16.7 Buying and Selling at Securities Exchanges

Stock markets are the lifeblood of investing. The NYSE and NASDAQ are the big players in the U.S., each with its own style. The NYSE is old-school with a trading floor, while NASDAQ is all digital, attracting tech companies.

Brokers and dealers make the markets work. Brokers match buyers and sellers, while dealers buy and sell for themselves. Alternative trading systems and foreign exchanges add more options, letting people trade globally and around the clock.

Securities Trading

NYSE and NASDAQ

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• NYSE (New York Stock Exchange)
  • Auction market with a physical trading floor on Wall Street
  • Trades stocks of larger, well-established companies (blue-chip stocks)
  • Specialists act as auctioneers, matching buyers and sellers on the trading floor
  • Orders are executed based on price and time priority, ensuring fair and orderly trading
• NASDAQ (National Association of Securities Dealers Automated Quotations)
  • Electronic market without a physical trading floor, trades occur through a computer network
  • Trades stocks of tech companies (Apple, Microsoft) and other growth-oriented firms
  • Market makers compete to execute trades and provide liquidity by continuously quoting bid and ask prices
  • Orders are matched electronically based on price, allowing for fast and efficient trading

Broker and Dealer Markets

• Broker markets
  • Brokers act as intermediaries between buyers and sellers, facilitating trades on behalf of clients
  • Brokers do not own the securities being traded, they simply match orders
  • Brokers earn commissions for facilitating trades, typically a percentage of the trade value
  • Examples: NYSE, Tokyo Stock Exchange (TSE)
• Dealer markets
  • Dealers (market makers) buy and sell securities for their own account, acting as principals in trades
  • Dealers own an inventory of securities and provide liquidity by continuously quoting bid and ask prices
  • Dealers earn profits from the spread between bid and ask prices, the difference between the buying and selling prices
  • Examples: NASDAQ, London Stock Exchange (LSE)

Alternative and Global Securities Markets

Alternative Trading Systems and Foreign Exchanges

• Alternative Trading Systems (ATS)
  • Electronic trading platforms that match buyers and sellers directly, bypassing traditional exchanges
  • Provide anonymity and lower transaction costs compared to traditional exchanges by reducing intermediaries
  • Examples: dark pools (private exchanges), electronic communication networks (ECNs)
  • Facilitate trading outside of regular exchange hours, allowing for more flexible trading
• Foreign exchanges
  • Allow investors to trade securities from different countries, expanding investment opportunities
  • Provide access to a diverse range of investment opportunities across various industries and economies
  • Enable companies to raise capital from international investors, tapping into a larger pool of funds
  • Major foreign exchanges: London Stock Exchange (LSE), Tokyo Stock Exchange (TSE), Hong Kong Stock Exchange (HKEX)
• Cross-listing
  • Companies list their shares on multiple exchanges to increase liquidity and expand their investor base
  • Requires compliance with each exchange's listing requirements and regulations, ensuring transparency and investor protection
• Globalization of securities markets
  • Increased integration and interdependence of global financial markets, facilitating cross-border investments
  • Allows for 24-hour trading across different time zones, as markets open and close in different parts of the world
  • Facilitates capital flows and risk diversification, as investors can spread their investments across various markets and asset classes