Four markets

UNIT 6.

DISCUSSION Describe today's situation in the Securities Market of Ukraine. Give

your comments and suggestions on its further development.

reading FOUR MARKETS

Fixed-interest securities and ordinary shares are the main stock-in-trade of the securities markets and the Stock Exchanges the main securities mar­ket in the UK (and the New York Stock Exchange is the largest in the USA). By buying one or the other, investors are helping - directly or indi­rectly - to provide the finance that government or industry needs. Why 'directly or indirectly'? Because the stock market is two markets in one: a primary market and a secondary market.

A primary market is one in which the government, companies or other bodies can sell new securities to investors to raise cash.

A secondary market is a market in which the investors can buy and sell these securities among each other. The buying and the selling in the secondary market does not directly affect the finances of government and companies. But if investors did not know they could buy and sell securities in the secondary market they might well be reluctant to put up cash for the government or companies by buying securities in the primary market when they were first issued. And the prices established by the buying and selling by investors in the secondary market help to determine the price that government and companies will have to pay next time they need to issue further securities for cash in the primary market. A reasonably liquid secondary market is normally considered vital for a healthy primary mar­ket.

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

PART II. FINANCE

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 fun-neled 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.

VOCABULARY stock-in-trade - товар інвесторами без участі брокера/

NOTES to be reluctant to do smth - неохоче щось дилера)

робити funnel - тут направляти, пропускати

third market - "третій ринок" {торгівля dispense (with) - обходитися (без чогось)

цінними паперами, що зареєстровані на limit order - лімітний наказ (наказ

фондовій біржі або на позабіржовому клієнта брокеру з обмежувальними

ринку брокерами, які не є членами умовами, наприклад, мінімальною чи

біржі, та іншими інвесторами) максимальною ціною)
fourth market - "четвертий ринок"
(торгівля цінними паперами між

UNIT 6. FOUR MARKETS 111

Дата добавления: 2014-12-23