8.1 Trading securities

A market center

is a location, physical or virtual, where buyers and sellers of securities can connect to trade securities.

There are four market centers in the U.S.

the exchanges

the over-the-counter (OTC) market

the third market

the fourth market

In the primary market, the issuer is

The seller.

In the secondary market, investors

buy and sell securities.

** Issuers are rarely involved in the secondary market.

Exchanges

• Most exchanges maintain a physical location called the trading floor or just floor.

• Trading on an exchange is done between the members of the exchange.

• Exchange members firm have employees called floor brokers

• An exchange will also have members called designated market makers (DMMs).

• Exchanges may be referred to as an auction market or a double-auction market.

• There are other exchange members, like floor traders and two-dollar brokers, who help keep trading on the exchange moving smoothly.

• Stocks that trade on an exchange are called listed stock.

Floor Brokers or exchange member firms

Execute trades for their firms

Designated market makers

• registered trader

• Each DMM is assigned a group of stocks

• maintains an inventory in their assigned securities

• facilitates trades

• maintain a fair and orderly market

• buy and sell securities to keep markets balanced

auction market or a double-auction market

During trading hours, floor brokers are continually placing bids on securities in order to find the best price.

floor traders/broker and two-dollar brokers

an exchange member who execute transactions from the floor of the exchange only for his own account.

Exchange has employers who are not members

employees of an exchange are not members.