US and Saudi Stock Markets - Essay Example

US and Saudi Stock Markets of the of the Introduction A stock market or an equity market refers to a place where buyers and sellers of stock come together in order to execute their trade. Transactions can now be executed electronically in the online platform of the exchange. A stock exchange can be said to be an organization where traders of stock can trade in stocks. Whereas some companies want to get their stocks listed in a formal stock exchange there are other companies which prefer that their stocks should be traded over the counter. There are a number of stock exchanges across the world. The largest amongst the different stock exchanges by means of market capitalization is the New York stock exchange. In the following pages the history of the stock markets in America and Saudi Arabia will be discussed followed by a discussion of the importance of these stock markets. Discussion Historical background about US stock market The earliest record of organization dealing with security trading was in New York where brokers directly dealt with each other and this trading can be traced back to Buttonwood Agreement. The security exchanges in the earlier times were led by auctioneers acting as intermediates. Auctions of wheat and tobacco were also conducted by these exchanges. In order to set a floor commission rate 24 traders came together for signing the Buttonwood agreement. Amongst the earliest securities that were traded in the market were bonds of the revolutionary war and the stocks of the first bank o the United Sates. One of the non governmental institutions whoso stocks were traded in the early days was Bank of New York. It was in 1817 that the stock brokers in the New York who were operating under the Buttonwood agreement called on new reforms and reorganized. In order to organize the board of the brokers one of the delegations was sent to Philadelphia. These traders adopted restrictions on manipulative trading and forms of governance. After they had reformed and were named as York Stock and Exchange Board, they started renting the spaces of their buildings for the purpose of security trading. The activity of security trading was previously taking place at Tontine Coffee House. Consolidation of the market was achieved by the invention of electric telegraphs. Soon, it seemed that the market of New York began to dominate the market of Philadelphia (Koepp, 2012). The period of civil war saw the rise of speculative trading activities. The NYSE was formed by brokers under the boughs of the Buttonwood Agreement. The location of exchange is at the Wall Street. It was the location of the exchange that eventually led to the dominance of the exchange over others. The exchange was located at the heart of all business and trade activities that were coming to United States and going from United States to other countries. It was also the base for most of the large corporations and banks in the country. The organization set requirements for listing and started demanding fees for the companies listed in the exchange. This led to the fact that the exchange soon became a wealthy institution. Another stock exchange that is present in America along with NYSE is NASDAQ. NASDAQ was formed by the National association of security dealers who are now referred to as Financial Industry Regulatory Authority (Terrell, 2012). Unlike NYSE there is no physical space that is occupied by NASDAQ and trading is executed electronically by the exchange through a network of computers. Historical background about Saudi stock market The history of joint stock companies the Saudi Arabia can be traced back to 1930’s. It was during this period that the first joint stock company which was named as the Arab Automobile company was established. Arabian Cement Company went public in the year 1954 and was followed by the three electric companies that went private subsequently. According to the needs that were expressed in that period more joint stock companies were subsequently formed in the country. During the latter half of 1970, as the number of joint stock companies increased considerably, the stock market began to emerge in the country. Subsequently the electricity companies were merged and additional free shares were distributed to the contributors. Subsequently foreign banks in the country were nationalized and the shares of the banks were given to the public. All these developments led to a situation where the number of shares available for trading increased phenomenally and this led to the fact that a need for shares trading was felt in the country. However owing to the fact that there was lack of regulations in trading at that point of time in the country, trading in stock was highly limited. It was in the early half of the 1980’s that there was considerable increase in the prices of oils which led to increase in trade volume and market capitalization. It was in 1985 that all stock trading activities in the country was placed under the supervision and control of Saudi Arabian Monetary Agency (Gulf base, 2015). In was in this period that broker based stock trading system was discontinued in the country. In order to protect the market against the adverse effects of speculation and to help it to develop and mature the banks of the country were told to act as brokers. It was believed that this would lead to the fact that the stock market would develop in a way which leads to the development of the country an d there would be more participation by the private sector in the market. In a database that is supervised by the International Financial Corporation the Saudi Stock market finds itself listed. This listing is an evidence of the importance of the Saudi Stock market. It goes on to so that an advance position is held by the Saudi Stock market amongst a number of new markets in terms of number of indicators. There are no limits on the Saudi Nationals on the number of shares they can trade of the joint stock companies in the country. Till now foreign nationals were not allowed to invest in the market except through closed investment funds. However the market has recently been open to foreign investors (Bird, 2015). Importance of Saudi stock market The Saudi stock market is the largest stock market in the Middle East. It is not only the largest stock market in the Middle East, it is also considered to bigger than the combination of the stock markets of all other gulf countries (Hankir and Baltaji, 2015). As a stock market there are great opportunities that are offered by the Saudi Stock market. However, until recently only citizens of Saudi Arabia and other gulf countries were allowed to trade in the stock market of the country. The people of other GCC countries were allowed to trade in the Saudi stock market subject to the restrictions that is imposed by the respective GCC country. Till recently the people from non GCC countries were allowed to enter only through the closed investment funds. However, recently there has been a move in which the foreign investors are being allowed to participate in the stock market of the country. Till recently the stock market of Saudi Arabia was one of the world’s most restricted stock market. However the country is now opening the stock market in order to attract foreign reserves and reduce it’s over reliance on income from oil. The country is the wealthiest and most powerful amongst Arab nations. The country has oil reserves that are greater than that is present in the United States and Russia. Income from oil currently accounts for 90% of the revenue for the government of the country. However the government wants to open alternate sources of revenue and that is why the stock market of the country is being opened to attract foreign investments. However, as of now only foreign institutional investors will be allowed to participate in the market. Importance of US stock market NYSE is considered as the largest and the most powerful stock exchange in the world. The rising power of the stock exchange was in line with the rise of the economic power of the United States. There are two major stock exchanges in the United States. The other stock exchange in the United States is NASDAQ which has the most number of companies listed in the country. However, by means of market capitalization NYSE is larger than the combination of the NASDAQ, Tokyo and London. The merger of NYSE and Euronext has increased the appeal of the stock exchange on a global scale. There was once a time when the fortunes of NYSE were closely tied with that of the American economy. Now the appeal of the exchange has increased on a global scale. Whereas it is found that the exchanges across the world has improved due to consolidation of the domestic economies, but the NYSE as with the case of the American economy still remains the most powerful. It is found that the stock market in the United States is the most important in the world and has the capability to influence all the stock markets across the world. The dominance of the stock market of the United States is in sync with the dominance of the economic power of America. Although all the major stock exchanges around the world have an influence on each other it is the stock market of the United States that has the largest influence on all other stock markets. Thus a downgrade of the American stock market leads to global depression. Conclusion The essay in the above pages describes the stock markets in two countries that are United States and Saudi Arabia. Previously it was necessary for the buyer and seller of the stock to be physically present at the stock exchange or execute the trade through brokers present physically on the stock exchange floor. However the emergence of internet has provided an era where it is no longer needed by the people to be present on the floor of the exchange in order to execute transactions. The stock market in the United States is found to be an old one and is thus much matured. As compared to the stock market of the United States the stock market of Saudi Arabia is pretty recent. As compared to the stock market of the United States, the stock market of Saudi Arabia was one of the most restricted in the world until recently. It is also found that the stock market of the United States is the most powerful in the world and has a good influence on number of other stock markets across the world. As compared to the Stock market of the United States, it is found that stock market of Saudi Arabia is the most powerful in the gulf and bigger than the combination of stock markets of all other gulf countries. References Bird, M., (2015). Saudi Arabia just opened the Middle Easts biggest stock market to global investors for the first time in history. Retrieved from http://www.businessinsider.in/Saudi-Arabia-just-opened-the-Middle-Easts-biggest-stock-market-to-global-investors-for-the-first-time-in-history/articleshow/47675488.cms Hankir, Z. and Baltaji, D. E., (2015). What Investors need to know as Saudi stocks open up to the world. Retrieved from: http://www.bloomberg.com/news/articles/2015-06-14/why-mideast-stock-markets-will-never-be-the-same-after-monday Gulf base. (2015). Saudi stock market. Retrieved from: http://www.gulfbase.com/gcc/index/1?t=3 Terrell, E., (2012). History of the American and NASDAQ Stock Exchanges. Retrieved from: http://www.loc.gov/rr/business/amex/amex.html Koepp, R.W., (2012). Betting on China: Chinese Stocks, American Stock Markets, and the wagers on a new dynamic in global capitalism. Retrieved from: Solaris south tower: John Wiley & Sons. Read More