Market Structure Overview

What this video covers

• Why the primary market is the factory for new securities and the secondary market is the used market where almost all daily trading occurs
• How to distinguish the four secondary markets: first market (exchange-listed on an exchange), second market (unlisted over-the-counter), third market (listed over-the-counter), and fourth market (direct institution-to-institution via electronic communications networks)
• The third market exam trap: why an exchange-listed stock trading over-the-counter is third market, not second market, and why institutions use it for anonymity and fee avoidance
• Why Nasdaq is a national securities exchange that still operates as a dealer market with multiple competing market makers, not an auction market
• How the New York Stock Exchange (NYSE) uses a single designated market maker (DMM) to maintain orderly markets through competitive bidding
• Whether a customer trade in the over-the-counter market occurs against dealer inventory (principal) or through dealer routing (agent)
• How to apply the listed-equals-third, unlisted-equals-second rule under time pressure on test day