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American Stock Exchange, NASDAQ and WorldCom

How are AMEX and NASDAQ similar, if at all?
How are the two exchanges different from one another, if at all?
How has the Former WorldCom Inc. Chief Executive Bernard Ebber's case affected WorldCom Inc., and the Telecommunication industry? Explain.
After submitting your report, one of the new brokers asks the three questions below and requests a written response:
What are the economic functions financial intermediaries perform?
What is the role of broker in the financial market?
How has that role changed since the inception of on-line investing?

Solution Preview

Please see response attached (also below). A complex set of questions, indeed. I hope this helps and take care.

RESPONSE:

A. Visit both the American Stock Exchange (AMEX): http://www.amex.com , and the NASDAQ: http://www.nasdaq.com .

1.How are AMEX and NASDAQ similar, if at all?

- BOTH are options exchanges in the world.
-BOTH impose minimum quantitative financial listing standards (i.e., a minimum net worth or market capitalization requirement); provide automated trade executions; maintain relationships with quoted issuers; and have the same obligations for its Market Makers.

2.How are the two exchanges different from one another, if at all?

-NASDAQ uses Russell indexes and only uses AMEX as secondary; whereas AMEX uses AMEX indexes as primary.
-AMEX part of the OPRA committee but NASDAQ is not--participants include: AMEX, BSE, CBOE, ISE, PCX and PHLX.

3.How has the Former WorldCom Inc. Chief Executive Bernard Ebbers conviction affected WorldCom Inc., and the

Telecommunication industry? Explain. (Hint: You may visit each site's Press Room/Release for possible leads).

-With the entire telecom industry suffering a dot-com hangover, the fraud was driven by soaring "line costs" ? the fees WorldCom paid to smaller local telephone carriers to use their networks.

-Prosecutors said the fraud stretched from late 2000 until early 2002, sometimes amounting to nearly $1 billion per quarter in hidden expenses and improperly recognized revenue.

-Pressure from the loans, the money he stood to lose and the power of the CEO's job combined to form a "perfect storm of corruption" that drove Ebbers to commit fraud, prosecutor William Johnson said in his closing argument.

-"He was WorldCom, and WorldCom was Ebbers," the prosecutor told jurors. "He built the company. He ran it. Of course he directed this fraud." (See article below for more on WorldCom with the harm to WorldCom Inc. highlighted in yellow, which follows the following questions and answers on Nasdaq).

NASDAQ Detailed market and security information on the Nasdaq "Over The Counter" stock
exchange.

What are the benefits of the NASDAQ market center?

Launched in March 2004, NASDAQ's enhanced trading platform has dramatic system capacity, reliability, speed, and numerous functionality features such as FIX, anonymity, and Multiple Participant IDs.

NASDAQ has a fully redundant trading system and has the ability to operate all NYSE securities on its single platform in the event of an emergency. Trading interest at multiple price levels- participants can enter unlimited quotes and orders at multiple price levels.

Full anonymity- Anonymity offered through the SIZE market participant identifier (MPID) in NASDAQ Market Center allows participants to minimize the market impact that accompanies the working of large orders, while still exposing such blocks to large pools of marketable and non-marketable liquidity. While NASDAQ is highly confident of its reliability and performance, and its readiness for the capacity needs on the Russell Rebalance, it also works closely with the industry to prepare contingency scenarios for emergency events. NASDAQ continually prepares and publishes contingency scenarios.
Why didn't Russell use AMEX prices for the 12 NASDAQ securities listed?

Russell uses primary exchange closing prices and AMEX was a secondary exchange for the securities in question.

Q: Why does it matter which prices are used for Russell indexes?
A: Prices used to reconstitute the Russell indexes are important to ensure Russell indexes accurately reflect the market changes. Additionally, more than $362 billion are passively managed against them. Passive managers typically have a goal of minimizing their tracking error and utilize index prices used to achieve minimal tracking error. Russell is concerned that investors are able to achieve closing prices in a fair, robust market for all securities in the Russell indexes including those listed by NASDAQ.

Q: Why does it matter which prices are used for Russell indexes?
A: Prices used to reconstitute the Russell indexes are important to ensure Russell indexes accurately reflect the market changes. Additionally, more than $362 billion are passively managed against them. Passive managers typically have a goal of minimizing their tracking error and utilize index prices used to achieve minimal tracking error. Russell is concerned that investors are able to achieve closing prices in a fair, robust market for all securities in the Russell indexes including those listed by NASDAQ.

Welcome to the American Stock Exchange

AMEX is the second largest options exchange in the world. The American Stock Exchange is one of the largest options exchanges in the world. Puts and calls are traded on domestic stocks, American Depositary Receipts (ADRs), broad-based, industry sector and international indexes, exchange traded funds (ETFs), and HOLDRS. In addition to conventional options, the Amex trades LEAPS and Equity and Index FLEX options.
To discover the amazing versatility of options and the wide range of investment strategies they offer investors, including added flexibility and control in protecting stock holdings and enhancing investment returns, click on Education for basic strategies and interactive tutorials.

www.amex.com is a comprehensive resource for investors and issuers seeking the unique market environment offered at the American Stock Exchange. By continually cultivating new ideas and building relationships across the globe, the Amex is creating financial opportunities for individual and institutional investors and issuers spanning every industry sector and market size.
To explore investing, listing, and learning at the Amex, use the menus and links to access the market and historical data, charts and tools, and news and education available from the only primary exchange to offer trading in three distinct lines of business:
- a wide variety of listed equities
- an extensive options market (Same at NASDAQ)
- an unrivaled listing of more than 100 exchange traded funds (ETFs), the securities category pioneered by the American Stock Exchange

Who makes up the OPRA committee? (NASDAQ not included)

Current OPRA participants include: AMEX, BSE, CBOE, ISE, PCX and PHLX. The participants act as a policy committee composed of representatives from each participant exchange and they implement and, subject to Commission approval, amend the policies and procedures set forth in the OPRA Plan.

EXAMPLE:

Peter Foley / EPA via Sipa Press Jury convicts Ebbers
on all counts in fraud case
Ex-WorldCom CEO could face
85 years; attorney vows appeal
Former WorldCom Chief Executive Bernard Ebbers and his wife, Kristie, leave Manhattan's federal court after a jury found him guilty of conspiracy, securities fraud and filing false documents.
MSNBC staff and news service reports

Updated: 6:22 p.m. ET March 15, 2005

Former WorldCom Chief Executive Bernard Ebbers, who built a small Mississippi-based long distance company into a telecommunications powerhouse, was found guilty Tuesday of directing the biggest accounting fraud in corporate history, leaving thousands of investors empty-handed.

A federal jury in Manhattan deliberated eight days before dismissing Ebbers' testimony that he knew nothing about the details behind the $11 billion securities fraud, which drove the company into the nation's largest corporate bankruptcy in 2002.
The jury convicted him on all charges ? one count of conspiracy, one count of securities fraud and seven counts of false regulatory filings. Ebbers, 63, could face up to 85 years in prison.

The tall, bearded Ebbers, who worked as a bouncer, basketball coach and milkman before getting into the telecommunications business, sat with his hands folded as the verdict was read and showed little reaction. He then turned to hug his wife, who was crying.
Ebbers made no comment as he left the courthouse, but his attorney Reid Weingarten vowed to appeal.
"The fight will continue," Weingarten said, adding that the case was "riddled with reasonable doubt." When asked for his client's reaction to the verdict, Weingarten said, "I'm sure he's devastated."

The conviction came more than two years after an internal auditor began asking questions about curious accounting at ...

Solution Summary

This solution explain the similarities and differences between AMEX and NASDAQ and how the Former WorldCom Inc. Chief Executive Bernard Ebber's case has affected WorldCom Inc., and the Telecommunication industry. It also identifies the economic functions financial intermediaries perform, the role of broker in the financial market and how has that role changed since the inception of on-line investing.

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