Question.2542 - The final project for this course is the creation of a market analysis report that analyzes various organized global and domestic exchange markets and compares and contrasts performance for different investment products. In this milestone, you will submit a draft of Oversight and Governance (Section III) of the final project. You will explain how different markets are regulated, by which agencies, and how that might impact decisions on which market(s) to list in. Rules, regulations, and regulators of U.S. and international exchanges should be explored, which were discussed in Module Three. In addition, you will research listing in multiple markets and how interest rates may affect one market over another. Specifically, the following critical elements must be addressed: III. Oversight and Governance. Use this section to explain how different markets are regulated, by which agencies, and how that might impact decisions on which market(s) to list in. You must address: A. U.S. Exchanges. Select a major U.S. exchange(s) that the company you are reviewing could have considered in making its IPO listing decision. If the company is listed on a specific U.S. exchange, use that market. Be sure to answer: 1. What rules and regulations do companies wishing to list on this U.S. exchange need to follow and how might that affect listing decisions? Your answer should focus on basic entry and operation standards, including requirements for non-U.S. companies to trade on U.S. exchanges, citing relevant sources. 2. How are U.S. market regulations enforced and by which agencies? How might the costs of compliance and consequences of non- compliance have affected the company’s listing decision? Justify your response. B. International Exchanges. Select a major non-U.S. exchange(s) that the company you selected could have considered in making its IPO listing decision. If the company is listed on a specific non-U.S. exchange, use that market. Specifically: 1. How can you determine the rules, regulations, and oversight bodies for this non-U.S. market? In other words, where would you look to find this information and how would you know to look there? Support your response with concrete examples. 2. What rules and regulations do companies wishing to list on this non-U.S. exchange need to follow and how is compliance enforced? How might those factors have affected the company’s decision? Your answer should focus on how basic market requirements and compliance mechanisms are (or are not) different than those for U.S. exchanges, citing relevant sources. C. Multiple Markets. Analyze whether the selected company should or should not have considered listing its initial public offering (IPO) in more than one market. Justify your response. For example, can a company legally list in more than one market? If so, under what conditions? What are the risks and returns for attracting individual and corporate investors? D. Interest. Analyze how interest rate policies and announcements affect returns and decisions about listing in the two markets you selected. Provide specific examples to illustrate your answer. For example, how are interest rates determined in U.S. versus non-U.S. markets? How do governments use interest rate decisions to try to influence the markets under different conditions?
Answer Below:
I. Choice of the Company In the present context, the main focus is on the market analysis report that analyses different international and domestic stock exchange markets. In this case, the chosen company is Airbnb Inc. which is an American MNC that runs an online marketplace specifically for online lodging which includes homestays for rental vacations and tourism activities. It is headquartered in San Francisco, California. It also offers the service via mobile app and website. In the year 2020, it went on to offer one of the earliest IPO plans, and thus, this IPO offering and the market analysis of Airbnb are analyzed in this report (Burke, 2020). II. Overview of the Market The main stock exchanges, both in the inner and outer region of the United States comprise several instruments and securities that are used for trading purposes. In this section, the discussion on the organized exchanges is carried out to assess the market volatility and stability for a company like Airbnb which has recently gone public with the introduction of IPOs. In the recent offering, the total capital raised in this process is around 3.5 billion USD. In the organized exchanges the major exchanges with large market capitalization are stocks, Exchange-Traded Funds or ETFs, futures contracts, forward contracts, currency derivatives, metals, Contract For Differences, or CFDs. These are the main instruments traded in different market markets. Some industries specifically focus on specific security or instruments (Mahajan, 2018). Like the steel industries invest in metal, the banking sectors invest more in government security bonds. FIN 335 Final Project 3 Comparison between Nasdaq and NYSE in the recent years Such markets comprise the Nasdaq and NYSE whereas the Nasdaq is more prestigious for its several different financial benefits in the US exchange markets over the NYSE. Nasdaq is the second biggest stock exchange based on market capitalization having its headquarters in New York City. The NYSE is the biggest stock exchange in the world based on the market capitalization of shares traded. The biggest advantage of Nasdaq over NYSE despite being second on the list of global stock exchange trade because it is a global electronic marketplace for buying and trading securities. It is the first electronic exchange in the world. The NYSE is an auction market that uses specialists or official MMs. But the NASDAQ is a dealer market with several market makers having a competition with one another. This gives Nasdaq an upper hand over NYSE. It covers the highest number of IPO investments and prices than other markets. Thus, certainly, Nasdaq has an upper hand over other markets in US stock exchanges. FIN 335 Final Project 4 The recent performances of the markets that have been identified earlier are assessed in this section focusing on factors that might affect the decisions of IPO-listing. The Nasdaq has been the highest rating market for the organized exchange inside the US territory. And also, the London stock exchange is the outside organized exchange market of the USA. The factors that are affecting the IPO-listing can be highly volatile or well effective for the company in the present context. The number of stocks that are being sold in an IPO, the potential growth rate of the company, financial performance of the company over the years business model of the company and the demand from the potential customers for the sold stocks could be the affecting factors in any IPO-listing process. To support the statement there are several examples attached to it like. The NASDAQ and the AMEX are performing well in contrast to the NYSE which is lacking some primary components in recent years (Veverková, 2021). Specifically, in the arena of digital and online marketing, Nasdaq has performed hugely well. The AMEX is performing well in real estate, gold, and metals whereas the NYSE is still focusing on service and telecommunications mainly. There is also large-scale volatility attached to the major currencies across the world which comprises AUD/JPY (Australian Dollar or Japanese Yen), NZD/JPY (New Zealand Dollar), and AUD/USD. These also can affect the IPO listing of the company. In recent times, there is nothing worse than the Covid-19 which impacted markets the most in every possible way. The other factors are social instability, political and economic distress, environmental concerns, and legal inconsistencies which can impact the markets on a large scale (Husnain et al. 2021). FIN 335 Final Project 5 References Burke, K. (2020). Airbnb files IPO in face of profitability challenges. Husnain, M., Anwar, M. M., Hameed, F., & Khan, M. T. (2021). Corporate governance characteristics and firm profitability: empirical evidence from emerging equity market. International Journal of Management (IJM), 12(3). Mahajan, P. S. (2018). Marketing strategy of a company using shared economy business model. The case of “Airbnb” (Master's thesis). Veverková, M. (2021). The Analysis of Marketing Strategy of Airbnb and Their Current Business Model. FIN 335 Final Project 6 Milestone 2 Introduction: The macroeconomic environment can be defined as the conditions of the economy that a sector or company operates on and influences performance. The macroeconomy deals with the price level, aggregated production, and spending in an economy as opposed to the markets and the individual industries. Market overview: Various factors compose the macro environment, such as gross domestic production (GDP), inflation, employment, consumer spending, monetary policies, and Fiscal policy (Adji et al., 2018). An investment vehicle can be defined as the product used by an investor to gain good returns at low risk like certificates of deposits (CDs) or high risks like futures, stocks, or options. The type of vehicle selected by an investor is subjected to the regulation of the government the company is signed under or the transaction is happening. There are ownership investments where the investor expects its assets to grow in value and there are lending investments where the money is used by other entities and is expected to be repaid. Macroeconomic environment: As stated by Adji et al. (2018), the economic environment, as defined earlier, is the external factors that influence the business and the consumer habits, affecting the performance of FIN 335 Final Project 7 the market. The macro factors can be listed as unemployment, income, inflation, saving rates, currency exchange rates, taxes rates, interest rates, recession, and scarcity. For example, scarcity can be defined as the production with limited sources, which leads to the constant opportunity for the cost involved to change its value and influence economic decisions. This can be due to Supply-induced scarcity or Demand-induced scarcity or even, a combination of both. This can cause potential market failure if the companies cannot foresee the future (Misra, 2018). One of the major issues in the 21 st century has been the production of CO2 emissions that has resulted in a shortage of land and drinking water availability. The free market does not factor in this impact and thus the future scarcity will cause a major economic crisis in the future if anything is not immediately. Figure 1: Causes of Scarcity (Sources: Misra, 2018) Oversight and governance: FIN 335 Final Project 8 In theory, the economy can be considered non-political but the socio-political climate of a country influences the economic decisions of the market. This establishes the relationship between the fiscal policy that is set by the government and the monetary policies, set by the independent Central banks. This has been seen in the case of the Pandemic of 2021, where the Reserve Bank of India was altering the interest rates to meet the supply whereas the government announced emergency economic packages to meet the demand of the market. As discussed by Simbolon (2018), another instance of political decisions impacting the economy was seen was in the case of Brexit when the UK signed out of the European Union. The publishing of the referendum resulted in the inflation of the UK being pushed up 1.7% in 2017. The economic costs were estimated to be 2% of GDP in 2018 and reduced the national British income by 1.3%. Another macroeconomic factor is interest rates that have both negative and positive effects on the market. When the Fed or the Federal Reserve Board changes the rates at which the banks can borrow, it has a ripple effect over the whole economy of the country, impacting recessions, inflations, and the stock and bond markets (Simbolon, 2018). Then, the central banks change their target IR, if the economy is strong, they raise the rates or lowers it if it is sluggish. These changes directly affect recessions and inflation. During 1980-81, the Fed raised IR to 19% since inflation was 14% which caused several recessions. However, the increased interest rate put an end to the spiraling inflation in the US. Again, in 2002, falling IR was causing a spiraling recession and Fed had to cut the federal rates to 1.25%. Thus, borrowing became cheaper and this encourages people to spend more, which contributed greatly to the 2003 economy. Risk and return: FIN 335 Final Project 9 As mentioned by Iqmal & Putra (2020), when a company "goes public", the initial public offering or IPO of the company is valued. It hinges on consumer demand as the valuation depends on growth prospects and the industry comparable. Often when the demand for a stock of a company is favorable, its fundamentals are overshadowed. This allows the company to raise capital but is not favorable for the investors buying shares as it might not value as much in the future. FIN 335 Final Project 10 References Adji, S. S., Ahn, Y. S., Holsey, C. M., & Willett, T. D. (2018). Political capacity, macroeconomic factors, and capital flows. In Political capacity and economic behavior (pp. 127-146). Routledge. Iqmal, F. M., & Putra, I. G. S. (2020). Macroeconomic factors and influence on the stock return that impact the corporate values. International Journal of Finance & Banking Studies (2147-4486), 9(1), 68-75. Misra, P. (2018). An investigation of the macroeconomic factors affecting the Indian stock market. Australasian Accounting, Business and Finance Journal, 12(2), 71-86. Simbolon, L. (2018). The influence of macroeconomic factors on stock price: The case of real estate and property companies. In Global tensions in financial markets. Emerald Publishing Limited. FIN 335 Final Project 11 Milestone 3 A. U.S. Exchanges 1. The company uses New York Stock Exchange (NYSE) for its IPO listing. About 80 % of the securities of Americans are traded in this market. The requirement of a listing is governed by NYSE and the company needs to follow certain financial and non-financial standards to be listed here as follows: ? The company must have at least 400 shareholders and owned a minimum of 100 stock shares. The stock price must be $4 per share. ? The company must be profitable and must meet at least one basic earning standard. One is for the last 3 years aggregate pre-tax income of $10 million with $2 million in recent 2 years. Other is $200 million in global market capitalization. ? The company must have an outstanding of 2.5 million shareholders and 5000 public shareholders. In the case of non-US companies that don't have registered stakeholders in their domestic market, the New York Stock Exchange requires that a member brokerage firm provides the liquidity of the stock of the company and the depth of the market. Thus NYSE model of the market is such that mitigates the risk of execution and reduces the volatility of price by more than 30% (NYSE, 2021). 2. The U.S market is regulated by the Securities and Exchange Commission. It was set up in 1934 to bring control and regulations over the market in the United state. It is a quasi-judicial FIN 335 Final Project 12 body comprised of many divisions and these divisions are responsible for monitoring and enforcement of laws, issuing new regulations, ensure coordination among regulatory bodies. Another body is Financial Industry Regulatory Authority. It is the largest and independent regulator of a brokerage firm or broker associated with the market. It is a government authorization body and ensures that broker-dealers operate honestly and fairly. The compliance and consequences of non-compliance to large extent determines the behavior of the company IPO listing. For stricter guidelines by an agency, the chances of IPO listing will increase as it ensures data security, stability in market, less fluctuation, more predictability, and more assurance. Moreover, in the case of expanding business internationally, there can be issues related to stricter compliance. The compliance with rules, regulations, and all will be regulated by the Securities and Exchange Commission. B. International Exchanges The other non-US exchange market company that can think of listing its shares can be the London Stock Exchange an exchange market of the UK. 1. To determine the rules, oversight agencies, and regulations of the non-US exchange the official website of the exchange are the best option for updated data. For instance to gather information te about the London Stock Exchange it is relevant to visit its website for meeting information about rules and regulations for IPO listing. There are other general guidelines by the government, the company can consider them too. Similarly for the other market information can be collected. 2. The rules and regulations followed by the company to list in London Stock Exchange are different depending on the market segment it's on that are Premium, high rowt segment, and FIN 335 Final Project 13 Standard. In the main market is the EU regulated market, the company needs to produce a Prospectus that is approved by UKLA (UK Listing Authority) in all the market segments. The document submitted by the company sponsor to UKLA contains the company and its business information and must satisfy the rules of Prospectus and Listing rules. Parallel to the process of UKLA application company needs to apply to LSE to admit the company's security for trading in this market and meet the Admission and Disclosure standards requirements. Te company admission in the market is relevant only when UKLA approves all the documents. There is a body like in the US to regulate and ensures the compliance of rules in the London Stock Exchange that is the Financial Conduct Authority (FCA). The FCA investigates disclosures made by AIM company, gave competent authority with respect to FCA's Disclosure and Transparency rules that apply to companies of UK. With respect to the secondary market, it has both criminal and civil powers to identify and prevents the abuse of the market (Mansaku et al., 2017). The individual and company botregisteredstered it FINRA then it helps investors and firms participation in the market with confidence and security. FINRA is a private corporatrion in Amerivca that performs self regulatory function and regulates exchange markets and brokerage firms. C. Multiple Markets A company can list its shares on more than one exchange that is termed as a dual listing. But Company needs to meet all the requirements of exchange listing and payment of associated fees. A company must list in more than one exchange to increase the liquidity of stocks that FIN 335 Final Project 14 means availability of shares in plenty for market demand, to increase the capital access, shares an ability to trade for a longer period. It increases the investor's scope to choose from exchange to buy or sell shares of the company. Conditions for dual listing are security prices must be the same in different exchanges after accounting exchange rate differences. The risk and return associated by a company for attracting investors go side by side. A company needs to then maintain transparency and focus on making high or at least adequate returns for investors. This will help in maintain liquidity for company performance and build company reputation in the market. The company holds the responsibility of using its resources in an optimized manner to maximize capital investment value (Cumming et al., 2018). D. Interest Interest rates cane can impact the market both positively or negatively. Central banks change the rate of interest concerning economic activities. The interest rate will increase in case of a strong economy and it will decrease in a sluggish economy. Lowering the interest rate will make the borrowing of money cheaper thus encourages investment and results in a positive response of the company for a listing of shares. A low-interest rate prompts investors to transfer their funds from the bonds market to the stock market but the foreign investment will increase as currency value increases its interest rate. For example in the US in 1980 and 1981 there is inflation in the economy and the government increase the interest rate thus decrease the market investment as borrowing becomes costly. Thus the government of different countries to control the inflation in the economy raise the interest rate that decreases the investment in the market. This makes the company delay the listing of shares in the market until the market stabilizes to prevent any risk. This is the way how the government uses FIN 335 Final Project 15 interest rates as an instrument to change the market in different conditions (Angelini and Foglia, 2018). FIN 335 Final Project 16 References Angelini, E. and Foglia, M., 2018. The relationship between IPO and macroeconomics factors: An empirical analysis from UK market. Annals of Economics and Finance, 19(1), pp.319-336. Cumming, D., Hou, W. and Wu, E., 2018. Exchange trading rules, governance, and trading location of cross-listed stocks. The European Journal of Finance, 24(16), pp.1453-1484. Mansaku, I., Mansaku, S. and Tampakoudis, I., 2017. An empirical comparison of the major stock exchanges: NYSE, NASDAQ and LSE in Perspective. Academic Journal of Interdisciplinary Studies, 5(3 S1), p.406. Nyse.com. 2021. NYSE Regulation | Rules. [online] Available at: <https://www.nyse.com/regulation/rules> [Accessed 23 September 2021]. FIN 335 Final Project 17 Milestone 4 Investment Instrument The report will mainly consist of a detailed discussion comparing the stock markets of the United States of America and the United Kingdom. The United States of America Stocks: The United States stock market mainly has approximately 5000 indexes. The most polar stocks of the United States are Dow Jones Industrial Average, S&P 500 and Nasdaq composite. All the stocks of the US stock market are included in the Wilshire 5000. Bonds: The US stock market's three basic and most important bonds are US treasury, corporate and municipal bonds (Abbas and Wang, 2020). The US government mainly issues the treasury securities. Mutual Funds: Some of the famous mutual funds of the United States are Vanguard 500 Idx; Adm, SPDR S&P 500 ETF, Vanguard TSM Idx; Adm and Fidelity 500 index funds. Commodity Performance: Some of the best commodity stocks of the US stock market are Barrick gold corporation and Valero energy corporation, which is simply performing at their best at the current times. The United Kingdom Stocks: The best stocks of the United Kingdom currently are Unilever, Glaxo Smith and Barclays (Marjanovi?, Mihailovi? and Dimitrijevi?, 2021). FIN 335 Final Project 18 Bonds: Some of the best treasury bonds of the United Kingdom are BIL- SPDR Barclays, SHY- shares, VGSH- Vanguard short term Treasury. Mutual Funds: The top mutual funds in the United Kingdom market are: MSCI, Invesco and BlackRock. Commodity Performance: The best commodity performance is mainly provided by the machinery and the transport equipment in the United Kingdom with an export value of about 118 billion British pounds. Performance of different types of instruments The performance of the two main instruments are mainly to be discussed in this section which is: the stocks and the mutual funds: In the US stock exchange, the Dow Jones Industrial Average stocks currently remain at the record high position in the month of September 2021. The best performers of the Dow Jones Industrial Average were Goldman Sachs, Microsoft and American Express, with 56.8 per cent, 35.7 per cent and 37.3 per cent, respectively (Nasimi and Nasimi, 2020). As per the United Kingdom or London Stock Exchange, the best-performing stocks are Unilever which has a current market of 121.5 billion pounds with a current price at 3.939p. This stock is currently yielding a dividend of 3.78 per cent in the market. The value of the best mutual funds of the US stock market is Vanguard 500 Idx which is currently performing and has mainly earned a very popular as well as a reputable fund of the index in the US stock market. Apart from this, the best performing mutual fund in the UK market FIN 335 Final Project 19 is MSCI, and h mutual fund mainly aims to provide better transparency for the financial markets and helps the investment market in the UK to make better decisions. Interest Rates and Inflation The most important thing that must be observed is that the US market has mainly reduced the interest rate by a particularly 1 percentage point and is currently standing at a 0.25 per cent rate as of August 2021 (Nikou, Mansourfar, Bagherzadeh, 2019). The interest rate of the USA mainly influences the cost of borrowings, the return which is placed on the savings, and these components are very important for the purpose of investment. On the other hand, as of February 2021, the interest rate of the United Kingdom was 0.1 per cent. The inflation rate of the United States as of April 2021 is 4.2 per cent. On the other hand, the inflation rate of the United Kingdom is 1.51 per cent. Taxation The most important thing which must be mentioned in this report is that the taxation system of the USA is mainly based upon the levels of both state and federal aspects. The taxes mainly collected in the country range from sales tax, income tax, capital gains. It has been observed that the federal and the state taxes are mainly separate from each other, and both of them mainly have their own authority for charging the taxes. The federal authority mainly has no right for interfering with the taxation level of the state. Every state has its own taxation system. On the other hand, the rate of taxes which the UK government charges mainly ranges from property taxes, income taxes, taxes of the UK inheritances, and the country also charge the value-added taxes. Most of these are mainly progressive taxes. Progressive taxes are mainly charged to those who belong to the higher income level. FIN 335 Final Project 20 Comparison between the two markets By comparing both the markets, it was found out that the market of the USA is much better than the United Kingdom. This is mainly because the USA is ranked second with 1.56 trillion dollars of exports, whereas the UK ranks 10th with 473 billion dollars. The GDP of the USA is 15.68 trillion dollars which are six times larger than the UK, which is 2.44 trillion dollars. Thus it can be concluded by saying that investing in the stock market of the USA would mainly be profitable for any individual when it is compared to the London Stock Exchange in the United Kingdom. References Abbas, G. and Wang, S., 2020. Does macroeconomic uncertainty really matter in predicting stock market behavior? A comparative study on China and USA. China Finance Review International. Marjanovi?, M., Mihailovi?, I. and Dimitrijevi?, O., 2021. Interdependence of stock exchange indices from leading capital markets: USA, Germany and Japan Stock Market. Bizinfo (Blace), 12(1), pp.15-28. Nasimi, R.N. and Nasimi, A.N., 2020. Forecasting Stock Market Returns: An Empirical Investigation for United Kingdom. Nikou, M., Mansourfar, G. and Bagherzadeh, J., 2019. Stock price prediction using DEEP learning algorithm and its comparison with machine learning algorithms. Intelligent Systems in Accounting, Finance and Management, 26(4), pp.164-174.More Articles From Finance
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