B) Reread the text carefully and explain what the Fourth Market implies and what prompted its emergence

Ex. 17. a) Look through the text below and say what the figures in the text stand for.

READING PRACTICE

Ex. 16. Go to the library and study regulations (constitutions and rules) that govern securities markets. Present your findings in class.

Third and Fourth Markets

Until the 1970s the New York Stock Exchange required its member firms to trade all NYSE-listed stocks at the exchange and to charge fixed commissions. For large institutions this was expensive. In particular, the existence of a required minimum commission rate created a serious problem since it exceeded the marginal cost of arranging large trades. Brokerage firms that were not members of the exchange faced no restrictions on the commissions they could charge and thus could compete effectively for large trades in NYSE-listed stocks. Such transactions were said to take place in the third market. More generally, the term "third market" now refers to the trading of any exchange-listed security in the over-the-counter market. The existence of such a market is enhanced today by the fact that its trading hours are not fixed (unlike exchanges), and that it can continue to trade securities even when trading is halted on an exchange. On average 18 million shares were traded in the third market during each day of 1992.

Until 1976 NYSE member firms were prohibited by Rule 394 from either acting as dealers in the third market or executing orders involving NYSE-listed securities for their customers in the third market. In 1976, Rule 394 was replaced by Rule 390, which permits the execution of these orders in the third market but still prohibits member firms from acting as dealers in the third market. However, the Securities and Exchange Commission has issued a rule that permits member firms to act as dealers in securities that became listed on the NYSE after April 26, 1979. Controversy still exists over Rule 390, as some people argue that it should be abolished completely to spur competition between the NYSE and the over-the-counter market, whereas others argue that having all orders funnelled to the NYSE will lead to the most competitive marketplace possible.

Many institutions have dispensed with brokers and exchanges altogether for transactions in exchange-listed stocks and other securities. Trades of this type, where the buyer and seller deal directly with each other, are sometimes said to take place in the fourth market. In the United States some of these transactions are facilitated by an automated computer/communications system called Instinet, which provides quotations and execution automatically. A subscriber can enter a limit order in the computerized "book", where it can be seen by other subscribers who can, in turn, signal their desire to take it. Whenever two orders are matched, the system automatically records the transaction and sets up the paperwork for its completion. Subscribers can also use the system to find likely partners for a trade, then conduct negotiations by telephone. In recent years automated electronic facilities have been developed to permit institutional investors to trade portfolios of stocks directly with each other.

Words you may need:

third market «третий рынок» (торговля ценными бумагами, зарегистрированными на фондовой бирже или на внебиржевом рынке брокерами, не являющимися членами биржи, и другими инвесторами)

fourth market «четвертый рынок» (торговля ценными бумагами между инвесторами без участия брокера/дилера)

funnel v (зд.) направлять, пропускать

dispense (with) v обходиться (без чего-л.)

limit order лимитный приказ (приказ клиента брокеру с ограничительным условием, например, максимальной или минимальной ценой)

Ex. 18. a) Read the text below quickly and name organizations involved in the issues,

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