Lecture203 - Chapter 7: Secondary Markets and Secondary...

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Chapter 7: Secondary Markets and Secondary Market Transactions Def. A secondary market in financial assets is one where existing securities are traded among investors. I. Overview A. Functions of Secondary Markets i. Price information ii. Liquidity iii. Reduced search and transaction costs B. Trading Locations i. Major International Exchanges include: Tokyo, London, NYSE, Frankfurt, Paris ii. Major US Exchanges include: NYSE, AMEX, NASDAQ iii. Regional Exchanges include: Boston, Midwest, Pacific, Philadelphia, LA C. Market Structures i. Continuous Trading: trading occurs in the same security all day. The price is affected by order flows (i.e. the supply and demand for the security). ii. Call Market: orders are batched/grouped together for simultaneous execution at the same price. This market structure is more common in Europe. II Brokers and Dealers A. Brokers i. Brokers act on behalf of buyers and sellers. Brokers are a financial intermediary. A broker and a trader are equivalent under this definition.
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B. Dealers i. Role as Market Maker a. Markets may be imperfect in that a temporary imbalance may exist between the quantity of shares demanded and the quantity of shares supplied for a specific security. Dealers provide price continuity by buying and selling from their inventories when appropriate. ii. Market Specialist a. A market specialist is the single dealer in a particular security. The market specialist is granted the monopoly and is obligated
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This note was uploaded on 04/12/2008 for the course ECON 435 taught by Professor Chabot during the Winter '08 term at University of Michigan.

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Lecture203 - Chapter 7: Secondary Markets and Secondary...

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