Stock Market and Stock Exchange

Stock Market and Stock Exchange

The competitive spirit that has always stood out in man for being the best and the tendency to compare himself against his adversaries have made him always seek to improve himself, even at the cost of the integrity and property of others.

The Stock Market represents the most popular Financial Game within the world economy where, in a matter of minutes, you can become a millionaire or the poorest man, materially or economically speaking. This is the Stock Market, spreading throughout the world like an epidemic.

This research tries to provide information about the Stock Market without stopping to make judgments about whether it is good or not; Without a doubt, and no one can deny that, the path that any company must follow to reach its goal is to be in harmony with those who govern the world market, understanding harmony as the actions of companies to provide goods. and services at the level of its competition. The Stock Market creates a parameter to compare and analyze the situation of a company concerning the leader in its field, for this, there are Financial Indices.

El Salvador cannot be left out of such effects, which is why national companies require a systematic and planned investment to improve their finances. The El Salvador Stock Market exists thanks to the global push that exists due to Globalization and market competition.

The document presented below has tried to be structured in such a way that it begins with an overview of what a Stock Market is, explaining who is part of it, without ever losing the meaning of the document. Then it will deepen what a Stock Market is and how it works, the main ones in the world and their respective Financial Indices, in addition to real numbers taken from the New York Stock Exchange, it will be analyzed in the Dow Jones Index, what it means and why kind of decisions to make can help.

It is also intended to guide in a very broad way about the meaning of terms very specific to the Stock Market, as well as to investigate what is a Fundamental Analysis and a Technical Analysis of the Stock Market and to analyze a particular case of an Economic Analyst.

This document is expected to guide university students or anyone interested in knowing what the Stock Market is, to serve as a practical guide for understanding why, how, and when product price fluctuations occur in the market.


  • Collect and record information about the evolution of the stock market, both globally and nationally.
  • Correctly interpret each of the different Financial Indexes.
  • Learn about the evolution of the Stock Market in El Salvador.
  1. The Stock Market

The Stock Market is the integration of all those Institutions, Companies, or Individuals that carry out transactions of financial products, among them are the Stock Market, Stock Broker Houses, Issuers, Investors, and regulatory institutions of the transactions that are carried out. carried out in the Stock Market, as well as the Superintendence of Securities in El Salvador.

So a Stock Market has all the elements that are required to be called a market, a location, which is the Offices or the Stock Market Building; plaintiffs, who are investors or buyers; bidders, which can be the issuers directly or the Stock Brokerage House and a regulatory institution. Each of these elements is important and their presence is essential to carry out stock market transactions.

Stock Exchange

Brief history

The Origin of the Stock Market as an Institution occurs at the end of the 15th century in the medieval fairs of Western Europe, where the practice of securities and securities transactions began. The term “Bag” appeared in the city of Bruges (Belgium) at the end of the 16th century, merchants used to meet, to carry out their business, in an enclosure owned by Van der Bursen. From there would derive the denomination of “bag”, which remains in force today. In 1460 the Antwerp Stock Exchange was created as the first stock exchange institution in a modern sense. The London Stock Exchange was created in 1570 and the Lyon Stock Exchange in 1595. The New York Stock Exchange was born in 1792 and the Paris Stock Exchange in 1794, successively other Stock Exchanges appeared in the main cities of the world. The first officially recognized Stock Exchange was that of Madrid in 1831.

What is the Stock Market?

There are many definitions of what the Stock Market is, but they all converge on a single point “financial transactions”, some definitions will be studied to know different points of view and thus have a broader vision of what is being presented.

Some economists present definitions such as: “the Stock Market is an organized, institutionalized, officially regulated capital market, with intermediaries and specific forms of contracting.” In other words, we could say that the stock market is a financial market where operations to buy and sell shares or obligations are carried out. This definition denotes in a very specific way what a Stock Market pursues as its ultimate goal: the financial transaction, leaving in evidence the presence of all the elements that are required to carry them out.

Another definition that further expands what the Stock Market represents is the one that defines it as “an institution where the applicants and offerors of securities are negotiating through their Stock Brokerage Houses. The Stock Markets promote the negotiation of shares, obligations, bonds, investment certificates and other Securities listed on the stock market, providing holders of titles and investors with the legal, operational and technological framework to carry out the exchange between the offer and the demand” As can be seen from this definition, the panorama is broadened: it is a market, since there are applicants and suppliers; requires an intermediary: Stock Brokerage Houses; the existence of more financial products apart from shares.

The Quito Stock Exchange presents a very particular definition, based on moral precepts and integrity, according to them the Stock Exchange “is a non-profit Civil Corporation whose purpose is to provide its members with Brokerage Houses, services and mechanisms required for the negotiation of securities in conditions of equity, transparency, security and a fair price.” In it you can see what ideally you want to exist in a Stock Market, beyond stock transactions, there must be moral principles that govern these movements.

Stock Brokers Houses

A Company or Stock Brokerage House represents the Intermediation between the plaintiff and the offeror. That is, it is the link that allows transactions between those who want to buy shares and those who offer them. A Stock Broker or Stock Broker can be a natural or legal person legally authorized to carry out securities purchase and sale activities carried out on the stock market in favor of third parties, and to perform as such, they must meet certain requirements that depend on the country in the one that is installed Whenever you want to carry out transactions on the Stock Market, you must do so through a Stock Broker.

In addition to fulfilling the important function of executing transactions, brokers can also provide advisory services to their clients or investors. Other functions of the brokers are to promote the new securities that will be launched on the market and to act as depositories of the shares or other instruments of their clients.


The issuing companies are companies that, in compliance with the corresponding regulatory provisions, offer to the Stock Market the titles representing their capital stock (shares) or securities that cover a collective credit at their expense (debentures).

To protect the interest of investors, issuing companies periodically provide financial and administrative information that allows for estimating their probable returns and the soundness of their titles. In simpler terms, an issuer is a company that makes its securities available to the Stock Market as a legally established and for-profit company.


An Investor is a Natural or Legal Person who contributes his financial resources to obtain a future benefit.

Superintendency of Securities

Oversees the entire trading system. The rules with which the Superintendency monitors the actions of the stock market are embodied in the Securities Market Law, which regulates the actions of the Stock Market, Brokerage Agents, Stock Brokerage Houses, and Issuers of securities. In El Salvador, said the institution is called the Superintendency of Securities.

  1. How does the stock market work

When talking about the Stock Market, the first thing that comes to mind to anyone is the word “Shares”, and it is not for less, large companies work and move their capital with shares; but what are actions? You may be familiar with the term like an organization’s ownership interest, but ownership can also be negative, which happens when a person applying for a home loan has debts greater than the value of the property.

To know the stock markets it is important to know some terms used. The financial instruments that are issued in the capital market are known by the collective name of titles. Those issued in the fixed-income debt market are generally called bonds and notes. The elements issued in the stock market receive precisely that name: actions, although in English they can be both stocks and shares. These terms vary depending on the geographic location of the particular market. To clarify, stock in the UK is a fixed-interest security in any case, while in the US, it is a non-bond security. Share or participation in the own capital of an organization is, both in the United Kingdom and in the United States, an ordinary share.

It is concluded that a series of stock market transactions are carried out in the Stock Market, whose main function is to provide a safe environment in which operators can carry out their operations. Markets have licensed members, operating procedures, and regulations that govern how trades are conducted and disputes are resolved. In addition, the bags perform the following functions:

  • They regulate the list of titles.
  • Promotes a capital market, encouraging the participation of the largest number of people, through the purchase and sale of all kinds of transaction securities.
  • It holds Trading Sessions daily, providing the necessary technological infrastructure and facilitating communication between the agents representing the Stock Brokerage Houses and the issuers of securities and investors.
  • One of its main objectives is the efficient channeling of internal savings towards investment needs that require additional financial resources, be they public or private.
  • It offers investors the necessary and sufficient security conditions of legality and security in the transactions carried out through it, based on its internal regulations.
  • They adopt the appropriate measures to promote savings and investment, allowing greater shareholding, and ensure compliance with the rules to maintain seriousness and trust in securities, adjusting operations to the laws, regulations, and the strictest standards of ethics.
  • It keeps a record of quotes and effective prices of securities and has available to the public information on everything that happens in the stock market.
  • They provide facilities for the settlement of operations.

Securities Trading Systems

In general, there are two trading systems in the stock markets, one is based on quotes and the other on orders.

The systems that are based on the Quote require the participation of market makers who continuously offer buy and sell prices of listed securities. Market makers give their prices through a system of screens where brokers and investors can find the best prices. Quote-based systems provide liquidity to the markets, but they are more expensive to trade because the difference between the buy and sell price (spread) is relatively larger.

The systems that are based on Orders Received are based on a continuous auction system. In this system, investors or the brokers that represent them send buy and sell orders to a centralized location. Once the orders are entered into the system, they are matched, executed, or canceled according to the client’s instructions. It is cheaper to invest in this type of system since the spread is lower and on the other hand, the orders are delivered before the prices are determined.

These systems based on quotes and orders are specific to Secondary Markets, which will be detailed later in the text. In general, a transaction within the stock market can be classified depending on the term for which it has been carried out or by the type of operation carried out, this is how the stock market has a basic classification:

Term-Based Markets

Money market

In the money market, all those financial activities that promote short-term credit are carried out. Its main institutions are Commercial Banks.

Capital Market.

The capital market is that financial activity that promotes medium-term and mainly long-term credit. Its main institutions are Development Banks, Mortgage Banks, Housing Institutions, and especially the Stock Markets. There are three types of Capital Markets, namely:

  • Monetary Markets.- They are characterized by borrowing and lending large amounts of money for short periods, normally from one day to twelve months.
  • Debt Markets.- They are characterized by instruments that generally pay interest for a fixed loan period ranging from twelve months to thirty years. For this reason, these markets are also known as fixed-income markets, in which the loans are medium and long-term.
  • Stock Markets.- In these markets, loans are also medium and long-term, but in this case, interest is not paid to the lender. Instead, the organization borrowing the money issues shares to investors, who become part owners of the organization. Investors receive or do not receive dividends on their shares depending on the results of the organization.

There are radical differences between equity and debt markets from the perspective of issuers and from that investors. An organization that issues shares is selling shares in the company and its assets. Investors who own these shares do not get their money back but expect a share of the profits in return. An organization that issues debt is trying to get a loan and will have to pay it back in full, with interest, within a certain period. Investors know what interest they will receive and that their initial investment will be returned to them.

It is generally considered that those who invest in shares have more risk than those who invest in debt since they place their money in partial ownership of an organization that they do not know how it will work, whether good or bad. These investors expect a higher rate of return over the long term, with a combination of growth in the value of their shares and dividend income from those shares. If the organization they invested in fails, the investor may lose their initial investment.

Debt market investors seek more security or more predictable payments. They lend their money to a government or a large international corporation with considerable assurance that the organization in question will continue to exist for the life of the loan and will not default on the debt. Generally, if a company goes into liquidation, it first has to pay its debts before paying its shareholders. In exchange for this security, investors accept a lower return on their investment than they might get by making higher-risk investments, such as stocks.

Markets based on the Form of Operation

Primary Securities Market or Emissions.

It is where the supply and demand for securities take place when a company is listed on the stock market (for example, when a public company is privatized). There is a direct relationship between the issuer and the subscriber of the securities issued for the first time to the public.

Primary Markets exist as a means for organizations to raise funds in the public markets. Different stock markets around the world have different rules and procedures for an organization to list and float on the primary market, but almost all exchanges follow the same general principles and the rules and procedures differ in detail.

The London Stock Exchange calls the Float Process when an organization requests to be part of it and is accepted, it begins its listing on the stock market. The organization issues and sells shares through the public offering for sale (IPO). Therefore an important step is to decide what type of offer will be made. For example, the main types of offer of the London Stock Exchange are the following:

  • Sales offer

In this case, shares are offered to the public through a sponsoring intermediary, to buy new or existing shares.

  • Subscription Offer

This type of offer is also known as a Direct Offer because it is an invitation made by the issuer directly to the public to subscribe for new shares. This offer is a Typical Primary and does not imply any financial intermediary as a sponsor of the issuance.

  • Placement

This type of offer involves the sale of new shares to institutions or individuals, directly or through a financial intermediary. It does not imply an offer to the general public.

  • Intermediaries offer

This is an offering of new shares that are placed with a syndicate of financial intermediaries, who then offer the shares to their clients.

  • Introduction

It is the offer of a new issue of securities, but not directly to the stock market. An introduction is used when shares are already listed on a foreign exchange when existing shareholders wish to trade their shares publicly, or when a publicly traded organization creates new shares to replace those of another also listed organization after it has been acquired.

The Planning for the issuance of shares includes very important and detailed aspects such as the strategic calculation of the moment that will affect the launch date, setting the price of the shares, and choosing the members that will integrate the team in charge of carrying out the Flotation Process. and Quotation must include at least a sponsor, a stock and exchange agent, an accountant, a legal representative of the company (a lawyer), and a public relations specialist.

There are four essential steps for the Flotation Process to finish successfully:

  • The prospectus or informative pamphlet must contain pertinent and congruent information about the case.
  • The placement-subscription agreement must cover all required legal aspects.
  • The publicity and final placement period is to corroborate the issue price, and the subscription firm, and for the stock market to disclose the details of the prospectus.

We can conclude in a general way a procedure for new issues that can be summarized as follows:

  • Price Basis. New issues can be sold at a fixed price or an offered price. In the Fixed Price Offering, the organization determines the price of the shares in advance and investors subscribe for shares at that price. If the price is attractive, the issue will be oversubscribed and the organization will reduce the number of shares issued for each subscription at its convenience.

An excess of subscription requests means that when the shares start trading on the secondary market, the opening price will be higher than the issue price. The effect is that the issue looks like a good investment, but if the price rises too much, then it is likely that the issue was priced too low.

If the sale is at the offered price, the organization issuing the shares asks investors to declare the number of shares they want and the price they are willing to pay. The issuing entity generally sets a minimum price below which subscriptions will be rejected.

  • Sponsoring Organizations. The issuance of shares of an organization is generally sponsored by one or more member companies of the stock market in which the issuance is made. A sponsor acts as an advisor and represents the organization in its dealings in the stock market.
  • Book Building. This is the process by which the sponsoring organization or syndicate of subscribers, on some exchanges, determines the correct price for a new subscription. The object is to establish a price such that there is not a large discrepancy between the issue price of the shares and the price when they begin trading in the secondary markets. Book Building minimizes the risk of an undersubscribed issue and is an attractive activity for subscription syndicate members. The more accurate the issue price, the less likely they are to buy shares, and the higher the issue price, the higher the fees they receive.
  • Gray Market. A gray market is an informal market in which investors buy and sell shares that have not yet been issued. It covers the period between the announcement of the issuance and the effective allocation of the issued shares. Gray market transactions are settled after the issue date, when the shares may be traded on the secondary market.

Secondary Stock Market.

This is where the supply and demand of securities that have already been issued by any company registered on the stock market take place. It is operated between holders of titles this is a “re-sale” of the Securities acquired previously.

Without the liquidity of the secondary markets, it is unlikely that the primary markets could function as efficiently, if at all. Secondary markets may apply quote-based or order-based systems. Whatever the system that secondary markets use, they must have transparency, liquidity, and efficiency.

Each stock market in the world handles its secondary market differently, for example: suppose you are on a normal day in the New York Stock Exchange (NYSE for its acronym in English, New York Stock Exchange), you can see the following regarding the purchase and sale of securities:

  • A firm that is a member of the market receives an order to buy or sell a stock,
  • It is transmitted to the floor (trading floor) and is taken by a broker (broker) who goes to a specific place on the floor in which that action is traded (trading post),
  • In the Trading Post, he meets another member of the market called “the specialist” who is in charge of maintaining an orderly market on the security that has been assigned to him, providing the brokers with the different prices at that time.
  • Floor brokers can choose whether or not to use a specialist. Many of the transactions occur between two-floor brokers that appear in the trading post at the same time.
  • The monitors show the daily activity of the trading posts. These screens reflect the information on the shares traded, the last sale price, and the volume of orders. The computer system that trades the NYSE stocks is called SuperDot.
  • After each transaction, the stock symbol, price, and initial broker are recorded using a digital scanner. This scanner transmits the information to the electronic tape of the Stock Exchange in seconds.
  • The operation is considered completed when the floor broker sends the definitive transaction to the office where the order originated, confirming the purchase or sale of the shares.

In this type of market, all buy and sell orders must be placed individually, also known as auction markets, where the stock is sold to the highest bidder and bought at the lowest price.

Reports Market.

It is one of the most common negotiations in the Stock Market, this takes place when a person who owns Securities, which are registered for trading in the Stock Market, needs money but does not want to get rid of those values, so they transfer them with an agreement of repurchase, that is, with the obligation to repurchase them within the agreed period, which can range from 2 to 45 days. At the end of the agreed term, the investor receives the capital plus the agreed interest rate. In El Salvador, for a greater guarantee of the interested parties, the Securities subject to repo are deposited in custody at the Central Securities Depository (CEDEVAL).

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Although it is not an operation within the reach of the small investor, due to the high amounts that must be available to carry them out (approximately 500 thousand Mexican pesos), it is always convenient to know the different investment options that are available in the investment market. values, in this case, repo operations, since the brokerage firm can agree on smaller investment amounts with the client, according to market conditions.

In Mexico, the Stock Market treats Reports as follows: The report is the purchase that, through an agreement, the investor makes to the brokerage house of certain securities authorized for these operations, such as CETES. In the agreement signed by the investor and the brokerage firm, the latter’s commitment is agreed upon so that, after a certain period -less than one year-, it will buy the security acquired from the client at the same price that the latter invested, plus a prize that will be the performance that will be obtained.

The client or investor is always called the reporter and the brokerage firm is called the reported.

The reporting steps

  1. start phase
  2. b) Expiration phase

b.1) Without extension

b.2) With Extension

Terms or words you should know:

The four elements that make up the operation and that you must know to make a Report are:

  • Price: is the amount of money that is going to be invested and that is equivalent to the price at which the securities are being bought and sold. No additional fees should be charged. Depending on the type of value, it can be in pesos or US dollars at the exchange rate published in the official gazette.
  • Prize: it is the performance that the brokerage firm will give to the client, it is expressed as a percentage (%) and the amount of the prize in money can be calculated with the formula:

Prize amount = PRICE x % of PRIZE x (term days/360)

If the premium is not protected against inflation it is called nominal and if it is adjusted for inflation (or indexed), it is known as real.

  • Term: is the period that the repo operation lasts, that is, the time that the client will have to wait for the brokerage firm to return the price of the securities plus the premium. It cannot be longer than 360 days.
  • Class of securities: Banco de México only authorizes certain types of securities for these operations to be carried out. Currently, they are:
Federal Government SecuritiesSecurities of private companies *




· UMS Bonds (according to Annex I of circular 10-185, and modifications, of the National Banking and Securities Commission).

ü Bank acceptances,

ü Term certificates of deposit,

ü Bank promissory notes with redemption payable at maturity, and

ü Commercial paper with bank guarantee.

ü All of the above with terms of less than one year. And in longer terms:

§ Bank bonds,

§ Ordinary participation certificates with bank guarantee.

§ Titles object of international arbitrations.

* Private papers need to be backed by an official bank in Mexico to be reported. It can be seen that the obligations are NOT authorized.

  • Arrange: it is the “agreement” between the brokerage firm and the client on the four conditions mentioned above.
  • Value date: a period in which the operation (exchange of money and securities) takes place, which is not necessarily the same day of the agreement.
  • Extension: means that the term of the operation is extended without changing the price, the prize, or the class of securities, that is, the client will take longer to receive his investment plus the prize for the total term.

When is the report used?

  • Because large amounts are generally required for the brokerage house to accept the operation, it is more used by large treasuries in short-term operations; since it guarantees liquidity and a return known in advance.
  • For an investor (client) this operation would be similar to the acquisition of a Promissory Note with Payable Yield at Maturity in a bank, PRLV, or simply a Promissory Note, after comparing the rates of return (prize).
Before contracting a Promissory Note with Payable Yield at Maturity:

1.- You must go to a bank and ask:

– If it is available over the counter or they ask you to have an account at the same bank.

– The minimum amount to contract the promissory note and the minimum terms depending on the amount you wish to invest.

2.- If contracting the PRLV with the bank is available, ask the rate that the bank would give you according to the amount and term you are interested in investing

3.- Compare. To compare with a repo take into account the following equivalences:

Amount to invest, that is, the deposit that you must make with the financial institutionPriceAmount
Factor to calculate the return on the amount investedPrizeRate
The time you must deposit your money before you get the returnTermTerm
Warrantysecurities class—-


  • It is very important that you know your stock brokerage contract and/or repo operations framework contract since it indicates the general rules for contracting, execution, and settlement between you and the financial institution when they arrange this type of operation and whose ignorance does not exempt you from responsibilities.
  • In the operation, either in the account statement or the voucher, only the brokerage firm can appear as reported and the client as a reporter, without any other type of intermediary.
  • The same operation cannot be arranged for a period greater than 360 days.
  • It is not an alternative mechanism to sell the securities. At maturity, there must be an obligation to sell by the reporter (client) and the purchase by the brokerage firm (reported), at the price (investment) plus a premium. Therefore, MAKE SURE that the operation was indicated as such on your voucher or account statement, otherwise, you may involuntarily remain the owner of the securities and your money will not be returned at the end of the term.
  • It is not a mechanism by which investments abroad are offered, since all must be settled in national territory and currency (although their performance is indexed to authorized securities issued abroad, UMS bonds, and in a foreign currency).
  1. Main World Stock Markets and their Indices

There are Stock Markets worldwide where you can enter the world of finance and experience satisfaction and frustration with the changes in the economy in the world’s main stock markets.

Stock markets have different indices or financial averages. This complex financial system seeks to give a sample of the behavior over time of the movements of the value of the securities that are registered in the market. The way to calculate these indices is very simple when it is said that a certain index fell 1.23% it is because the closing was lower than the opening; Otherwise, when it is said that it rose 1.57%, the close was higher than the open. The index can be expressed as a percentage or simply the difference between the closing amount minus the opening amount.

The financial indices presented by the New York Stock Exchange by editors of the Wall Street Journal and their components vary when there is an acquisition involved or when there are drastic changes in a company’s corporate performance. If any event occurs that requires the replacement of a component, the index to which it belongs is completely revised. For this reason, multiple changes are made simultaneously.

New York Stock Exchange

The NYSE is the oldest and largest stock exchange in the United States. This large market is the one we commonly see on TV, with hundreds of attendees executing trades for brokers.

The NYSE is an example of a market based on investor orders, which works with a continuous auction system carried out loud in a trading place. Investors buy and sell orders are sent to a centralized location (the trading point) where they are matched. The New York Stock Exchange trading market has a surface area of ​​12,000 m and 17 trading points. The stock market does not control the prices of securities but rather exists to assure investors of the existence of an orderly and fair market. As with other stock exchanges, to work on the trading floor or floor, a trader must be a member of the exchange or have a seat.

On the NYSE, each of the listed securities is assigned to a single trading point where purchases and sales can be made. Each listed security has a unique location at a trading point, above which is a screen or monitor that provides financial data for the security.

There are four major classes of members on the NYSE:

They act from a trading point and have a central role in the auction process because they function as market makers for one or more listed securities assigned to the trading point. Its main function is to maintain a fair and orderly market. Their income comes from the commissions they receive from acting as brokers or from the difference between the purchase price and the sale price when they act as dealers (agents).

  • Intermediaries (brokers) on commission.

They are in charge of carrying out the operations in the trading yard, they are employees of the securities brokerages and they execute the orders of the clients. Securities brokerages may also operate on their account.

  • Intermediaries (brokers) to hire.

They help other members to carry out their work and operate only for themselves since they are not authorized to deal directly with the public.

  • Authorized Operators.

They carry out operations on their account and by being members of the exchange they save on brokerage commissions.

Although trading is done by voice on the NYSE, technology has not been left out. The member companies of the exchange can send their orders electronically from outside to the specialists using the SuperDot system. Orders received in this way are treated in the same way as if an operator were physically present. When a SuperDot order has been fulfilled, the specialist reports the execution of the order using the same electronic system.

As a fun fact, in early May 1996, an NYSE seat sold for a record price of $1,450,000. Other seats, sold in February and March 1996, fetched $1,250,000. The previous record, which was $1,150,000, had been paid in September 1987, shortly before the stock market plummeted.

Dow Jones

This is, of course, the Dow Jones Stock Average. The reason why it has received so much attention is that it is the grandfather or great father of stock indices. Far more than any other indicator on Wall Street and in the world, the Dow has become a clear synonym for “the stock market”, and is already part of the landscape of conversations for everyone from taxi drivers to presidents of large corporations.

The Dow Jones index saw the light for the first time on May 26, 1896, it was made up of 12 companies and its closing price was 40.94 points. Now the Dow index comprises just 30 stocks, out of a universe of around 10,000 listed companies. For this and other reasons, the Dow has been regarded many times over the years as an OUTDATED index, and as an unreliable barometer of investor trends. And the reason for this is his age. At over 100 years old, it is by far the oldest and most renowned of the world’s stock indices.

The Dow Jones has three different averages: Industrial, Transportation, and Utilities, and each measures the performance of different business sectors.

The Dow Jones averages originate from the initiative of several financial publishers: Charles Henry Dow (1851-1902) and Edward D. Jones (1856-1920). Both journalists, together with Charles Bergstresser, founded Dow Jones & Company in 1882. Hence the name of this stock market indicator with more than a hundred years of history… a financial news service that, two years later, launched the first stock market index on the New York Stock Exchange.

After 12 unsuccessful years of experiments and countless of his notes on companies, which were published by the famous financial newspaper “The Wall Street Journal”, of which Charles Dow was editor, his original objective being the establishment of a “barometer » economic activity meter, and not the analysis of the trend of values, an application for which it has earned a well-deserved reputation over the years.

Upon his death, in 1902, William P. Hamilton – C. Dow’s partner and successor at the head of the Wall Street Journal – and, later, Robert Rhea compiled, systematized, and developed Charles Dow’s findings, giving shape to what is today known as Dow Theory, while extending its scope of explanation to the identification of trends and prognosis of stock markets.

Sticking for the moment to the primary approach that initially guided Dow’s research, (weighting of economic activity through the evolution of certain sectors in the stock market), the initial observations could be synthesized into two:

  • When economic activity goes through a boom period, industrial companies experience a productive expansion and their profit levels increase. As a result of all this, they become more attractive to investors, the demand for these companies’ titles increases, and the price of their shares begins to progress.
  • As the industrial sector advances in its expansion, the demand for transport services increases and with it the profits of transport companies. As in the case of industrial companies, this positive evolution should attract investors who, with their buying activity, would have an impact on the recovery of the share price of the transport sector.

So that these two assertions could have a practical application, Charles Dow established two averages or sector indices: an industrial index (Dow Jones Industrial Average) and a transport index (Dow Jones Transportation Average).

Dow originally included in the industrial index (DJIA) 12 values ​​representative of different industries. This number was increased in 1916 to 20, to finally be fixed at 30 in 1928. Annex 8.2 presents the 30 Companies that make up the Dow Jones to April 2003.

The Dow Jones has always been criticized for its limited sample size, many don’t like how the index works since the index is price-focused, and higher-priced stocks have a bigger impact on the average than movements of lower-value shares.

Despite its flaws, the Dow has become almost a landmark in world history. It has responded to wars and deals, boom and bust cycles, and survived the stock market crashes of ’29, ’87, and ’97. It survived the brutal terrorist attack of September 11, 2001.

The Dow has become an icon of a decade of spectacular wealth and growth, particularly of the US economy, and simultaneously the headache of many investors nearing their retirement years…

The Dow Jones is the most representative average of the United States. What do we mean by more representative? Well, if we start to study one by one the 30 companies that make up the Dow Jones, we find that really all industrial sectors in the United States are represented.

There are two fundamental reasons to affirm this. First, the immense capital that these 30 companies move. The largest corporation in the United States is a component of this index. Its name is General Motors (GM) and its annual sales exceed 3% of the gross domestic product of the United States. Second, the degree of diversification of the companies. For example, General Electric (GE) owns RCA and NBC, companies in a very different industry from GE. Likewise, Kodak (EK) bought Sterling Drugs to enter to compete with Merck (MRK) in the pharmaceutical industry. The large capital that companies move and their subsequent diversification make the Dow Jones a fairly representative indicator of the US economic situation.

Although the Dow Jones continues to have many opponents who believe that it is not truly representative of the real state of the US stock market, no one has and will not unseat it as the world’s leading indicator.

In the world of finance, everything revolves around the Dow Jones. If a professional mutual fund manager or portfolio manager doesn’t “beat” the Dow Jones, he or she is considered a failure. Having a portfolio return greater than the return of the Dow Jones indicator is considered a success. 75% of mutual funds don’t beat the Dow Jones but that’s another story.

Over the past 20 years, the Dow Jones has averaged annual returns of just over 11.2%. If you had invested $20,000 in the Dow Jones in 1980, today you would have almost $200,000

The Dow Jones Industrial Average (DJIA), unlike the Dow Jones Transportation Average (DJTA) and the Dow Jones Earnings Average (DJUA), is not limited to stocks traditionally defined as industrials. Rather, its constituents are from all sorts of industries—financial services, technology, retail, entertainment, and consumer goods.

The DJIA is undoubtedly the most widely followed and recognized stock index. It is made up of a diversified portfolio with the titles of 30 high fixed-value companies (blue chip stocks), which is why it is considered a measure of market performance in general.

The Dow averages are unique in that they are calculated based on price and not capitalization. Therefore, the weight of the components varies according to the price of the shares, unlike other indices that are affected not only by the price but also by the number of outstanding shares.

When the averages were created, their value was calculated simply by adding the price of all the components of each index and dividing it by the number of components in the index. Then the practice of using a divider to smooth out the effects of stock splits and other corporate strategies began.

The capitalization of the values ​​that compose it represents approximately a quarter of Wall Street and it is understood that it is an obligatory reference to know the trend of other stock markets. The Dow Jones Industrial Index marks the trend followed by the big stock markets, including the Spanish one.


The Nasdaq stock market was created in 1971, and was the first electronic stock market, becoming the model for developing markets around the world. It is a virtual structure that allows the purchase and sale of shares and financial assets through computers. The Nasdaq is a stock index that includes the securities of the technology sector, listed on the New York Stock Exchange (NYSE). Today, almost 5,000 companies – including both small growing companies and many large companies whose names have become universally known – trade their securities under this electronic scheme. The use by Nasdaq of the most advanced technology in communications and information and its system of “Market Makers” or creators of competitive markets, distinguish it from a conventional bag. Investors no longer need to meet face-to-face to trade securities, and competition between Market Makers benefits investors. These “Market Makers” are Nasdaq-listed firms that buy and sell stocks instantly at the best available buying and selling prices through a vast computer network to which securities firms from around the world are connected. These firms must meet some special capital requirements, as well as other strict rules and regulations. For example, they buy and sell shares instantly at the best available buying and selling prices through a vast computer network to which securities firms around the world are connected. These firms must meet some special capital requirements, as well as other strict rules and regulations. For example, they buy and sell shares instantly at the best available buying and selling prices through a vast computer network to which securities firms around the world are connected. These firms must meet some special capital requirements, as well as other strict rules and regulations. For example:

  • Guarantee of execution of each order at the best existing possible price.
  • Commitment to buy and sell the securities for which they create markets.
  • Obligation to publicly report the price and volume of each operation within a 90-second margin.

Nasdaq companies cover the entire spectrum of the US economy, from industrial to transportation companies, with strong representation from the world of computers and information technology. Today, many well-known North American companies choose Nasdaq, including Adobe Systems,, Microsoft, Cisco, Dell Computer Corporation, Costco Companies, Food Lion, Intel Corporation, Netscape Communications Corporation, Reuters Group, and Yahoo!, Exhibit 8.3 presents the list of companies that were registered in May 2003.

Curiously, during the last year (between 2002 – 2003) the Nasdaq index has had sharp movements up and down. Until April 2003, the Nasdaq rose and rose and rose to record highs, fueled by a wave of speculation generated by dot com (cybernetic company) fever. This wave was incoherent, since all dotcoms rose simply because they were dotcoms, everyone who invested in this type of company was winning and when an investor puts his money and always wins, he loses investment discipline and the economic incentive for entrepreneurs it is also negative. I am going to quote a phrase from Lorenzo Espuelas, president and founder of Starmedia, which exemplifies this: «Why bother creating an original company with a good concept, a good idea or a way to change the world, When can I create the eighth version of something that already exists and still win?” In that black April, together with the interest rate hikes in the US, investors realized that they were putting their money in companies that, with many millions of dollars of investment, were generating many millions of dollars in losses and that the trend was not going to change for some time; For this reason, they began to withdraw their money from these companies to invest it in traditional companies that presented positive cash flows and whose business model was a guarantee, and they invested in a fixed-income paper whose yield had risen. By making these movements, companies that at that date were valued at many billions of dollars lost value, with which the Nasdaq fell to historically low values.

Unlike the DOW, this is a weighted average. The Nasdaq is so famous and talked about because it represents the technology industry very well. When you learn about the Nasdaq, think about technology. If you hear the Nasdaq go up, chances are Microsoft, Intel, Dell, Cisco, etc. have gone up

Like all stock markets, the Nasdaq has several stock indices that represent the average situation of the market (they express the average value of the listed shares in levels or percentages):


This index measures the market value of all US and foreign stocks listed on the Nasdaq Stock Market. It is prepared using the weighted average of all the shares that are traded. Variations in the price of each security produce an increase or decrease in the index in proportion to its weighting within the market. The Nasdaq Composite Index is made up of eight sub-indices corresponding to specific sectors: Banking, Biotechnology, Information Technology, Finance, Industrial Companies, Insurance, Telecommunications, and Transportation.

  • NASDAQ-100

It includes 100 of the largest non-financial companies listed on the Nasdaq Stock Market. This index collects the companies that have shown the highest growth in the main sectors, all have a market capitalization of at least $500 million and an average daily trading volume of at least 100,000 shares.

In reality, the Nasdaq 100 does not represent the market as a whole. It’s pretty loaded toward the tech industry. For example, Microsoft makes up about 3% of the index and it should only make up 1% because it’s 100 companies.


This is probably the index that best represents the market. It was created by Standard & Poor’s, which is one of the largest consulting firms in the world. The 500 largest companies in the world were included, in Exhibit 8.4 the companies included in this index are presented. The S&P500 is considered the most representative of the real market situation. When they talk to you about the S&P500, think about the true situation of the market in general and possibly the US economy in the long term.

Other Stock Markets

There are many stock markets around the world, which essentially work in the same way to carry out their stock transactions, some out loud, while others electronically, with different names and functions of their members; In short, each Stock Market around the world works under its conditions and is supported by the type and number of companies it has registered.

It is worth mentioning that the oldest officially established stock exchange was that of Barcelona; but thanks to the boost that other countries have given to their economy, they have created very well-supported Stock Markets.

The table below shows the world’s most important stock markets and their respective indices.


PeruGeneral Lima^IGRA
United StatesS&P 500^GSPC
AustraliaAll Ordinaries^AORD
ChinaShanghai Composite^SSEC
Hong Konghang seng^HSI
IndonesiaJakarta Composite^JKSE
Japanesenikkei 225^N225
MalaysiaKLSE Composite^KLSE
New ZealandNZSE 40^NZ40
PakistanKarachi 100^KSE
PhilippinesPSE Composite^PSI
SingaporeStraits Times^STI
South KoreaSeoul Composite^KS11
Sri LankaAll Share^CSE
TaiwanTaiwan Weighted^TWII
Czech republicPX50^PX50
FranceACC 40^FCHI
GreeceGeneral Share^ATG
NetherlandsGeneral AEX^AEX
NorwayFull Share^OSEAX
RussiaMoscow times^MTMS
SpainMadrid General^SMSSI
Switzerlandswiss market^SSMI
TurkeyISE National-100^XU100
United KingdomFTSE 100^FTSE
  1. The Stock Market in El Salvador


In our country, the first attempts to establish a stock market were carried out in 1962, the year in which the Government of the Republic, using a decree of the Executive Power in the field of economy, created the organizing committee for the stock market. , which among its functions and powers was to promote the creation of a Stock Market. These initiatives bore fruit in 1965, the year in which the first Stock Exchange in the country was established under the name “Bolsa de El Salvador, SA”, which operated for approximately 9 years, and was dissolved due to a lack of investors and issuing companies. This Stock Exchange was the first to exist in Central America. In 1971, the Credit Institutions and Auxiliary Organizations Law (LICOA) was enacted, which contained some provisions for the establishment of Stock Markets and merchandise. However, no group took the initiative to create a new Stock Market. In 1976 the Central Reserve Bank of El Salvador took the initiative to create a Stock Exchange with the assistance of UNDP, an organization with which a study was made and a bill was prepared that was approved by the monetary board and presented to the legislative assembly, however, this project never came to have legal existence.

A new effort was carried out by a group of 40 Salvadoran professionals and businessmen, with the formation of the company “Mercado de Valores, SA de CV”, whose articles of incorporation were granted on September 7, 1989, with a capital of foundation of ¢200,000.00, which on that same day was agreed to increase to ¢700,000.00. Due to the lack of legislation, mainly in fiscal aspects, this exchange held its first trading session until April 27, 1992, in which ¢118,500 was traded, registering 3 operations, which marked the beginning of the stock market system.

For 1999, negotiations on the Stock Market amounted to ¢ 68,111.0 million, surpassing by 16.1% the amount negotiated in 1998, which was ¢ 58,643.6 million. Of what was traded in 1999, the largest amount traded occurred in the repo market, representing 69.47%, followed by the primary market with 27.81% and the secondary market with 2.10%, and the minimum amount traded was in the stock market. representing only 0.62%. About 1998, the amounts traded represented in percentages, as in 1999, the largest amount occurred in the repo market with 78.04%, followed by the primary market with 19.33%, the secondary with 2.36%, and finally the stock market with 0.27%. Despite being the stock market the one that represents the lowest percentage of operations on the Stock Market,

But how to register on the El Salvador Stock Market?

Issuing on the El Salvador Stock Market is a simple but detailed process. It is important to highlight that businessmen will want to publicize the most relevant aspects of their company and disseminate it among investors, first to create a primary market for their securities, second to obtain lower costs in debt issuances, and third to create a secondary market for their securities.

The requirements for the registration of issuers and securities are the following:

  • Registration of the issuer and the issue on the Stock Exchange
  • Application of the Stock Exchange before the Superintendence of Securities

To process these two registrations, you need:

  1. Copies of the deed of incorporation of the issuer and its amendments.
  2. List of partners or shareholders with their participation in the capital of the entities, administrators, and administrative representatives.
  3. The financial statements of the last three years, duly audited. In the case of entities that have been in existence for less than three years, they must present the audited financial statements that they have as of the date of the request.
  4. If the issuer belongs to a business group, it must provide additional requirements. If the securities issues are guaranteed by a company that is not a bank or financial company, it must provide, where appropriate, the information indicated above.
  5. If there are business relationships, you must provide the name of the related companies.
  6. Agreement of the competent authority authorizing the issue.
  7. Value class to be registered and its characteristics.
  8. Issuance prospectus.
  9. When the issue is guaranteed with movable or immovable property, the documents proving the existence, the valuation, and the document establishing the guarantee must be presented.
  10. Analysis that served as the basis for the stock market to register the issuer or issues of securities.
  11. The risk classification of the securities to be registered is issued by a risk rating agency. In the case of shares, the issuer’s classification will be accepted.

Investment costs vary depending on the category of service requested. Setting the percentage for the commission is free and may vary from one intermediary to another.

All the Stock Brokerage Houses have at their disposal their official rates, which are published periodically in the newspapers with the largest circulation nationwide. In Annex 8.5 you can see the Stock Brokerage Houses in El Salvador and their rates, depending on the type of transaction you wish to carry out.

Members of the El Salvador Stock Exchange

Like any other world-renowned stock exchange, the BVES has a very complex structure that provides legality and security to all transactions carried out on it. Among these members, some were already mentioned before, we have:

  • The Stock Market: It is a variable capital stock company that facilitates transactions with securities and seeks the development of the stock market.
  • Stock Brokerage Houses: Stock Brokerage Houses are public limited companies, authorized and supervised by the Stock Market and by the Superintendence of Securities. They provide advisory services on stock market operations to issuers and investors. They act as intermediaries in the negotiation of Securities, carrying out all purchase/sale transactions through the Stock Market.
  • Issuer: Issuing companies are companies that, complying with the corresponding regulatory provisions, offer to the Stock Market the titles representing their capital stock (shares) or securities that cover a collective credit at their expense (debentures). To protect the interest of investors, issuing companies periodically provide financial and administrative information that allows for estimating their probable returns and the soundness of their titles.
  • Investor: Natural or legal person who contributes his financial resources to obtain a future benefit.
  • The Superintendency of Securities: Supervises the entire stock market system. The rules with which the Superintendency monitors the actions of the stock market are embodied in the Securities Market Law, which regulates the actions of the Stock Market, Brokerage Agents, Stock Brokerage Houses, and Issuers of securities.
  • La Clasificadora de Riesgo: It is a company specializing in economic-financial risk analysis, which issues its opinion on the credit quality of issuance of securities. The fundamental purpose of the Risk Classification is to inform the investor about the credit quality of the different investment alternatives existing in the market. It helps to generate differentiated prices (or rates) based on the risk of the issuing companies.
  • The Central Securities Depository (CEDEVAL): It is a specialized entity that receives securities for custody and administration, through a high-security electronic system. Its objectives are: Minimize the risk in the physical handling of securities; and Maximize information by speeding up transactions in the Stock Market. CEDEVAL is a Variable Capital Stock Company, a subsidiary of the Stock Exchange of El Salvador.

Why Issue on the El Salvador Stock Market?

Many of the large companies that carry out work in El Salvador, through their owners or managers, converge on ten important qualities or characteristics that the stock market, according to them, provides.

  • The Prestige and Image of the Company.

”Our growth has been greatly influenced by the ‘stock market effect’, it has helped to give the company notoriety and credibility. Our support and financial strength are reflected in our risk rating of A.”

Antonio Arevalo

Financial Administrative Manager



Issuing on the Stock Market is identified in the market as a guarantee of solvency, transparency, and prestige. The very admission to the Stock Market supposes a recognition of the solvency of the company since it must demonstrate its ability to generate profits in recent periods. Investors willing to contribute funds will value every effort that is made in the rationalization and professionalism of the company’s management.

  • Financing at Competitive Rates.

“With our stock market issuances of corporate debt, we have obtained long-term sources of financing, stability and lower costs.”

Felix Siman


SIMCO Investments

One of the main advantages provided by financing through the Stock Market is that the issuer is the one who can control their rates in the case of debt securities since from the moment the issue is structured, they decide the rate of interest that is willing to pay to holders of titles, of course, that the interest rate must be in accbyisk it offers so that it is attractive to the investor.

  • Provide Liquidity to Shareholders

“One of the most positive aspects of the IPO is that it has provided liquidity to the security for the benefit of shareholders.”

Edgardo Vides Lemus

General manager


Former shareholders, often founding partners of companies, find in the Stock Market the counterpart that makes it easier for them to reap the benefits of their business career at the most opportune moment; It also helps to easily solve other problems in family businesses. The reasons that one or several shareholders have to get rid of their participation in the company can be various. The most obvious is to obtain resources to carry out alternative investments. Linked to this we find the convenience of diversifying risk, covering other economic activities in sectors with a different cycle.

  • Financing the Growth of the Company.

“Our expansion strategy is made possible thanks to the resources obtained from new sources of financing.”

Enrique Cañas
Director of Finance and Administration

Oak Investments

The El Salvador Stock Market offers the business community a range of advantageous financing alternatives to complete its resources. A capital increase on the stock market is an ideal way to obtain funds to sustain the expansion of a company. In an increasingly competitive business environment, continuous growth has become one of the basic objectives for the company. Efficient management must seek not only to obtain the necessary resources but also to maintain a balance between own funds and borrowed funds.

  • Objective Valuation of the Company

“One of the basic reasons for listing on the stock market is to be subject to market valuation.”

Luis Antón Pansín
Executive Director

El Salvador Telephone

The shares of a publicly traded company have a target market value. The Stock Exchange systematically incorporates profit expectations in the valuation of listed companies. This particularity distinguishes the prices of operations on the Stock Market from those that would be paid using other methods.

  • Access To The Entire Investor Community

“As administrators of Pension Funds, we feel that the Stock Market is the most transparent and equitable means of making the investments of the funds that we manage.”

Edwin Sagrera


Various types of investors operate simultaneously in the El Salvador Stock Market. Issuing on the Stock Market means accessing the significant mass of resources provided by these investors. Their objectives make them the ideal financial partners for any company: They seek added value, both through an increase in share prices and through dividends. They will not interfere in the daily management of the company, although they will be demanding its results. On the other hand, they are not only interested in large companies; they need to complete their investments with companies with great growth potential, whether small or medium-sized.
Incentivize workers with shares of the company itself.

«Thanks to the structuring of the issuance process and the financing facilities that we grant to our employees, currently more than 500 CAESS workers are also shareholders of the Company, for which the performance and efficiency of the same are delivered with great enthusiasm to his daily work.

Armando Ojeda
Executive Director


Among the different incentive policies for employees that a company can carry out, is that of offering them the possibility of participating in its capital. In addition to a way of rewarding them, this policy will motivate a greater interest on the part of the worker in the progress and management of the company, integrating them more actively in the new plans and future development projects of the same.

  • Long Financing Terms

“Through our stock issuances, we have funded our institution in terms of 5, 10, and 25 years, thus achieving a better fit between assets and liabilities, being for the investor a magnificent and safe opportunity to recover the investment, taking into account the periodicity of capital payments, more frequent than the rest of issues placed on the stock market, in addition to having an excellent risk classification.

Edgar Ramiro Mendoza
President and Executive Director

Social Housing Fund

The Company will obtain longer-term financing, which will allow a better match between its assets and liabilities in the case of debt issuances. Each company has different types of needs, so we find companies in need of financing in the short, medium, and long term. In the stock market system, companies find it easy to determine their financing terms and form of capital amortization; This is another advantage since normally the capital is paid at maturity of the issue, which does not affect the monthly flow of the company, a characteristic that is not found in the traditional credit system.

  • Opportunity to Improve the Debt-Equity Ratio

“With our capital increase listed on the Stock Exchange, we managed to integrate 200 shareholders into our company, making minimal use of leverage over the years, which implies an unnecessary financial burden.”

Rolando Duarte Schlageter

El Salvador Stock Market

Financing through capital increases favors the Debt-Equity ratio of companies. Companies have an allowed debt limit, and exceeding those limits can cause serious insolvency problems, due to the financial burden that this generates, since they are taking on obligations that they cannot afford. Financing through the issuance of shares provides the company with the opportunity to improve this index, thus reducing the company’s obligations.

  • Tax Incentives

“We consider very important the contribution of Decree 780, which serves as a tax incentive for natural persons to invest in the stock capital market, within the Stock Market.”

Roberto Orellana Milla
Vice President

Agricultural bank

One of the fruits of the arduous struggle for the development of the market by the entities of the stock market system is the achievement of the approval of fiscal incentives. Currently, there is a new decree in our legislation, 780; which exempts from the payment of Income Tax, profits, dividends, prizes, interest, revenues, capital gains, or any other benefit generated by the purchase or sale of shares and other securities registered and authorized by the Stock Market and the Superintendence of Securities, as long as the negotiations are made through the legally authorized Stock Market.

  1. Technical and Fundamental Analysis

There are two kinds of analysts: technical and fundamental. It is very easy to distinguish them. The former is based on price charts over time. His theory tries to extract patterns from the graphs to develop profit-producing stock buying and selling systems. They are not interested in companies and are completely ignorant of anything other than price and volume information.

Fundamentalists, for their part, believe that through deep analysis of companies and their utility reports, dividends, sales, liquidity, etc. You can evaluate your actions. His methodology is to find undervalued companies to invest in while their value corrects.

Now, technical analysis recognizes three market behaviors. (By the way, what we call the market is the behavior of the Dow Jones.) The three forms that the market can take care Trendy (with a trend), Choppy (directional), and Volatile (volatile). The difference between these behaviors is based on the Dow charts. If the Dow is falling and we see it losing points day after day, a technical analyst would say that it is trending down. If, on the other hand, it goes up and down without direction so as not to know where to go, it is called choppy. Choppy markets occur very frequently when speculation is limited to small periods within the day. This is produced by the expectation of something that will happen in the short term.

  1. Annexes



A title that represents the ownership of its holder over one of the equal parts into which the capital stock of a company is divided.


They are those whose holders have a voice and vote and the right to receive dividends after the preferred shares.


They are those issued by a company, which are pending subscription and payment, which, once subscribed and paid, become ordinary shares.


Shares whose holders have the right to receive profits from the company, before the common ones. If the company is liquid, it has priority over them in the repayment of capital. They commonly have a fixed and cumulative dividend, and their voting rights are limited in certain respects.


He is the owner of one or several shares of a company incorporated as a public limited company or limited by shares. It is also used to designate participation in an association or in a company governed by rules other than those that apply to commercial companies.


They are documents that incorporate the ownership of rights over an asset easily convertible into money, which is traded in capital markets.


Receipt stating that the shares of a non-US company are held on deposit or under the control of a US banking institution. It is used to facilitate the transactions of these shares in the US markets and expedite the transfer of a share outside of the United States.


Representative of a stockbroker house authorized to carry out operations on a stock exchange on its behalf.


Part of the monetary savings is channeled through the formal financial system. Includes term deposits, savings accounts, etc.


The expression used in the body of the negotiable instruments indicates that the payment expires against its presentation or demand.


Reduce the value of a tangible asset in the long term.


Accounting note made in an electronic registry, which is constitutive of the existence of dematerialized securities, as well as the rights and obligations of their issuers and their legitimate owners.


Payment of an obligation before its due date.


Profit results from price differences when the same security or currency is traded in two or more markets.


Obligation contracted by a person, which undertakes to guarantee compliance with a commercial obligation by another; if it does not do so, the guarantor is found in the same cases and forms as the person for whom the guarantor was issued.


A person who enjoys a right instituted in his favor by the will of the Law or a person capable of disposing of.


The characteristic of this class of goods is their possibility of replacement by others of the same quality and quantity.


Also called Private Fiscal Warehouse, customers can store their merchandise from abroad whose import taxes are pending payment, making it easier for the customer to pay the taxes at the time of making the total or partial withdrawal of the merchandise.


The client’s fates are used through a lease that becomes an extension of the Warehouse’s warehouses. The purpose of creating this type of warehouse by the client is to occupy it as a means of financing against the security, issued by the Warehouse, which serves as a guarantee since it supports the deposited merchandise.


Also called Simple Warehouse, this service is provided to those who need space to store their merchandise, therefore, the Warehouse provides that space in its faties.


A physical place where operations with securities are usually carried out. They are also organized and specialized markets in which transactions with securities are carried out through intermediaries, whose prices are determined by the forces of supply and demand.


Security title that represents a credit against the issuing entity. The interest they pay is subject to a fixed rate and is not linked to the result of the fiscal year. They are generally issued in the medium and long term.


It is a bond that only makes a cash payment, and this is the nominal or par value, which is paid at maturity.


Bond with a quality rating indicating low credit risk.


The bond that the holder can sell to the issuer at a fixed price.


It is an adjective that indicates “relation with the stock market”. When used to qualify security, it is intended to mean highly marketable, that is, a security that can be bought or sold relatively easily and is liquid.


A measure of the liquidity of a security, associated with the relative ease of buying and selling it. Normally it is evaluated through the volume and amount traded, at the same time that the frequency with which the operations are carried out is considered.


An institution that has the function of carrying out securities clearing operations, that is, comparing the purchase and sale orders of investors, in such a way that they allow efficient processing of transactions. This can be done through bilateral or multilateral account clearing.


Mode of temporary financing of capital in companies in generally innovative sectors, development, and research.


The intrinsic value of a company or a share. It is calculated as the difference between the assets and liabilities of the company.


Part of the stockholders’ equity is contributed by the shareholders of a company.


The total market value of the common stock of a company, which is equal to the number of shares outstanding multiplied by the price and by the share of the stock in the market.

STOCK MARKET CAPITALIZATION Corresponds to the value that the market assigns to the assets of the company, according to the price at which its shares are traded. It results from multiplying the number of outstanding shares of the issuing company by the market price.


Set of fixed or variable income securities, owned by a natural or legal person.


Portfolio offering the highest expected return for any given level of risk.


Company organized and registered by the Securities Market Law, to regularly carry out securities intermediation, also called brokerage houses.


Commercial companies specialized in financial analysis, whose main purpose is the risk classification of the securities subject to public offering, and to disseminate the results in the financial market.


Assets pledged or mortgaged that ensure the payment or fulfillment of an obligation.


A fee is charged by an intermediary in a transaction to buy or sell a security.


It is the provision of a security contract that allows the owner to convert it into another security or another type of security.


A statistical measure of the extent to which two variables move around their respective mean values.

COST OF CAPITAL It is the discount rate that serves as the minimum limit for the allocation of financial resources to new investment projects, that is, it is the opportunity cost of the funds used in a project.

LISTING Price resulting from the supply and demand of security on the Stock Market. It is up to this body to record the contributions.


Documents attached to certain types of securities such as investment certificates and used to control interest payments.


Graphical representation of the relationship between the yield on bonds of the same credit quality but of different maturities.


Gradual deduction of a fixed asset by charging costs and expenses a proportion of the original cost of said asset. It is also said that it is the decrease or loss of the material or functional value of a tangible fixed asset caused by physical decay, deterioration, or reduction in the service life of the goods, whose wear and tear has not been covered with repairs or with suitable replacements.


Economic rights derived from holding a security, such as interest payments, dividends, etc.


This indicates that the current shareholders of a company have the preferential right to acquire the shares issued by a capital increase; Only if one of them does not exercise said right, said shares may be offered for sale to third parties.

RIGHT TO VOTE Means that for each share owned, the holder has the right to cast one vote at the annual shareholders’ meetings of the corporation or at any special meetings that may be called. The temporary transfer of this right to vote is ensured through an instrument known as a proxy.

DEMATERIALIZATION Process through which the securities are represented using book entries and the printed certificates cease to exist.


Reduce or eliminate government control in some sectors of the economy.


Elimination of government controls in some sectors of the economy.


An account that represents all those debtors who have exceeded the previously determined payment term.


It is a decrease in utility and stock assets. It occurs when a company issues new shares in a greater proportion than the profits grow, and a stock dividend is decreed.


Investing in a variety of assets whose levels of return tend to be unrelated to each other.


Payments that companies make to their shareholders when they obtain profits.

DUMPING Commercial policy that consists of making sales abroad at a price lower than the cost of production. that is to say, it means sales in the foreign market at a price lower than that charged in the domestic market, after taking transportation, rights, and all other costs into account.


Set of values ​​that a company creates and puts into circulation.


This is the name given to any entity that places securities on the stock market.


The signature or written notation on the back of a documentary value, using which a person transfers to another the power of realization of said value. It consists of the name of the endorsee, the signature of the endorser, the type of endorsement, the place, and the date.


Process of simultaneous exchange of securities and monetary value when settling an operation in the stock market.


Purchase and sale of shares taking advantage of price fluctuations, to obtain higher than normal profits in the short term. By its nature. This activity carries a high risk.

PROJECT EVALUATION Modern technique allows ex-ante and ex-post verification of the goodness of financial investments; It consists of a market study, availability of materials, financial evaluation, cost analysis, social benefit, and summary.

FACTORING It is a financial-administrative alternative that allows the businessman, whatever his activity, to transfer his portfolio to expire and obtain, in exchange for it, financial advances without creating debt, as well as administrative management and collection services, allowing him adequate Managing your cash flows.


Subsidiary obligation, affects another principal, so that a person is obliged to pay or fulfill by a third party, in the case of not doing so.


Autonomous equity is made up of contributions from natural or legal persons, delivered to a company to be managed at the expense and risk of the contributors, which must invest this equity by the rules established in the regulations issued to regulate such operations.


They are those that are characterized by the fact that contributors can redeem all or part of their investment represented by participation certificates from the management company at any time.


They are characterized in that the contributors cannot redeem their investment represented by participation certificates until the expiration of the term stipulated for the operation of the respective fund. However, the shares are liquid on the secondary stock market.


It is the patrimony that is constituted by the sum of the contributions of the affiliates. Includes, when applicable, voluntary savings deposits, supplementary contributions, and returns produced by investments.


Common investment fund. Fund managed by an investment company that collects money from shareholders and invests in stocks, bonds, options, and commodities. The shares are sold or bought directly, so there is no secondary market. Mutual funds vary in the types of investments they make and the fees they charge.


Art. 213 of the Law on Credit Institutions and Auxiliary Organizations defines it as: «an amount of capital paid and reserved capital that together with deposits or guarantees, constituted and approved in accordance with Art. 210, represent, at least the two and a half (2 ½) percent of the funds, titles, or assets entrusted to them by their clients, for payment, collection, custody, or transfer.”


Gain from an increase in the market value of an investment.


One in which a company or group of companies have a common controller, who acting directly or indirectly participates with at least fifty percent in the share capital of each one of them or that has shareholders in common who, directly or indirectly, are owners of at least fifty percent of the capital of another company, which makes it possible to presume that the economic and financial performance is determined by interests common to or subordinate to the group.


A measure based on prices and often the number of current holdings of a selected number of shares that are intended to convey information about the relative value of trading holdings in a market.


It is defined as a general and constant increase in prices, attributable to different economic causes. It is said that there is an inflationary situation when the effective demand is greater than the available supply.


Concept that implies the custody and administration of securities in a vault, to eliminate the physical movement of securities at the time of their negotiation, payment of rights, and amortization.


Use of capital to generate more money, either through the purchase of equipment, machinery, securities, etc.


Banks, financiers, pension fund administrators, insurance companies, or other institutions or companies that invest in the stock market.


Purchase or sale of securities on behalf of others, carried out regularly by an authorized legal entity.


Ease or difficulty of converting security into cash.


Leasing is a modern financing system for both companies and individuals. It consists of a rental contract, for a previously agreed term, in which the lessee pays monthly installments that fully amortize the value of the assets. At the end of the contract, the lessee has the option to acquire the property, canceling the purchase option fee, which in most cases is equivalent to one more contract fee.


Single security representative of the entire issue of securities represented by book entries.


The process by which issuance of securities recorded in an account is printed on a document, converting it into a physical security.


It is that market that includes all forms of short-term investment credit, such as commercial document discounts, short-term promissory notes, negotiable certificate of deposit discounts, repos, demand deposits, and bank acceptances. In general, money market instruments are characterized by a high degree of security in terms of principal recovery, since they are highly tradable and have a high level of risk.


The segment of the capital market is attended by bidders and applicants for marketable securities, where they are traded from their issuance to their extinction. It is made up of a primary and a secondary market.


A market that allows the interconnection of suppliers and applicants for financial resources. Set of institutions, norms, customs, and people involved in the channeling of said resources


The one in which the issuers and buyers participate directly or through stock brokerage houses, in the purchase and sale of the securities offered to the public for the first time.


One in which the values ​​are traded for a second or more times. In it, the issuers are no longer the offerors of said securities.


Property that allows an asset to function as money, being this medium of exchange and a measure of value.


Securities that represent a credit from the issuing entity in favor of the title holder. They are fixed-income securities, whose profitability is not conditioned on the result that the issuer can obtain in its business management.


A provision in a loan or debt security that allows the investor to demand early payment of the security’s principal.


Securities transactions are carried out in the stock market by the established legal regulations.


When two different stock exchanges are involved in an operation, each assumes the position of buying or selling the traded security.


Those are carried out through a financial contract whereby a stock brokerage house, on its account, refinances, guarantees, subscribes, and carries out the primary placement of securities.


It is a mandate that must be executed at the lowest possible price in the Stock Market, precisely on the day the order was given. This mandate is generally due to the purchase and sale of the securities listed by the Brokerage Firms.


The entity that in a securitization process is obliged to transfer the assets that will integrate the autonomous patrimony, in the interest of which it is formed.


Representative securities, which do not generate interest. Its yield is obtained from the difference between its acquisition value and its face value.


Also called “maturity”, it is the time remaining in the planned life of a security.


Term stipulated by the issuer to comply with placement procedures.


The term established by the issuer for the redemption of a security in which the total amount invested is returned plus the value corresponding to the returns obtained by the investment throughout the period


The price at which a share is traded on the stock exchange. It is determined by the supply and demand of the share and depends on how the market evaluates the performance of the issuer and the environment.


Additional expected return on investment for accepting the risk inherent in it, as opposed to another investment without risk.


The passive subject of the loan contract. The one who receives the money or thing on loan.


Part of the required rate of return compensates the investor for the perceived difficulty and costs of selling the asset in the future.


The part of the required rate of return compensates the investor for the probability that the issuer of a security will not make all of the promised payments.


Withdrawal of security or payment of principal by the deed of issue. Act of releasing a security or title from a lien.


Legal instruments in which the people, values, ​​and acts indicated by the Securities Market Law are established, with the purpose that their information is disseminated among the public, to contribute to financial decision-making, and in the achievement of greater transparency in the stock market.


Those that exist between controlling, final, binding, or related companies; as well as, when they maintain ties of administration or credit responsibilities that make presume the possibility of common financial risks in the credits they receive, or in the acquisition of the securities they issue.


A measure of the profit earned on an investment. It is raised through rates of return.


Profitability ratio that measures the return or profit for each investment unit (colones or dollars), equity, or shareholder contribution. It is the result of dividing the net profit for the period by the total equity.


The profitability of a bond issue is a function of the interest rate, the offer price, and the life of the bond. Data on capital market bonds indicates the return from the initial offering to maturity.


Probability of obtaining unfavorable results from an investment. Risk is often associated with uncertainty.


It is the risk that investors run when they participate in the stock market, as a result of a participant being unable or unwilling to meet its obligations on the due date or any other date. It can also derive from credit risk to third parties.


It is generated by the loss of the titles, when these are physical documents, it is generally caused by the insolvency, negligence, or fraudulent action of the custodian.


Equivalent to the risk of bankruptcy.

LIQUIDITY RISK It is the risk that there are not enough liquid assets to cover the obligations due at a given time.


The risk associated with investing in a bond occurs when it must be sold before its maturity date at a price that is unknown because the future yield is unknown.


The risk that a company runs of experiencing a period of reduced earnings and even going bankrupt.


It is the one that can generate changes in the laws and regulations that govern the market.


It is the risk of potential losses, which can occur as a result of inadequate internal control systems, administrative failures, fraud or human errors, and information leaks in communication systems, among others.


With this risk, the entire system is threatened, since the default of a participant, throws a chain of defaults, affecting the stability of the entire market.


Negotiation sessions that the stock markets carry out periodically, to carry out the public purchase and sale of securities by the Securities Market Law.


The one in which more than fifty percent of its shares belong to another capital company is called the controlling company or can elect or appoint the majority of its directors or administrators.


That in which another company, which is called binding, without controlling it, participates in its share capital, directly or through other companies, with more than ten percent of the shares with voting rights.


It is an indicator of the times that the total assets cover the total obligations of the company, making it possible to measure the ability to meet the liabilities with all the assets. It is calculated by dividing a company’s total assets by its total liabilities.


The index shows the times that current or short-term assets cover short-term obligations and is calculated by dividing the first, current assets, by the second, current liabilities or short-term obligations.


It applies to the prices of the goods in the place and on the present date for immediate delivery. It is the opposite of the term “futures”.


Expected or required return based on which the expected cash flow value of an asset is determined.


Performance or cost is expressed as a percentage that gives or causes a performance.


When the agreed interest rate anticipates its adequacy to fluctuations in market interest rates. This measure seeks a balance for the creditor and the debtor simultaneously, given the uncertainty of future interest rates. Thanks to the floating rate, the debtor benefits if market rates fall, and likewise, the creditor benefits if they rise.


It is said of an interest rate is lower than inflationary rates.


The interest rate is said to be higher than the inflation rate.


Interest rate is measured in terms of units of principal and units paid in interest, without taking into account your changes in purchasing power over the life of the loan.


The expected or required annual rate of return that rewards the investor for waiting or timing.


The profit obtained by some investment is expressed in decimal or percentage form.


It is that rate that equalizes the payments received for an investment, with the payments made for it.


London Inter-Bank Offered Rate, deposit rate offered between banks within the Eurocurrency market in London.


The interest rate that US banks charge their most select customers. Also called the prime rate.


It consists of giving the form of a tradable instrument to some specific non-tradable obligation, such as a portfolio of bank loans or accounts receivable. Therefore, it implies issuing a homogeneous title with its terms and rates.


Operations are carried out through a financial contract whereby a Stock Brokerage House, on its account, pre-finances, guarantees, subscribes, or carries out the primary placement of securities.


The intrinsic value of a company’s shares. It is calculated by subtracting total liabilities from total assets. It stands for stockholders’ equity.


The face value of a security, as specified therein, may be different from its market value or its book value.


Shares, negotiable obligations, and other securities.


It is the present value of future cash flows discounted at a discount rate.


Those issued jointly are related to each other because they correspond to the same series and that have identical characteristics such as maturity date, interest rate, amortization type, redemption conditions, guarantees, and readjustment rates, and that, Therefore, they grant equal rights to their holders. WARRANTS They are the titles issued simultaneously with the Certificate of Deposit, which represents a guarantee or pledge of the goods deposited in a warehouse, conferring rights on them.

Companies that make up the Dow Jones Index

Companies Listed on the El Salvador Stock Exchange

Financial sector

  • Scotiabank of El Salvador, SA
  • Agricultural Bank of El Salvador, SA
  • Central American Bank for Economic Integration -CABEI-
  • Banco Cuscatlan, SA
  • Bank of Commerce of El Salvador, SA
  • Banco Capital, S.A.
  • Mortgage Bank of El Salvador, SA
  • Salvadoran Bank, SA
  • American Bank, SA
  • Banco Promerica, S.A.
  • Central Reserve Bank of El Salvador Bank
  • Multisectoral Investment Bank for Agricultural Development
  • Bank UNO S.A.
  • Banco Credomatic, SA
  • Central Banks of Central America Central American States Financiera Calpiá, SA

Industrial Sector

  • Cement of El Salvador, SA de CV (CESSA)
  • Ingenio La Cabaña, SA
  • Ingenio La Magdalena, SA
  • Chaparrastique sugar mill,
  • A. Ingenio Chanmico, SA
  • Central Sugar Mill Jiboa, SA de CV
  • Comercial Exportadora, SA de CV (COEX)
  • Coffee Roasting Plant, SA de CV

Commercial section

  • Metal Furniture Prado, SA de CV
  • Munguia, SA
  • Almacenes Schwartz, SA de CV

Service sector

  • Credomatic de El Salvador, SA de CV
  • SIMCO Investments, SA de CV
  • Stock Market of El Salvador, SA de CV-BVES-
  • Metrocentro, SA de CV
  • Development Warehouses

Electronic Industry

  • San Salvador Electric Lighting Company -CAESS-
  • Southern Electricity Distributor, SA de CV -DELSUR-
  • Empresa Eléctrica de Oriente, SA de CV -EEO-

Fund and Pension Administrators


Telecommunications Sector

  • Telefonica El Salvador, SA de CV
  • CTE Antel TELECOM, SA de CV

Government Sector

  • Treasury
  • Social Housing Fund
  • San Salvador City Hall

Insurance companies

  • Commercial Agricultural Insurer, SA-ACSA-
  • General Insurance Company, SA
  • Universal Insurance, SA
  • Popular Insurance, S.A.
  • The American Center, S.A.
  • AIG Union and Development, SA
  • International Insurance, SA
  • Anglo Salvadoran Insurance, SA
  • Salvadoran Swiss Insurance Company, SA-ASESUISA-
  • Insurance and Investments, SA -SISA-

Stock Brokerage Houses of El Salvador

  1. Bibliography

Stock Market Editorial Management Course 2000, 1st. Edition Year 2,002



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