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Chapter 15 – Secondary Markets

Chapter 15 – Secondary Markets. Trading of Financial Assets after Initial Sale Property Rights (Claims to Real Assets) bought and sold without money going to the original issuer of financial asset Used Cars, Previously Owned Homes, Garage Sales

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Chapter 15 – Secondary Markets

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  1. Chapter 15 – Secondary Markets • Trading of Financial Assets after Initial Sale • Property Rights (Claims to Real Assets) bought and sold without money going to the original issuer of financial asset • Used Cars, Previously Owned Homes, Garage Sales • One of the developments necessary for economic development of “third world” countries • Provides current value of financial assets

  2. Chapter 15 – Secondary Markets • Trading Locations – U.S. • Big Board – NYSE • AMEX • Regional Exchanges • Chicago (Midwest – Cincinnati), Philadelphia, Boston, San Francisco-Los Angeles • Trading Locations – Outside U.S. • London, Hong Kong, Tokyo, Frankfurt, Toronto, Paris, etc. • OTC – Over the Counter • NASDAQ

  3. Chapter 15 – Secondary Markets • Market Structures • Call Markets • Batching of orders for processing at one time • Initial way stocks and bonds sold on NYSE • All trades clear at one time (once a day, twice a day) • Continuous Markets • Orders processed as received • Market orders clear through auction process • Limit orders clear as bids or asks

  4. Chapter 15 – Secondary Markets • Market Frictions • Perfect Market • Many traders and All traders are price takers • Price is determined where supply and demand cross • Frictions • Transaction Costs • Spreads, order handling, commissions, taxes, restrictions on trading (up-tick rule), halts to trading (suspensions of trading, curbs) • Closed Markets (trading 9:30 to 4:00 only)

  5. Chapter 15 – Secondary Markets • Brokers, Dealers, Market Makers • Brokers • Match Buyers and Sellers • Receive a commission for service • Dealers • Buy “Inventory” at one price • Sell “Inventory” at a second price • Market Makers • Typically dealers that stand ready to buy or sell • Quotes to buy (bids) and Quotes to sell (asks)

  6. Chapter 15 – Secondary Markets • Market Efficiencies • Operational Efficiencies • Low transaction costs • Quick transactions • Price Efficiencies • Prices reflect available information • Weak • Semi-strong • Strong • Electronic Trading – No Physical Market

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