Secondary OTC securities market ( street market ") and organization of its activities
As a result of studying this chapter, the student must:
• patterns of development of organizational forms of stock trading in comparison with the secondary OTC market of securities;
• National features of secondary OTC securities markets, in particular the United States;
be able to
• distinguish between the concepts of an organized and unorganized ("street") over-the-counter secondary market for securities;
• explain the essence, as well as uncover the tasks and operational mechanism of the secondary OTC securities market;
• the conceptual apparatus in relation to the secondary OTC market of securities;
• The organizational fundamentals of the operation NASDAQ and RTS.
The concept, tasks and operational mechanism of the secondary OTC securities market
In a number of countries, along with the primary and secondary stock market of securities, there is an institution of the secondary OTC market, which historically was called the "market through the counter" ( over-the-counter market), or street market. Its appearance is due to a number of factors acting on the securities market: certain restrictions on the acceptance of shares for exchange quotations; relatively high exchange commissions; monopolization of membership on the exchange.
The secondary OTC market can be quite voluminous - up to 2/3 of the total turnover of the securities market of a country. The importance of exchange and over-the-counter markets in the organization of trading in securities, their ratio in different countries is not the same. In some countries, trade outside the exchanges does not play a significant role, and in others it is even banned. At the same time in a number of countries there is a significant mass of securities in the over-the-counter circulation.
At present, the concepts of secondary over-the-counter and "street" markets are not identical, because the secondary OTC market can be divided into organized and unorganized. Street the market is viewed as an unorganized secondary OTC market.
Street The market is not limited to the framework of a certain place, but also the time of the trade. On the unorganized securities market, there are no common rules and procedures for trading for all participants. The competition of the exchange on the "street" market are new organizational forms (mechanisms and technologies) of trading in securities. In this market, mostly there are small investors who are trying to buy small lots of securities. Trade can take place in stock stores, banks, mail, etc. However, securities of medium and large companies can also enter this market.
In countries with developed market economies, stock exchanges still play a large enough role in organizing the circulation of securities, nevertheless the value of the stock exchange and exchange mechanisms for the purchase and sale of stock values is constantly decreasing. In fact, the exchange, in the presence of highly effective means of communication, is not so necessary, and in developed countries the exchange as a place where financial assets are being traded is gradually losing its positions. Its main competitors are commercial and investment banks, which are increasingly turning into settlement centers and stock value trading centers. New forms of organizing over-the-counter turnover with the use of computer technology and modern communication channels are becoming more and more decisive.
The regularity in the development of the organizational forms of the stock market is the gradual elimination of the differences between the exchange and off-exchange forms of the organization of trading in securities, the emergence of various transitional forms. An example is the so-called second, third, parallel markets created by stock exchanges and under their regulatory impact. These kinds of markets have been functioning since the 1980s. in the most important European trading centers for securities. Their emergence was due to the desire of stock market participants to expand the market boundaries, create an orderly regulated securities market to finance small and medium-sized companies that are carriers of the most modern technologies. Therefore, these markets have, in comparison with the stock market, lower requirements for the quality of securities, include shares of small and medium-sized companies, but at the same time support the regularity of trade, quotes, the unity of rules, etc. At the same time, from the over-the-counter turnover systems trading in securities, based on modern means of communication and computer technology. These systems are a kind of territorially distributed electronic exchange. They have their own rules for organizing trade, admission of securities to the market (listing), selection of participants, etc. In parallel with the process of the emergence of new unorganized secondary over-the-counter ("street") markets, there is a process of streamlining their activities and turning them into organized markets. Therefore, the main role in the secondary off-exchange turnover is currently played by organized markets.
The management of organized secondary off-exchange turnover is carried out by self-regulating organizations of professional participants of the stock market in terms of delegated powers from the state. Such markets exist only in some developed countries, particularly in the US, Canada, Japan, Singapore and others. For example, in the United States this function is performed by the National Association of Securities Dealers NASD ( National Association of Securities Dealers), which unites many dealers, brokers, investment banks and other market players. The main task of the association is to service the turnover of securities, mainly shares that are not able to circulate on stock exchanges. National Auto Dealers Association quotation system for securities US NASDAQ the world's first electronic OTC secondary market.
In contrast to the exchange, the secondary OTC market is not a party to the transaction, but serves only as a place where the fact of the transaction between two participants is fixed by certain rules and acts as an independent arbitrator in the performance of this transaction.An important role in the organizational structure of the secondary over-the-counter market belongs to the system of trade rules, control of their implementation and disciplinary measures carried out by the organizer of the secondary OTC trade - self-regulating organizations of professional participants in the stock market. Trading in securities can be organized in a variety of ways, and meetings of sellers and buyers for the conclusion of sales transactions can occur on various trading floors.
Trading on an organized secondary OTC market occurs through automated systems using telecommunications networks through electronic terminals located in the offices of the entities. It is carried out by large lots (packages) of securities, i.e. on a wholesale basis. The speed of transactions exceeds the exchange rate.
Thus, the organized secondary OTC market, as well as the "street", are channels for attracting financing for new, small and medium-sized companies. Currently, these markets are also increasingly used by large entities whose securities are quoted on the exchange. The main motive for them is the savings on the commission, which would have to be paid to the brokerage company.
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