The fourth market
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The Fourth Market. BA 543 Section 001 Kechen Yang April. 23/2013. Agenda. Definition Electronic Communication Networks (ECNs) How the Fourth Market works? Why ?. Fourth Market. The direct trading of exchange-listed securities b etween investors (large institutions)

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The Fourth Market

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The fourth market

The Fourth Market

BA 543 Section 001

Kechen Yang

April. 23/2013


Agenda

Agenda

  • Definition

  • Electronic Communication Networks (ECNs)

  • How the Fourth Market works?

  • Why ?


Fourth market

Fourth Market

  • The direct trading of exchange-listed securities between investors (large institutions)

  • Due to electronic communications networks (ECNs)


Electronic communications networks ecns

Electronic Communications Networks (ECNs)

  • Private trading networks

  • Bypass brokers and dealers

  • Most effective for high-volume, actively traded stocks

  • ECNs offer such advantages as lower costs, anonymity, open limit order books, and after-hours trading

  • Levy a small surcharge

    • No higher than a few cents/per share


Electronic communications networks ecns cont d

Electronic Communications Networks (ECNs) cont’d

  • Instinet

  • RediBook

  • B-Trade (Bloomberg)

  • Tradebook

  • Archipelago (run by the Pacific Exchange)


Trade processing

Trade Processing


Steps

Steps

  • Connect to ECNs

    • Personally

    • Through a brokerage

  • Enter a bid

  • Place orders (limit orders, listed anonymously)

  • Match/accepted

  • Execution


Vs traditional market

Vs. Traditional Market

  • Directly trade between two parties

  • Avoid brokerage fees- without a broker intermediary

  • Avoid exchange transaction fees


Why fourth market

Why fourth market

  • Institutions trades

    • Large volume

      Over 10,000 shares

      > $200,000 of a security

  • Consequently substantial savings

    • Avoid commissions

  • Quicker at Reasonable price

  • Anonymous


Exercise

Exercise

  • T F 1. The general public is not allowed to engage in the fourth market.

  • 2. Fourth market trades

    • Occur on national exchanges.

    • Occur on regional exchanges.

    • Occur only through the Internet.

    • Are direct trades between institutional investors.

  • 3. The over-the-counter market is both a primary and _______ market.


The fourth market

Q & A


Reference

Reference

  • “Introduction to Finance: Markets, Investments, and Financial Management”by Ronald W. Melicher, Edgar A. Norton

  • “Investments: An Introduction” by Herbert B. Mayo

  • Financial Instruments: Equities, Debt, Derivatives, and Alternative Investments by David M. Weiss

  • Electronic Communications Networks (ECNS) - How Ecns Work - Trading, Systems, System, and Market http://ecommerce.hostip.info/pages/376/Electronic-Communications-Networks-ECNS-HOW-ECNS-WORK.html#ixzz2R93z2lZA

  • http://www.investopedia.com/articles/02/101102.asp

  • http://wiki.mbalib.com/wiki/%E7%AC%AC%E5%9B%9B%E5%B8%82%E5%9C%BA

  • http://www.answers.com/topic/fourth-market#ixzz2R8lcbn8S


Thank you

Thank you!


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