Financial markets

Topics: Stock market, Financial markets, Stock exchange Pages: 24 (6210 words) Published: September 22, 2013
Iordachi Victoria, dr., conf. univ. - Tranzacţii bursiere, curs de lecţii

2013

THEME 2. SPOT STOCK EXCHANGE TRANSACTIONS WITH PRIMARY
FINANCIAL INSTRUMENTS
(4/4hs)

2.1. Organization of spot transactions on different stock exchanges Organizational forms of stock exchange trading, usually, depend on the general standing of securities market, especially on:


Market depth (the bigger is the number of investors, the deeper is the secondary market);



Market size (the higher is the supply and demand of securities, the more extended is the stock exchange market);



Resistance level (has a direct connection with price range according to which market participants can buy or sell securities).

If market conditions are changed, a rupture between supply and demand is produced and prices are influenced by other different factors.
Inte rnational stock exchanges have common features according to: 

Designation of stock exchange components: official market from France and Germany; secondary market and ―over the counter markets‖ in other European countries. In USA – Stock exchange market, OTC market, the third and the fourth market; In Japan – stock exchange market;



Negotiation object: domestic securities are traded on official market (national securities market in Great Britain); primary securities are traded on OTC market (international securities market in Great Britain).

According to their nature, stock exchange markets 1 are divided into two categories: auction and negotiation markets.
Stock exchanges according to their nature represent auction markets, i.e. the place of concentrating buy and sell orders and insuring the market liquidity by the stock exchange brokers – market agents, who act as assets’ intermediaries. That is why the stock exchange is also called the intermediary market, or the agency market.

1

A stock exchange is a mutual organization which provides trading facilities for stock brokers

and traders to trade shares and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends.

1

Iordachi Victoria, dr., conf. univ. - Tranzacţii bursiere, curs de lecţii

2013

The over the counter markets (OTC) are negotiation markets, where the confrontation between demand and supply and market liquidity insurance is done through competition of dealers who „hold the market‖ – market makers; that is why these markets are called the dealer markets, as for example, the NASDAQ system from USA.

Other countries present different models of stock exchanges, as combination of these two models (stock exchanges from Zurich, Vienna). Textbox 2.1.1 represents the main differences between o ver the counter and exchange trading.

Textbox 2.1.1
Difference of trading mechanis m on stock exchange and OTC markets Over the counter trading is trading that is directly between two parties. Exchange trading is trading that is done through trading facilities known as exchanges. When trading via exchanges, contracts may change hands many times before final delivery of goods. Buyers and sellers usually will never meet each other. The exchange may not even connect buyers and sellers until delivery time. An over the counter trade, however, is directly between a buyer and seller. Over the counter trades have high counter party risk, risk that the other party will not be able to deliver their part of the contract. Exchanges, on the other hand, virtually eliminate this risk by requiring traders to post margins and by closing out positions daily. Exchanges also make rules about trading and standardize contracts.

According to way of SE functioning, three types of transaction systems can exist: 1. Call markets – market in which each transaction takes place at predetermined intervals and where all buy and sell orders are aggregated and transacted at once. The...
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