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groups that had special requirements or goals, and new market forces went to work creating further specialization within the Secondary Market to meet those needs. |
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New markets emerged from the Secondary Market to serve these customers and to fuel the growth in trading. Each of these market developments has earned the distinction to be termed a unique market because each has evolved its own specialized firms, customers, rules, procedures, and systems. More important, each of these markets offers its customers distinct advantages over the others. |
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NYSE Rule 390 requires that all exchange-listed shares must be traded on the floor of the exchange by an exchange member. An exception to Rule 390 was granted many years ago to allow for the trading of securities that are listed on a stock exchange (such as the NYSE) to be traded in the over-the-counter market through Third Market firms. Trades in the Third Market are among institutional investors and broker/dealers for their own accounts (not as agents for other buyers and sellers). |
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The Third Market filled a very specific group of needs for its traders' customers. Traders of large blocks of stock found that news of their trading activity created a very unsettling effect on the market, which cost them money because of exaggerated price swings. The earliest Third Market firms handled these large blocks "off the floor" to minimize these effects. |
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Soon, these traders realized that trading through Third Market firms was a way to avoid paying the high exchange-regulated commissions on large transactions. |
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As the Third Market firms developed their abilities further, they built a reputation for often providing faster executions than the floor of the exchange. Time truly became money for these Third Market customers. |
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The evolution of the Fourth Market was inevitable. It is the direct trading of large blocks of Nasdaq securities between institutional investors. |
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The institutional investment community realized that they did not need many of the services of the traditional brokerage houses, and they certainly did not need to pay the high brokerage commissions for their trades. |
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