Securities Markets
Markets and Investors
The Structure of the Trading Markets
Securities not listed on an exchange are a part of the over-the-counter market
Exchanges
Can be either National or Regional
National: NYSE is the largest U.S. equity market followed by the Nasdaq
BUT approximately 60% of the orders for NYSE stocks are executed on regional exchanges or Electronic Communications Networks (ECNs) of which are outside of the exchange
Regional: There are six regional exchanges
Exchanges are Self-Regulated
Over-the-Counter Market
Securities not listed on an exchange are referred to as over-the-counter securities
The core of the over-the-counter market is the "market-maker"
A broker who does not own the security the investor requests can purchase the security from a market-maker
The market-maker is an individual who maintains an inventory in the traded security
FINRA operates an electronic filing bulletin board (the OTCBB) for non-Nasdaq over-the-counter stocks
Price quotes are available
Where a stock is not listed on the OTCBB, the stock is traded in a paper-base market called the "Pink Sheet Market"
How Exchanges Function (The Order Process)
Market Order: Where the customer instructs his broker to purchase or sell a security at the best available market price OR
Limit Order: Where the customer instructs his broker to purchase the security at a particular price.
The broker will first try to match the order with that of another customer in the firm
If not, the order will be routed to a Floor Broker who represents buyers and sellers in the crowd.
If the Floor Broker cannot fulfill the order, he will invoke the services of a Specialist, who can trade for his own account
The Specialist intervenes in order to smooth imbalances between the supply and demand for a particular security.
The NYSE rules require specialists to address short-term imbalances between buy and sell orders by using their own capital or inventory to fill gaps that might arise.
An alternative function of the Specialist is to maintain a limit order book in which unfulfilled orders are recorded and later filled by the specialist as market conditions permit.
Specialists make their money because of the spread between the buy price and the selling price
BUT Today, much of the matching of buyers and sellers is done by computers
Block Trading: Trades of 10,000 or more shares customarily occurring directly between institutional investors without the use of brokers
Bond Markets
Bond markets are almost totally dealer markets.
Bond dealers are linked by computers, and most of the liquidity of the bond markets is provided by a few of the trading desks of large investment banking firms.
Bond markets are almost exclusively an institutional investor medium.
Globalization
There is a major trend towards the globalization of securities markets
Institutionalization
Fifty years ago, individuals held 90% of U.S. equities.
As of 2005, institutional investors held 61.2% of total U.S....
Ambitious and intelligent students
choose Oxbridge Notes.
©2024 Oxbridge Notes. All right reserved.