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The Fourth Market
BA 543 Section 001Kechen Yang
April. 23/2013
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Agenda Definition
Electronic Communication Networks (ECNs)
How the Fourth Market works?
Why ?
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Fourth Market
The direct trading of exchange-listed securities between investors (large institutions)
• Due to electronic communications networks (ECNs)
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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
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Electronic Communications Networks (ECNs) cont’d
Instinet RediBook B-Trade (Bloomberg) Tradebook Archipelago (run by the Pacific
Exchange)
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Trade Processing
Participants(Institutio
ns)ECNs
Offer Post( in code)
Exposed to other
participants
If AcceptedExecution
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Steps Connect to ECNs
Personally
Through a brokerage
Enter a bid
Place orders (limit orders, listed anonymously)
Match/accepted
Execution
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Vs. Traditional Market
Directly trade between two parties
Avoid brokerage fees- without a broker intermediary
Avoid exchange transaction fees
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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
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Exercise
T F 1. The general public is not allowed to engage in the fourth market.
2. Fourth market trades
a. Occur on national exchanges.
b. Occur on regional exchanges.
c. Occur only through the Internet.
d. Are direct trades between institutional investors.
3. The over-the-counter market is both a primary and _______ market.
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Q & A
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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
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Thank you!