Question

In: Finance

Compare and contrast the various types of secondary market trading structures.

Compare and contrast the various types of secondary market trading structures.

Solutions

Expert Solution

A secondary market is where securities that have been already issued are bought and sold.the secondary market has two types of trading structures.The agency broker(agency market) and the dealer market.In the case of an agency broker/agency market the agent acts on behalf of the clients .The agent will not hold inventory of stocks.Rather than holding inventory of stocks the agent engages in fulfilling the order placed by a client at the best price.In most cases agency markets are non continuous markets(call markets are an example). A dealer market is where the dealers purchase and sell securities to investors.The transactions flow through the dealer.Dealers markets are also refereed to as over the counter markets.The dealers hold inventory of stock.The dealers make profit from the difference between the bid price(price at which the dealer is ready to buy) and the offer price(price at which the dealer is ready to sell).


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