Securities Markets

Securities = stocks, bonds, and mutual funds representing secured (asset-based) claims by investors against issuers. The collective market in which they are bought and sold is the securities market.

How It Appears Per Course

ADMN 201

The chapter covers how securities are issued, traded, and interpreted — from IPOs through daily stock quotations to margin trading and short sales.

Primary vs Secondary Markets

graph LR
    A[Company Issues Securities] --> B[Primary Market\nNew securities sold\nCompany receives money]
    B --> C[Investors Buy Shares]
    C --> D[Secondary Market\nExisting securities traded\nCompany receives NOTHING]
    D --> C

(diagram saved)

Market	What happens	Who gets the money
Primary securities market	New shares sold via IPO or private placement	The issuing company
Secondary securities market	Existing shares traded between investors (TSX, NYSE, Nasdaq)	The selling investor — not the company

IPO (Initial Public Offering): A company’s first sale of stock to the public. Handled by investment banks (underwriters) who buy the new securities from the issuer and resell them to the public.

Example: MDA Ltd. went public in 2021 on the TSX, issuing 28,751,500 common shares at ~ $14/ s ha re t or ai se$ 400M. Proceeds used to repay $340M in debt, with the balance going to R&D.

Private placements: New securities sold to one buyer or a small group — lets the company keep plans confidential. Represents only a small portion of total securities traded.

Stock Exchanges

Organized marketplaces where members trade securities. Examples:

Toronto Stock Exchange (TSX) — Canada’s primary exchange; dominated by banks and resource companies
New York Stock Exchange (NYSE) — largest in the world by market cap
Nasdaq — electronic exchange; tech-heavy

Over-the-counter (OTC) markets also exist for securities not listed on formal exchanges.

Market Indexes

Market indexes measure price trends across an industry or the entire stock market. They reveal bull and bear market trends.

Index	What it tracks	Note
Dow Jones Industrial Average	Sum of prices for 30 largest US industrial firms on NYSE	”Blue-chip” indicator; limited gauge of overall market
S&P/TSX	Average of 246 large Canadian stocks across industry groups	Topped 20,000 for first time in 2021
S&P 500	500 US stocks (400 industrial, 40 utilities, 40 financial, 20 transportation); weighted by market cap	More comprehensive than Dow
Nasdaq Composite	All Nasdaq-listed companies	Most tech-heavy; most important to some observers

Bull market = rising stock prices; investors act on the belief prices will continue rising. Bear market = falling stock prices; investors act on the belief prices will continue falling.

Reading Stock and Bond Quotations

Stock Quotations (daily newspaper/online)

Column	What it means
Company	Name of the corporation
Volume	Total shares traded that day (in 100s)
High	Highest price paid during the trading day
Low	Lowest price paid during the trading day
Close	Last price at end of trading day
Change	Difference between today’s close and previous day’s close

Bond Quotations

Column	What it means
Issuer	Company or government
Coupon	Annual interest rate as % of face value
Maturity	Date the bond will be repaid at face value
Price	Last transaction price as % of face value (e.g., 101.92 means $1, 019.20 o na$ 1,000 bond)
Yield	Annual interest ÷ current market price

Bond yield example: If you bought a $1, 000 p a r - v a l u e b o n d in 2010 f or$ 650, and the stated rate is 6%, you receive $60/ ye a r . Y o u r b o n d y i e l d =$ 60 ÷ $650 = * * 9.2$ 1,000, increasing your effective (true) yield further.

Buying and Selling Securities

Types of Orders

Order type	What it does	Use case
Market order	Buy/sell immediately at the current market price	When you want the trade executed now
Limit order	Buy only if price ≤ a specified level (or sell only if ≥ a level)	When you want a specific price
Stop order	Instructs broker to sell if price falls to a certain level	Protects against large losses

Order Sizes

Round lot: 100 shares or a multiple of 100
Odd lot: Any amount less than 100 shares; usually more expensive because an “odd-lot broker” intermediary is often required

Margin Trading

Buying stocks by putting down only a portion (the margin) of the price and borrowing the rest from the broker, who in turn borrows from banks at a special rate and secures the loan with the stock itself.

Why it amplifies gains AND losses:

Scenario	Full cash purchase	Margin purchase (50% down)
Invest $100, 000 inW es t J e t; o w n$ 50,000, borrow $50,000 @ 10%	—	—
Value rises to $115,000	15% gain	Sell, repay $55, 000 ($ 50K + $5 K in t eres t), k ee p$ 60,000 → 20% gain on $50K
Value falls to $85,000	15% loss	Sell, repay $55, 000, k ee p$ 30,000 → loss of $20, 000 o n$ 50,000 = 40% loss

Day traders exploit margin to make fractional gains on large share volumes, but the risk is amplified.

Margin (definition) = the percentage of the total sales price that a buyer must put up to place an order for stock or a futures contract.

Short Sales

Short sale = borrowing shares from a broker, selling them at the current price, then (later) buying replacement shares to return to the broker. Profit if the price falls; loss if it rises.

Process:

You believe Bombardier stock ($5/share) will fall
Borrow 1,000 shares from broker; sell for $5,000
If price falls to $3.50 \to b u y 1, 000 s ha res f or$ 3,500, return them to broker
Profit: $5, 000 -$ 3,500 = $1,500 (minus fees)
Risk: if price rises, you must still buy shares to return them — potentially large losses

Meme stocks (2021): Reddit’s r/wallstreetbets coordinated buying in GameStop, AMC, BlackBerry, and First Majestic — stocks being heavily shorted by hedge funds. The short squeeze caused massive losses for shorts and 2,300%+ gains in GameStop in under 3 weeks. Most retail investors who piled in late lost money (67% of Wealthsimple traders on GameStop lost money).

Stock Options

A stock option is the purchased right (not obligation) to buy or sell a stock at a specified price within a specified time.

Type	What it is
Call option	Right to buy a stock at a set strike price before a specified date
Put option	Right to sell a stock at a set strike price before a specified date

Call option example:

Goldcorp sells at $18 in J u l y 2018. Y o u b u y a c a ll o pt i o n t o p u rc ha se 1, 000 s ha res a t a * * s t r ik e p r i ceo f$ 23** within two months.
If stock rises to $23 + : e x erc i seo pt i o n \to p ro f i t = ($ 23 − $18) \times 1, 000 = * *$ 5,000** (minus option cost)
If stock stays below $23: option worthless (“under water”); you lose the option premium paid

Key Points for Exam/Study

Primary market = company gets the money (IPO); Secondary market = investors trade, company gets nothing
Know the four major indexes and what they track: Dow (30 blue chips), S&P/TSX (246 Canadian), S&P 500 (500 US weighted), Nasdaq (all Nasdaq listings)
Bull = rising; Bear = falling
Stock quote columns: volume, high, low, close, change
Bond quote columns: issuer, coupon, maturity, price, yield
Bond yield = annual interest ÷ current market price
Three order types: market (now, at prevailing price), limit (only if price hits target), stop (sell if price drops to level)
Round lot = 100 shares; Odd lot = less than 100 (more expensive)
Margin amplifies both gains and losses
Short sale: borrow → sell high → buy low → profit (or lose if price rises)
Call option = right to buy; put option = right to sell
GameStop meme stock case: social media–driven short squeeze; 67% of retail investors lost money

Cross-Course Connections

LongTermFinancing — stocks and bonds are the instruments sold in securities markets
InvestmentVehicles — mutual funds, ETFs trade in secondary markets
RiskManagement — margin trading and short selling carry significant speculative risk

Open Questions

How does a bond’s coupon rate differ from its yield, and why do they diverge?
What regulatory protections exist for retail investors in Canadian securities markets?

Cross-course: SelectionBias-SecuritiesMarkets — PHIL 252 selection bias variants (survivorship, right-censoring, OSE) in fund performance data

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