The Fourth Market

BA 543 Section 001Kechen Yang

April. 23/2013

Agenda Definition

Electronic Communication Networks (ECNs)

How the Fourth Market works?

Why ?

Fourth Market

The direct trading of exchange-listed securities between investors (large institutions)

• Due to electronic communications networks (ECNs)

Electronic Communications Networks (ECNs)

Private trading networks

Bypass brokers and dealers

Most effective for high-volume, actively traded stocks

ECNs offer such advantages as lower costs, anonymity, open limit order books, and after-hours trading

Levy a small surcharge

No higher than a few cents/per share

Electronic Communications Networks (ECNs) cont’d

Instinet RediBook B-Trade (Bloomberg) Tradebook Archipelago (run by the Pacific

Exchange)

Trade Processing

Participants(Institutio

ns)ECNs

Offer Post（ in code）

Exposed to other

participants

If AcceptedExecution

Steps Connect to ECNs

Personally

Through a brokerage

Enter a bid

Place orders (limit orders, listed anonymously)

Match/accepted

Execution

Vs. Traditional Market

Directly trade between two parties

Avoid brokerage fees- without a broker intermediary

Avoid exchange transaction fees

Why fourth market Institutions trades

Large volume

Over 10,000 shares

> $200,000 of a security

Consequently substantial savings

Avoid commissions

Quicker at Reasonable price

Anonymous

Exercise

T F 1. The general public is not allowed to engage in the fourth market.

2. Fourth market trades

a. Occur on national exchanges.

b. Occur on regional exchanges.

c. Occur only through the Internet.

d. Are direct trades between institutional investors.

3. The over-the-counter market is both a primary and _______ market.

Q & A

Reference “Introduction to Finance: Markets, Investments, and

Financial Management” by Ronald W. Melicher, Edgar A. Norton

“Investments: An Introduction” by Herbert B. Mayo

Financial Instruments: Equities, Debt, Derivatives, and Alternative Investments by David M. Weiss

Electronic Communications Networks (ECNS) - How Ecns Work - Trading, Systems, System, and Market http://ecommerce.hostip.info/pages/376/Electronic-Communications-Networks-ECNS-HOW-ECNS-WORK.html#ixzz2R93z2lZA

http://www.investopedia.com/articles/02/101102.asp

http://wiki.mbalib.com/wiki/%E7%AC%AC%E5%9B%9B%E5%B8%82%E5%9C%BA

http://www.answers.com/topic/fourth-market#ixzz2R8lcbn8S

Thank you!