Chapter 15 – Secondary Markets Trading of Financial Assets after Initial Sale Property Rights (Claims to Real Assets) bought and sold without money going.

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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

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

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

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)

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)

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