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The Fourth Market

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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  1. The Fourth Market BA 543 Section 001 Kechen Yang April. 23/2013

  2. Agenda • Definition • Electronic Communication Networks (ECNs) • How the Fourth Market works? • Why ?

  3. Fourth Market • The direct trading of exchange-listed securities between investors (large institutions) • Due to electronic communications networks (ECNs)

  4. 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

  5. Electronic Communications Networks (ECNs) cont’d • Instinet • RediBook • B-Trade (Bloomberg) • Tradebook • Archipelago (run by the Pacific Exchange)

  6. Trade Processing

  7. Steps • Connect to ECNs • Personally • Through a brokerage • Enter a bid • Place orders (limit orders, listed anonymously) • Match/accepted • Execution

  8. Vs. Traditional Market • Directly trade between two parties • Avoid brokerage fees- without a broker intermediary • Avoid exchange transaction fees

  9. 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

  10. 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.

  11. Q & A

  12. 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

  13. Thank you!

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