Week 4- Discussion Forum 1

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University Of Arizona *

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Finance

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Feb 20, 2024

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Discuss the evolution of the securities markets, including the impact of the NASDAQ, CME, ECNs, and foreign exchanges The evolution of securities markets has been marked by technological advancements, the rise of electronic trading platforms, and increased globalization. The security markets include various securities, from government bonds to corporate common stock, as Block et al. (2022) argued. Moreover, NASDAQ influences the markets as it is one of the largest markets in the world, second behind the NYSE (Block et al., 2022). The rise of Electronic Communication Networks (ECN) has substantially impacted the securities market. By reducing trading costs, the ECN has significantly compelled organized security exchanges to enhance their operations (Block et al., 2022;). According to the CME Group (n.d), the Chicago Mercantile Exchange (CME) plays a significant role in the security market, as it is responsible for monitoring prominent trader positions, physical market prices, fundamentals, and news, as well as detecting and preventing market manipulation and ensuring orderly contract liquidation. As the world undergoes increased industrialization, foreign exchanges play a significant role in the security market. The expansion of capital markets globally is evident, with notable shifts observed in the trading activities of large companies like McDonald's and IBM, which are now actively participating in the Tokyo and Frankfurt stock exchanges (Block et al., 2022). Explain the role of securities markets in the efficient allocation of capital among issuers and investors based on the efficient market hypothesis. The market plays a crucial role in capital allocation, connecting individuals or entities with surplus funds to invest with those seeking funds for various projects. Through risk-based analysis, the market ensures that capital is allocated to endeavors with the highest potential for value growth. Capital allocation involves the strategic distribution and investment of a company's financial resources to enhance efficiency and maximize profits, as Kenton (2020) suggested. Evaluate if the presence of dark pools enhances or reduces capital market efficiency. While controversial, dark pools are considered necessary for large trades, benefiting hedge fund managers and limiting public access to information, weakening capital markets' efficiency. Chen (2022) defines a dark pool as a private financial platform for trading securities where institutional investors can execute trades with limited exposure, as trade details are disclosed only after execution and reporting and following complaints, the SEC investigated dark pools for potential illegal front-running, as institutional traders place orders ahead of customers to exploit subsequent share price increases. Despite the controversy, dark pools are deemed essential for large trades, benefiting hedge fund managers and restricting public access to information, potentially undermining capital market efficiency.

Finally, find a real-life company that has made raised capital in 2020 and discuss the method used. If possible, try to select a company that a fellow student has not already selected. One Real-life example demonstrates the diverse methods companies employ to raise capital and enhance their financial standing, thereby increasing their overall value. Tesla has utilized multiple approaches to raise capital, including secondary offerings of its common stock. For example, Tesla conducted a secondary offering in 2020, raising billions of dollars to fund its ambitious growth plans, including constructing new gigafactories and investments in research and development, as Wayland (2020) wrote. References Block, S. B., Hirt, G. A., & Danielsen, B. R. (2022). Foundations of financial management (18th ed.).McGraw-Hill Higher Education. Chen, J. (2022). What Are Dark Pools? How They Work, Critiques, and Examples. https://www.investopedia.com/terms/d/dark-pool.asp Li, W. X., Chen, C. C. S., & Nguyen, J. (2022). Which market dominates the price discovery in currency futures? The case of the Chicago Mercantile Exchange and the Intercontinental Exchange. Global Finance Journal, p. 52 , 100593. Kenton, W. (2020). Capital Allocation Definition. https://www.investopedia.com/terms/c/capital_allocation.asp#:~:text=Capital%20allocation%20is %20about%20where,efficiency%2C%20and%20maximize%20its%20profits . Wayland, M. (2020). Tesla to raise up to $5 billion in share offering, its second in three months. https://www.cnbc.com/2020/12/08/tesla-to-raise-up-to-5-billion-in-share-offering.html

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