Understanding Finance from scratch

Chapter 18 Who is in charge of handling our "money" - learn something about financial institutions every day (5)
A membership-based stock exchange is not for profit, and its members are autonomous, self-disciplined, and bound by each other. Members who participate in the operation can participate in the stock trading and delivery of stock exchanges.This exchange has lower commissions and listing fees, allowing some degree of over-the-counter trading of listed stocks.However, since the members who operate the exchange are themselves participants in the stock transaction, it is inevitable that the unfairness of the transaction will occur in the stock transaction.At the same time, because the buyers and sellers participating in the transaction are limited to members of the stock exchange, the joining of new members generally requires the unanimous consent of the original members, which forms a de facto monopoly, which is not conducive to improving service quality and lowering charging standards.

At present, there are two stock exchanges in my country, one in Shanghai and one in Shenzhen, both of which adopt the internationally accepted membership system.The Shanghai Stock Exchange is currently the largest securities trading center in my country. It was established on November 1990, 11 with a registration of RMB 26 million.Shenzhen Stock Exchange is the second stock exchange in my country. It was established in 1000 and officially opened in July 1989 with the approval of the People's Bank of China.Since the opening of these two exchanges, they have continuously improved their market operations and gradually realized the computerization and networking of transactions and the paperless operation of stocks.At present, the types of securities listed on these two exchanges include (A shares, B shares), treasury bonds, corporate bonds, warrants, funds, etc.

The competition of the stock exchange is very fierce. In fact, its merger and integration have never stopped in the 20th century.Most countries with a long history of stock market development have many stock exchanges. More than 20 stock exchanges have been established in the United Kingdom, more than 100 in the United States, more than 10 in Italy, 7 in France, and 6 in Australia. Later, some exchanges were in competition Exit or be merged.There are many reasons for the merger of stock exchanges, some are due to the application of new technologies, which break the geographical restrictions of stock exchanges and make the stock exchanges redundant; some are merged because the stock exchanges are at a disadvantage in the fierce competition in the same industry; The stock market bubble burst, and exchanges were downsized and merged.For example, the widespread application of telegraph technology at the end of the 19th century and the beginning of the 20th century broke the geographical restrictions of exchanges, resulting in a large surplus of American stock exchanges and was merged; Japanese exchanges were once forced to close due to war; Hong Kong in the 20s in order to strengthen Supervise and prevent financial risks, and merge the original four stock exchanges into one.Before the 70s, the stock exchanges of various countries were reduced to a relatively reasonable level.

So what role does the stock exchange play in securities trading?

The stock exchange is the watchdog of the rules.Only by fair trading rules can fair trading results be achieved. Trading rules mainly include listing and delisting rules, quotation and bidding rules, information disclosure rules, delivery and settlement rules, etc., and stock exchanges must take responsibility for regulating the market.

The stock exchange also maintains the order of transactions.It is impossible for any trading rules to be perfect, and the trading rules may not be effectively implemented. Therefore, one of the core functions of the exchange is to supervise various behaviors that violate the principles of fairness and trading rules, so that transactions can be carried out in a fair and orderly manner. .

In addition, the stock exchange must also provide transaction information.Securities transactions rely on information, including information on listed companies and securities transactions.The exchange is responsible for supervising and properly reviewing the information provided by listed companies, and is obliged to announce the trading market in real time.

It is worth mentioning that stock exchanges often have problems and drawbacks of one kind or another, which will also have a negative impact on the financial order.

Such as disrupting financial prices.Since a large part of the transactions in the stock exchange are only resale and buy back, in the stock exchange, the turnover of securities trading is very large, but the actual delivery is not large.Moreover, since such transactions do not actually represent the sale and purchase of real financial assets, their supply and demand patterns cannot reflect the actual situation to a large extent, and may disrupt financial prices to a certain extent and engage in improper transactions.Engaging in improper transactions mainly includes engaging in matching transactions, false selling transactions and partnership transactions.Matching trading means that traders entrust two brokers through various channels, one party will buy and the other party will sell the same amount of securities according to their specified prices, so as to raise or lower the normal price of the securities.False selling refers to a trader who deliberately sells securities at a high price, and at the same time instructs another broker to buy them, and agrees that all losses will still be borne by the seller, which may result in false prosperity of the securities.Partnership trading refers to the combination of two or more people to manipulate prices. Once the goal is achieved, the partners will be disbanded, including trading partnerships (partners may secretly buy the securities they are interested in in the open market to prevent the prices of these securities from rising. Or by spreading unfavorable news about the company to lower the price of the stock it wants to buy) and option partnerships (investors buy securities at favorable prices, usually by getting through the company's board of directors, and usually return privately from a portion of the profits to the directors).

There are also cases of insider manipulation of the stock market.Since the management power of each company is in the hands of major shareholders, these people may manipulate the company's stock price by disseminating the company's profits, bonuses, expansion plans, acquisitions, mergers, etc.; The company secretly buys before announcing news that is beneficial to the company's stock price rise, and sells it at a high price when the announcement is made;

What's more, stockbrokers and exchange workers cheated.When trading on the stock exchange, stockbrokers may cheat by extorting trading commissions, falsely reporting market prices, buying and selling without authorization to benefit themselves from customers' funds, or falsely reporting customer defaults to earn trading compensation.The cheating methods of the staff of the exchange may include: conducting stock trading illegally by themselves in the dark, at the same time colluding with stock brokers to cheat or secretly engaging in stock trading with stock brokers.

The above situations exist objectively, but with the development of the stock market and the gradual improvement of market norms, it is believed that such situations will become less and less.

who owns the fed

In 1907, there were some problems in the American economy, and large companies went bankrupt one by one.President Theodore Roosevelt ordered someone to quickly invite the financial giant Morgan to come forward and ask the bankers to cooperate.Morgan immediately invited all the bankers to his private library and asked them to discuss what to do.Then he went out, locked the door, and went himself into another room, where he sat at a table, played cards leisurely, and waited for the outcome of the conversation.The bankers were there all night talking about what to do to fix the crisis.We all know that when a company is about to go bankrupt, banks are reluctant to lend money to the company.The less money you have, the faster the business will fail.If the banks do not save themselves, there will be a chain reaction in the economy, the entire economy will collapse, and they will suffer themselves.So these bankers fought back and forth, some said 500 million yuan, and some said 1000 million yuan.Finally, when it was almost dawn, Morgan pushed the door in and said, "This is the contract, here is the pen, everyone sign it!" He took out the contract that had been drafted by others, and asked the bankers to sign it.The exhausted bankers took a pen and signed the contract, agreeing to pay $2500 million to bail out the crisis.A few days later, the U.S. economy recovered.

In the story, Morgan alone acts as the central bank.Now there is a point of view: the Federal Reserve, the central bank of the United States, is actually a private bank.This is indeed an amazing inside story. A private institution has the right to issue currency. What does this mean for the financial market and even the global financial market?What is the relationship between the Fed and Wall Street giants?Are there any hidden secrets behind the scenes?

After the subprime mortgage crisis, the exposure of the Federal Reserve has become higher and higher, and more and more people are talking about it, and the theory that the Federal Reserve is a private institution is also rampant.People say: The Federal Reserve, which is considered to have achieved perfect interaction with the market, and is regarded as the "benchmark" of central banks.However, behind this glamor, the Fed is essentially a private institution.

So what kind of institution is the Federal Reserve?

At the beginning of the 20th century, the United States did not have a central bank. At that time, American commercial banks often encountered payment crises.Because the banks have lent out all their money, when depositors come to withdraw their money, they have no money to pay.If a bank has no money, once word spreads, there will be long queues in front of other banks, and everyone will go to withdraw money.Because everyone is afraid that they will not be able to withdraw money tomorrow. If everyone goes to withdraw the money, they will really not be able to withdraw the money. This is a run on the bank.Speaking of the central bank, it does not mean that there has been a central bank since the day there were commercial banks engaged in deposit and loan business.The emergence of the central bank has a process and a reason.

After the founding of the United States in 1791, with the strong support of the then Treasury Secretary and genius Hamilton, the first central bank was established, but this central bank disappeared 20 years later.This is the First United States Bank, with a total equity capital of $1000 million, 80% owned by private individuals and 20% owned by the US government.Of the 25-member board, 20 are elected by private shareholders and five are appointed by the government. When the Bank of the First United States expired in 5, the U.S. government vetoed a motion to extend the mandate.After that, the war between the United States and Britain broke out in 1811, and the war that lasted for three years increased the financial pressure on the United States. In 1812, the Bank of the Second United States was established, and it also received a 1816-year business authorization. The total share capital was 20 million US dollars, and 3500% was still owned by private individuals, and 80% belonged to the government. In 20, President Jackson of the United States vetoed the Bank of the Second United States extension.For 1832 years from then until 1913, the U.S. economy operated without a central bank.

Without a central bank, it is impossible to use appropriate monetary policy to regulate the economy, and without a lender of last resort, the financial system is more prone to failure.Just imagine, if countries around the world lacked central banks, Lehman Brothers would be far more than the only bankrupt in this crisis. After 1836, the U.S. economy was in this unstable state.By 1907, a contagious crisis had pushed the U.S. financial system to the brink of collapse.Fortunately, the financial giant at the time, Morgan, acted in time, and with his own strength, he played the role of the central bank and saved the entire system.

In 1907, the banking panic hit the United States again.Moreover, the severity of this crisis is unprecedented.This time, Morgan stepped forward and turned the tide. The banking crisis in 1907 hit the United States extremely hard, and it also made many people in the United States realize that the United States needs a central bank.During the years when there was no central bank, Morgan played the role of the central bank alone.When the federal government ran out of money, it asked him to solve the problem; when Wall Street had a problem, it asked him for funds; when a big company had a problem, it also came to him for help.Morgan's role was so great that John Morgan was on the cover of a publication published on February 1910, 2, and the headline next to it was "Establishing a central bank? Uncle Morgan has already done the work of the central bank, and the United States still needs it." building another central bank?"

The Federal Reserve was established in 1913. First of all, it does not have a high-sounding name like the National Bank; secondly, its headquarters is set up in Washington, the political center, and it has 12 regional branches. The government has the right to nominate and appoint the chairman and directors.There are two important points here: first, the government no longer owns the 20% stake that the previous two central banks had, it is made up of 12 Federal Reserve Banks, which are federally chartered joint stock companies, each with its own Shareholders, Directors and President.Shareholders in each bank are member banks in the region in which the Reserve Bank is located, and they are entitled to elect six of the nine directors.Each member bank is required to purchase shares equal to 9% of its assets and net worth.Second, the Federal Reserve Act does not mention the issue of the authorization period at all, and people no longer need to argue about the expiration of the authorization period.

In any case, the fact is undeniable: the Federal Reserve is a joint-stock company, and it is not the US government that owns the shares. The government only has the right to nominate and appoint the directors of the Federal Reserve Board, and the various questions that arise from this are also difficult to answer:
First, we know that the right to issue currency belongs to the central bank of a country, and the U.S. Constitution clearly stipulates that Congress has the right to issue currency. So is it essentially in line with the U.S. Constitution that the private Federal Reserve is now exercising the right to issue currency?Debate over this issue has led to the shutdown of the First and Second United States, which means that such discussions are not without merit.

Second, under the dollar standard, the Federal Reserve is not only the central bank of the United States, but also the central bank of the world, but no international agency supervises the behavior of the Federal Reserve. Does the private nature of the Federal Reserve have any impact on the role of the Federal Reserve in the global financial market?

It is not irrelevant to clarify whether the Federal Reserve is state-owned or privately owned. After all, we are now in the adjustment period of the international financial system. Clarifying the private nature of the Federal Reserve and the nature of US currency issuance will help us understand the nature of the international financial market. nature, and the way forward for the international financial system.

(End of this chapter)