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Chapter 18 – Common Markets

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Presentation on theme: "Chapter 18 – Common Markets"— Presentation transcript:

1 Chapter 18 – Common Markets
Where Stocks Trade First Market – Trading on an Exchange Physical Floor and Membership Examples: NYSE and AMEX Second Market – Trading of non-listed Stocks Via Dealer Markets Third Market – Trading of listed stocks through OTC (over-the-counter) Fourth Market – Direct Trading between buyers and sellers (Institutions)

2 Chapter 18 – Common Markets
NYSE (New York Stock Exchange) Founded in 1792 Membership (Trade between Members Only) 1,366 Seats Buy and Sell like any asset $2 million last transaction, record $2.65 million 3,000 plus listed stocks Listing Requirements Specialist System for Trading 17 Posts

3 Chapter 18 – Common Markets
Trading Agents at the NYSE Commission Brokers (largest group) Execute customer orders 500 Members Floor Brokers $2 Brokers – handle overflow of commission brokers Floor Traders Independent traders for their own accounts Specialists – One assigned to each stock

4 Chapter 18 – Common Markets
OTC – NASD or NASDAQ Telecommunications Network Links Market-Makers across the Nation 4,700 different common shares Tiers NNM – NASDAQ National Market Largest capitalized stocks 3,800 stocks Small Capitalization Market, 900 shares OTHER OTCs – Bulletin Board – 5,500 securities Pink Sheets

5 Chapter 18 – Common Markets
Mapping of a trade NYSE Market Order Limit Order NASDAQ Three screens Order Execution Dealer Requirements Which System is Better? Specialist Charge to Maintain Orderly Market

6 Chapter 18 – Common Markets
Trading at the NYSE Market Order Immediate execution at the best available price Routed to Specialist (Post) Auction Process Limit Order Execution only at requested or better price Awaits execution at the Post in the Limit Order Book Priority of Limit Order Book

7 Chapter 18 – Common Markets
Third Market Listed on both an Exchange and OTC market Originally Dealers separate from NYSE Allowed negotiation of commissions prior to 1975 Specifically for Institutional Trading Repeal of Rule 390 Members of NYSE must trade with other members of NYSE CQS (Consolidate Quotation System) Via NASD

8 Chapter 18 – Common Markets
The Fourth Market – ECNs and Crossing Networks Electronic Trading Networks Broker-dealer owned system Anonymous way to enter trade requests Postings for buying and selling (like e-Bay) Subscription prices for trading Crossing Networks Batching networks (call market system) Anonymous trading

9 Chapter 18 – Common Markets
Trades Buying on Margin Broker Firm loans part of the cost to buy Short Selling Selling first, buying later Block Trades 10,000 shares or $200,000 (upstairs) Program Trades Simultaneous trading of different stocks

10 Chapter 18 – Common Markets
Stock Market Indices Price-Weighted Value Weighted Equally Weighted Price Efficiency Weak Semi-Strong Strong

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