Читать книгу Fundamentals of Financial Instruments - Sunil K. Parameswaran - Страница 41

A securities exchange is an organized trading system where traders interact to buy and sell securities. Thus, a securities exchange is a secondary market for securities. Public traders cannot directly trade on these exchanges but are required to route their orders through a securities broker who is a member of the exchange. Historically, trading took place on a trading floor, where member brokers would congregate and seek to match buy and sell requests received from their clients. These days most exchanges are electronic markets. Traders do not get to interact face-to-face but are required to key in their orders into a computer terminal which conveys the orders to a central processing system. The procedure for matching and executing orders is coded into the software.

There are two types of orders that can be placed by an investor. In the case of market orders, investors merely specify the quantity they seek, with the understanding that they will accept whatever price is offered. However, investors who are very particular about the price they pay or receive will place what are known as limit orders. The limit orders require not only the specification of the quantity sought, but also a limit price. The limit price is a ceiling in the case of buyers, that is, it represents the maximum amount that the investor is willing to pay. In the case of sell orders, the limit price is a floor, which represents the lowest price at which the investor is willing to sell. To ensure that traders are given access to the best available prices, all limit buy orders are ranked in descending order of price, while limit sell orders are ranked in ascending order of price. This is known as the price priority rule. Thus, potential buyers are given access to the lowest price on the sell side while potential sellers are given access to the highest price on the buy side. If two or more limit buy or sell orders were to have the same limit price, then the order that came in first would be ranked higher. This is known as the time priority rule.

The newer exchanges like EUREX in Frankfurt are fully automated electronic systems. Some of the older exchanges have changed with the times and have abandoned their trading rings or floors and have embraced electronic trading platforms. However, some of the other older exchanges continue to operate with a hybrid model. The New York Stock Exchange and the CME Group continue to run floor-based and screen-based trading platforms in parallel.

An over-the-counter or OTC network is an informal network of securities brokers and dealers who are linked by phone and fax connections. Most deals on such markets tend to be institutional in nature and are of sizeable volumes. The foreign exchange market globally is an OTC market, and most of the trading in bonds also takes place on such markets.