Chapter 18 Common Markets

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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)

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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

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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

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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

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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

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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

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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

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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

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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

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Chapter 18 Common Markets

• Stock Market Indices
• Price-Weighted
• Value Weighted
• Equally Weighted
• Price Efficiency
• Weak
• Semi-Strong
• Strong