Market Structure Overview
Chapters in this video
- 0:00 The factory and the used lot: primary vs. secondary markets
- 1:51 First and second markets: exchange listed and unlisted OTC
- 2:41 The third market trap: listed stocks traded OTC
- 4:06 The fourth market: ECNs and institution-to-institution trading
- 4:37 Auction market: NYSE and the single designated market maker
- 5:06 Dealer market trap: why Nasdaq is not an auction market
- 6:12 Rapid-fire exam recap
What this video covers
- The exact boundary between the primary market (new securities, initial public offerings) and the secondary market (previously issued securities trading between investors)
- How to classify any trade into the correct one of the four secondary markets: first, second, third, or fourth
- Why the third market is specifically exchange-listed securities traded over-the-counter (OTC), and how this differs from the second market for unlisted securities
- How institutional investors use the third market to bypass exchange fees and preserve anonymity on large block trades
- What the fourth market is: direct institution-to-institution trading through electronic communications networks (ECNs) with no broker-dealer intermediary
- The auction market model used by the New York Stock Exchange (NYSE) with a single designated market maker (DMM) per security
- Why Nasdaq, despite being a national securities exchange, operates as a dealer market with multiple competing market makers posting simultaneous quotes
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