Financial markets and institutions, Essays (university) of Financial Market

Download Financial markets and institutions and more Essays (university) Financial Market in PDF only on Docsity! Laure Lazzerini UNIVERSITE DE NAMUR 13/08/2020 FINANCIAL MARKETS & INSTITUTIONS ESSAY AUGUST 2020 PIERRE GIOT TABLE OF CONTENTS PART I - SUMMARY OF THE OPERATION OF THE NEW YORK STOCK EXCHANGE ...............................................2 I. A LITTLE HISTORY... .............................................................................................................................2 II. MARKET ORDER VS. LIMIT ORDER ........................................................................................................3 III. WHAT’S A SUPERDOT ? ........................................................................................................................3 IV. WHAT’S A SPECIALIST ? ........................................................................................................................3 V. WHAT’S A FLOOR BROKER? ..................................................................................................................4 VI. WHAT’S AN AUCTION ? ........................................................................................................................4 VII. BLOCK TRADE ..................................................................................................................................5 By using his company's capital, the specialist must reduce volatility but also stabilize prices by buying or selling, in a certain way, without following the trend. He must also balance supply and demand by conducting transactions. If there is a price differential in the book, he has a duty to act as a dealer in order to minimise the price differential. One of the other tasks of the specialist is to cushion price changes that are due to changes in supply and demand, but also to provide liquidity by maintaining an orderly market. V. WHAT’S A FLOOR BROKER?8 Floor brokers will represent client orders, they will mainly work for institutional investors. They are an independent member of an exchange that is authorized to execute trades on the exchange, they work in physical trading rooms. They represent quite important clients, i.e. financial services companies, investment funds... Their main function is to obtain the most optimal execution of transactions to satisfy their customers, in order to obtain the best terms available for each purchase or sale. A distinction must be made between stock exchange brokers and stock exchange traders. Since stock exchange traders execute transactions for their own account. It is worth noting that the New York Stock Exchange (NYSE) has provided algorithmic trading software and other automation solutions to its stockbrokers to enable them to compete with exchanges that are fully automated. In fact, NYSE brokers also have the ability to trade shares that are not listed on the NYSE. VI. WHAT’S AN AUCTION ? The NYSE differs from the NASDAQ in that at the opening and closing of the market, the NYSE operates like an auction market, where individuals generally buy and sell among themselves, and where there is an auction where the highest price will equal the lowest price. While the NASDAQ is a so-called broker market, there is no direct buying or selling between participants, everything is done through a broker called a market maker. 8 Chapter 1 Slide 28– FINANCIAL MARKETS AND INSTITUTIONS VII. BLOCK TRADE The New York Stock Exchange is the leader in block trading. A block trade is a sale or purchase of a large number of securities, involving a minimum of 10,000 shares. In this way, a large number of shares or bonds are traded at a price fixed between buyer and seller. In order to reduce the impact on the price of the securities, block trades are sometimes traded beyond open markets.9 Block trades are operated on market blocks, also called the upstairs market. In that market informal discussions are realized to allow buyers and sellers to agree on price and volume. It’s a market where there is an important reputation effect, because it’s not anonymous, so there are a lot of non-informed investors.10 9 https://www.investopedia.com/terms/b/blocktrade.asp 10 Chapter 1 slide 29 – FINANCIAL MARKETS AND INSTITUTIONS