NYSE, Amex, and computer networks. The Nasdaq
regional exchanges are is an example of an OTC market.
organized markets.
Saunders Learning Group, LLC, Andover, KS

15. Stock Markets Listing Requirements
Each market has its own listing requirements:
Saunders Learning Group, LLC, Andover, KS

16. Who Regulates the Securities Markets?
Congress
Securities and Exchange
Commission
Registerssecurities (stocks
and bonds).
Licenses brokers.
Prosecutes for stock fraud
and insider trading.
Individual States
Commodities Futures
Trading Commission
(CFTC) NYSE
Other Self-Regulatory
Organizations
Brokerage Firms
Saunders Learning Group, LLC, Andover, KS

17. Electronic Trading
 The NYSE handles a small percentage of its volume electronically, while the NASDAQ
is completely electronic.
 The electronic markets use vast computer networks to match buyers and sellers,
rather than human brokers.
 Electronic trading is efficient and
fast.
 As much as 70% of all trading on a
given day is now done electronically.
 Instant confirmation of your trades.
 You still need a broker to handle your
trades.
Saunders Learning Group, LLC, Andover, KS

18. Stock Transactions
 Transactions done on phone or
online.
 Brokerage firms have minimum
commissions for trading stock, from
$7 to $55, depending of the number
of shares sold and the value of the
stock.
 Full-service broker would typically
charge about $150 on a transaction,
discount brokers $55 to $85.
 Full service and discount brokers
charge more than online brokerage
transactions, but you make your own
decisions in trading online.
Saunders Learning Group, LLC, Andover, KS

19. Stock Transactions
 Market order: Request to buy or sell stock at the current market value.
 Limit order: Request to buy or sell a stock at a specified price.
 Stop order: Request to sell a stock at the next available opportunity
after its market price reaches a specified amount.
 Discretionary order: Account executive decides when to execute the
transaction and at what price.
Saunders Learning Group, LLC, Andover, KS

20. What are Stocks?
 Share in the Ownership of a Company
 Claim in the company’s assets and earnings
 One vote per share to elect board member
 Stocks are probably the most important and
common items traded in the stock market.
 These are actually shares of certain companies,
which are publicly sold and traded.
 Whenever people buy a portion of stock in a
particular company, this means that they acquire a
share of ownership and investing in that specific
business.
 Through this, a stockholder is given certain rights
towards the company such as a vote in stockholder
meetings as well as his or her financial share from
the company’s earnings.
Saunders Learning Group, LLC, Andover, KS

21. Why a Company Issues Common Stock
 To raise capital to expand a
business.
 They do not incur debt.
Stockholders
are investors not bankers
 Dividends are not mandatory. Most
corporations distribute 30-70% of
their earnings to stockholders.
 In return for investing in the
company, stockholders have voting
rights.
Saunders Learning Group, LLC, Andover, KS

22. Why Do Investors Purchase Common Stock?
 They can make money in three
ways.
 Income from dividends in the
form of cash or additional stock.
 Capital Gains - Dollar
appreciation of stock value.
 Possible increased value from
stock splits.
Saunders Learning Group, LLC, Andover, KS 14-5

23. Classification of Stock Investments
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24. Classification of Stock Investments (continued)
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25. Get Stock Information from the Internet
 A Company’s home page has more up-to-
date information than their printed
materials.
—Annual report, earnings, and other
financial factors.
 http://finance.yahoo.com allows you to
conduct research on a company, and provides
a stock screener to help you choose
investments.
 www.standardpoor.com
 www.morningstar.com
 www.valueline.com
Saunders Learning Group, LLC, Andover, KS

26. How to Read the Newspaper Financials
 In addition to online stock quotes,
You can find stock quotes in newspapers such as
The Wall Street Journal or Investors Business Daily.
These include:
 52 week high and low price.
 The name of the company, and ticker symbol.
 Projected annual dividend and yield percentage.
 Price-earnings ratio.
 Number of shares traded during the day.
 The high and low price of the day.
 The price paid in the close transaction of the day.
 The net change from the day before.
Saunders Learning Group, LLC, Andover, KS

27. Fundamental analysis
 Fundamental analysis
 Based on the assumption that a stock’s intrinsic or
real value is determined by the company’s future
earnings.
 Fundamentalists consider the…
 Buffett’s approach:
— Consistently good performance
— Low overall debt (good cash flows)
— High and increasing profits
— Listed for at least 10 years
— Market leader for products
— Undervalued by 25% compared to the market price
Saunders Learning Group, LLC, Andover, KS

28. Technical analysis
 Technical analysis
 Based on the assumption that a stock’s
value is determined by the forces of
supply and demand in the stock
market as a whole.
 Not based on expected earnings or the
intrinsic value of a stock but rather on
factors found in the market as a whole.
 Chartists plot past price movements
and other market averages to observe
trends they use to predict a stock’s
future value.
Saunders Learning Group, LLC, Andover, KS

29. Efficient market theory
 Sometimes called the random walk theory.
 Based on the assumption that stock price movements are purely random.
 A stock’s current market price reflects its true value.
 It is impossible for an investor to outperform the average for the stock market as a whole
over a period of time.
 Wall Street Journal’s “darts vs. the experts” finds sometimes experts win, sometimes not.
Saunders Learning Group, LLC, Andover, KS

30. Domestic Stock Markets
 In the U.S. we have three major
stock exchanges:
— The New York Stock Exchange (NYSE)
— Nasdaq
— The American Stock Exchange (Amex)
 We also have several regional
stock exchanges:
— The Pacific Exchange (known mostly for
options trading)
— The Boston Stock Exchange
— The Cincinnati Stock Exchange (all electronic, located in Chicago)
— The Chicago Stock Exchange (formerly the Midwest Stock Exchange)
— The Philadelphia Stock Exchange (known mostly for options trading)
 Small companies, or those which do not meet listing
requirements may be traded on the OTC Bulletin Board or in
the Pink Sheets.
Saunders Learning Group, LLC, Andover, KS

31. Domestic Stock Markets (cont.)
 Additionally, in the past several years (mostly since 1997)
many electronic communications networks (ECNs) have
begun trading stocks, and some are seeking “exchange”
status:
—The Island
—Archipelago (run by the Pacific
Exchange)
—Instinet
—B-Trade (Bloomberg)
—NexTrade
—RediBook
 ECNs offer such advantages as lower costs, anonymity, open
limit order books, and after-hours trading.
Saunders Learning Group, LLC, Andover, KS

32. The NYSE History
 The New York Stock and Exchange Board began on 17 May 1792 under a
buttonwood tree.
Originally, 24 brokers signed the
Buttonwood Agreement in which they
agreed to trade only among themselves
and at a fixed commission rate (fixed
commissions were the rule until 1975).
 In 1817 the exchange was moved into
rented rooms at 40 Wall Street. They
also wrote and approved a formal constitution.
 In 1863, the name was changed to The New York Stock Exchange.
 In 1903 the NYSE moved to its current home.
 Today, the NYSE Group is a publicly traded company (NYSE: NYX).
Saunders Learning Group, LLC, Andover, KS

33. Nasdaq History and Operation
 The Nasdaq stock market began
operations on 8 February 1971. Prior
to that, the NASD had regulatory
authority over a very fragmented OTC
market.
 Nasdaq originally, but no longer, stood
for National Association of Securities
Dealers Automated Quotation system.
 Unlike the NYSE and AMEX, Nasdaq is not an open outcry auction market, and
does not use specialists. Instead, it uses a system of market makers.
 A market maker is a dealer who competes with others to get customer orders.
The market maker posts his bid/ask quote on the system for all to see.
 Today, the Nasdaq is a publicly traded company (Nasdaq: NDAQ).
Saunders Learning Group, LLC, Andover, KS

34. Differences Between Market Makers and
Specialists
 The major difference between a
specialist and a market maker is
that a specialist is charged with
maintaining an orderly market and
is required to step in and buy
when there are no buyers and sell
when there are no sellers.
 Market makers may withdraw
from the market at any time,
though there are rules.
 There is only one specialist for an
NYSE stock, but there are usually
multiple market makers for
Nasdaq stocks.
Saunders Learning Group, LLC, Andover, KS

35. AMEX History and Operation
 The American Stock Exchange (Amex)
was originally known as the New York
Curb Market because it was based
outside the NYSE and traded stocks
that were not traded on the NYSE.
 In 1921, the Curb was moved indoors.
It was renamed in 1953.
 The Amex is something of a poor step-
child to the NYSE and has struggled some-
what to survive. It has turned to technology and new products (options,
ETFs, etc) to survive.
 In 1998 the Amex was merged with the NASD, and today operates as an
independent entity within the NASD.
Saunders Learning Group, LLC, Andover, KS

36. Investment Bankers
 When securities are sold into the primary market, firms enlist the services of
investment bankers.
 Investment bankers provide
three basic services to companies:
— Advice and counsel (before and
after the sale)
— Underwriting
— Distribution
 IB services also include:
— Private Equity
— Corporate Finance
— Mergers & Acquisitions
— Fairness Opinions
Saunders Learning Group, LLC, Andover, KS

37. Investment Banking Functions:
Advice and Counsel
 Investment bankers provide important advice on security
issues, such as:
—Pricing
—Size of the offering
—Timing of the offering
—Type of security (debt or equity)
—Special features (callability, convertibility, coupon rate, etc)
 Additionally, investment bankers often consult on issues of
corporate governance, such as mergers.
Saunders Learning Group, LLC, Andover, KS

38. Investment Banking Functions:
Underwriting
 Once the company and investment banker agree as to the
type of security, pricing, etc. the issue is ready to market.
 The investment banker may either:
—Underwrite the issue – here the investment banker purchases the
issue and hopes to sell it at a higher price to the public (assumes
price risk). This is also known as a “firm commitment.”
—Act as an agent – Also known as a “best efforts” offering, the
investment banker does not purchase the securities and merely
markets them to the public.
 Typically only small, relatively unknown firms agree to a best
efforts offering.
Saunders Learning Group, LLC, Andover, KS

39. Investment Banking Functions:
Distribution
 The final role of the investment banker is to actually sell the
securities.
 Typically, the originating investment banking firm will form
an underwriting group (syndicate) to spread the price risk.
 Next, a selling group consisting of the underwriting group
and, perhaps, other brokerage firms is formed to sell the
security. Each member of the selling group is given an
allocation for which it is responsible.
 The selling group then allocates its share of the securities
among interested customers.
Saunders Learning Group, LLC, Andover, KS

40. Investment Banking Functions:
Distribution (cont.)
 Before a new issue may actually be sold to investors, the originating underwriter must
file a registration statement (Form S-1, or other Form S-x) with the Securities and
Exchange Commission (SEC).
 This preliminary prospectus (“red herring”) contains information about the firm, the
type of security being offered, and the proposed use of the proceeds.
 While it is being reviewed by the SEC, the preliminary prospectus is distributed to
interested investors.
 The exact pricing, and often quantity, of the issue is determined the night before the
actual offering.
 It is important to note that the SEC does not judge the quality of the issue and does
not give investment advice. Its approval simply means that the prospectus meets all
requirements concerning disclosure.
 For some time after the securities are sold, the investment banker will often
participate in price-stabilizing trades (if the market tries to drive the price down, the
IB will often step in to buy, thereby propping up the price).
Saunders Learning Group, LLC, Andover, KS

41. Stock Market Indices and Averages
 For more than 110 years, people have tracked the market’s
daily ups and downs using various “indexes” of overall
market performance
 There are currently thousands of indices calculated by
various information providers. Best known are:
—Dow Jones & Co
—Standard & Poor’s
—Morgan Stanley Capital Markets (MSCI)
—Lehman Brothers (bond indices)
 Dow Jones alone currently publishes more than 3,000
indices
Saunders Learning Group, LLC, Andover, KS

42. Stock Market Indices and Averages (cont.)
 A short list of the major indices:
—Dow Jones Industrial Average (DJIA)
—Dow Jones Transportation Average (DJTA)
—Dow Jones Utility Average (DJUA)
—Standard & Poor’s 500 Index (S&P 500)
—Standard & Poor’s 100 Index (S&P 100, or OEX)
—Nasdaq Composite
—Nasdaq 100
—Value Line Arithmetic Index
—Value Line Geometric Index
—Wilshire Total Market Index (formerly Wilshire 5000 index)
Look for an additional seminar presentation from us on indices, at Slideshare.
Saunders Learning Group, LLC, Andover, KS

43. Questions
Saunders Learning Group, LLC, Andover, KS

44. Training from Saunders Learning Group
Saunders Learning Group provides a variety of
training programs, workshops and seminars targeted
to the financial services industry. If you are financial
planner, broker, tax preparer, insurance agent or
banker and need seminar materials for client
presentations, contact us to discuss topics, pricing
and custom development.
Programs are available in a wide range of topics, and
we are specialists in developing custom programs
that are targeted to your needs.
Contact the founder, Floyd Saunders at
316-680-6482 or at floyd@floydsaunders.com for
more information.
Saunders Learning Group, LLC, Andover, KS

45. Post Workshop Action Plan
 Complete the Post Workshop Action Plan
Saunders Learning Group, LLC, Andover, KS
45

46. Reference Material
Figuring Out Wall Street Consumer’s Guide To
Financial Markets
By Floyd Saunders
Publisher: Saunders Learning Group
ISBN: 978-0-9824019-0-3
available from Amazon, B&N, and
http://www.figuringout wallstreet.com
or www.floydsaunders.com
Book summary: From bank failures to home foreclosures and panic
around the world, Figuring Out Wall Street, is the concise guide to help
everyone understand how this latest crisis happened, who was responsible and
what to do now to restore our financial systems. Written in an easy to
understand manner, even the most complex financial concepts are easy to
digest. This book provides help to monitor investments with a review of
investment products, financial regulators and economic indicators. Learn how
the stock market exchanges work and the world of investment banking, hedge
funds, venture capital and private equity. Every chapter includes action plans
for investing.
Saunders Learning Group, LLC, Andover, KS

47. About the Author
 Floyd Saunders has worked on Wall Street
with both Bank of America and JPMorgan,
where is was a vice president in global
financial systems. He has worked across
the industry in retail, commercial, and
investment banking.
 He has taught courses in Money and
Banking and extensively for the American
Institute of Banking and various colleges.
 As a consultant, he developed and taught
a wide range of banking and investing
courses.
 He authored three programs for the
American Bankers Association: Banking on
Mutual Funds and Annuities, Introduction
to Securities Markets and Investing in
Securities.
Saunders Learning Group, LLC, Andover, KS