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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: TFF who wrote (5434)	10/9/1998 3:32:00 PM
From: steve goldman	Read Replies (1) \| Respond to of 12617

From our newsletter...thought it might be useful for some who might like to know the different classifications for markets... Older newsletters can be found at yamner.com The term "market" has different meanings in various contexts. In the most general terms, a market is a forum in which there is a determined set of rules or conventions for buying, selling, or trading specific assets or securities in an orderly fashion. A market's conventions and rules determine who is entitled to trade there, what securities are traded, and how the actual transactions take place. Equity markets are further divided into the Primary, Secondary, Third, and Fourth markets. The Primary Market handles transactions between the issuers of stock (the companies who sell their own stock for the first time) to the initial buyers of that stock. Often, a company will sell its own shares to an underwriter, an investment banking firm. On the Primary Markets, the stock issuers receive the proceeds of the sale of their stock. Only rarely can an individual investor participate in the Primary market. The underwriter or other buyer in the Primary Market can then sell the shares on the Secondary Market, or the after-market. When a security moves from the Primary to the Secondary Market, the company has an "Initial Public Offering" (an IPO). In an IPO, the underwriter resells shares to the public, and the underwriter collects the proceeds of the resale. In the Secondary Market, stockholders can sell their securities to other investors. The Secondary Markets for American equities include the New York Stock Exchange, American Stock Exchange, the NASDAQ, and several other regional stock exchanges. Most securities will have a (confusingly titled) primary exchange which is the most liquid Secondary Market for a stock. The stock exchanges of the Secondary Market allow only members of the exchanges (specific stock brokerage firms) to buy and sell securities for their clients and for their own accounts. There are two basic types of Secondary Markets (or primary exchanges): Listed Exchanges (the New York, American, regional Stock Exchanges, etc.) and Over the Counter Exchanges (the NASDAQ, the Bulletin Boards, the Pink Sheets, etc.). The Third Market consists of trading in a security, off of the security's primary exchange, by non-members of the primary exchange. For example, equity Q's primary exchange is the New York Stock Exchange. Trading & Co., Inc. is a brokerage firm that is not a member of the New York Stock Exchange, but it can trade Q on the Third Market. Generally, the Third Market is not the most liquid exchange, but it reacts to the trading on the security's primary exchange. The reduced liquidity of the Third Market may occasionally disadvantage individual investors when their trades are directed to the Third Market instead of to the security's primary exchange. Usually firms trading on the Third Market will trade at the best bid or offer on the primary exchange—if the price of the stock is not moving quickly and the trades are relatively small. The Third Market does not have the quotation systems that the primary exchanges have, nor does the Third Market have as many participants as the primary exchange. With fewer participants and a less ubiquitous quotation system, it becomes harder to get better order executions on the Third Market. The Fourth Market refers to trading off of the primary exchange, between two principals who may or may not be members of the primary exchange. Currently, the main forum for Fourth Market trading is Instinet. Instinet is dominated by Wall Street firms that are trading for their accounts, at their own risk. Individual investors can access Instinet, though they should remember that it is a very illiquid market. Much Instinet trading takes place after primary market hours, when news dissemination and quote dissemination are not as wide spread.