Chapter 17 markets for common stock
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Chapter 17 – Markets for Common Stock. BA 543 Financial Markets and Institutions. Chapter 17 – 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

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Chapter 17 – Markets for Common Stock

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Chapter 17 markets for common stock

Chapter 17 – Markets for Common Stock

BA 543 Financial Markets and Institutions


Chapter 17 common markets

Chapter 17 – 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)


Chapter 17 common markets1

Chapter 17 – 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


Chapter 17 common markets2

Chapter 17 – 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


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Chapter 17 – 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


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Chapter 17 – 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


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Chapter 17 – 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


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Chapter 17 – 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


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Chapter 17 – 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


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Chapter 17 – 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


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Chapter 17 – Common Markets

  • Stock Market Indices

    • Price-Weighted

    • Value Weighted

    • Equally Weighted


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