How do dealer markets and alternative trading systems execute securities transactions?

"Dealer Markets Unlike broker markets, dealer markets do not operate on centralized trading floors but instead use sophisticated telecommunications networks that link dealers throughout the United States. Buyers and sellers 638 Chapter 16 Understanding Financial Management and Securities Markets This OpenStax book is available for free at http://cnx.org/content/col25734/1.7\n\ndo not trade securities directly, as they do in broker markets. They work through securities dealers called market makers , who make markets in one or more securities and offer to buy or sell securities at stated prices. A security transaction in the dealer market has two parts: the selling investor sells his or her securities to one dealer, and the buyer purchases the securities from another dealer (or in some cases, the same dealer). Exhibit 16.8 The New York Stock Exchange (NYSE) named Stacy Cunningham the first female head of the exchange in its 226-year history. Outside the exchange, the statue “Fearless Girl” by Kristen Virbal stared down the “bull” statue and represented the need for more female representation on the world’s most important exchange. How does the naming of Stacy Cunningham as head of the NYSE demonstrate that the glass ceiling has been shattered? (Anthony Quintano/ Flickr/ Attribution 2.0 Generic (CC BY 2.0)) NASDAQ The largest dealer market is the National Association of Securities Dealers Automated Quotation system , commonly referred to as NASDAQ. The first electronic-based stock market, the NASDAQ is a sophisticated telecommunications network that links dealers throughout the United States. Founded in 1971 with origins in the over-the-counter (OTC) market, today NASDAQ is a separate securities exchange that is no longer part of the OTC market. The NASDAQ lists more companies than the NYSE, but the NYSE still leads in total market capitalization. An average of 1.6 billion shares were exchanged daily in 2016 through NASDAQ, which is now the largest electronic stock market. 21 It provides up-to-date bid and ask prices on about 3,700 of the most active OTC securities. Its sophisticated electronic communication system provides faster transaction speeds than traditional floor markets and is the main reason for the popularity and growth of the OTC market. In January 2006, the SEC approved NASDAQ’s application to operate as a national securities exchange. As a result, the NASDAQ Stock Market LLC began operating independently in August 2006. 22 The securities of many well-known companies, some of which could be listed on the organized exchanges, trade on the NASDAQ. Examples include Amazon, Apple, Costco, Comcast, JetBlue, Microsoft, Qualcomm, and Starbucks. The stocks of most commercial banks and insurance companies also trade in this market, as do most government and corporate bonds. More than 400 foreign companies also trade on the NASDAQ. More than a decade ago, the NASDAQ changed its structure to a three-tier market: • The NASDAQ Global Select Market, a new tier with “financial and liquidity requirements that are higher than those of any other market,” according to NASDAQ. More than 1,000 NASDAQ companies qualify for this group. • The NASDAQ Global Market (formerly the NASDAQ National Market), which will list about 1,650 companies. • The NASDAQ Capital Market will replace the NASDAQ Small Cap Market and list about 550 companies. All three market tiers adhere to NASDAQ’s rigorous listing and corporate governance standards. 23 The Over-the-Counter Market The over-the-counter (OTC) markets refer to those other than the organized exchanges described above. There are two OTC markets: the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets . These markets generally list small companies and have no listing or maintenance standards, making them attractive to young companies looking for funding. OTC companies do not have to file with the SEC or follow the costly provisions of Sarbanes-Oxley. Investing in OTC companies is therefore highly risky and should be for experienced investors only. Alternative Trading Systems In addition to broker and dealer markets, alternative trading systems such as electronic communications networks (ECNs) make securities transactions. ECNs are private trading networks that allow institutional traders and some individuals to make direct transactions in what is called the fourth market . ECNs bypass brokers and dealers to automatically match electronic buy and sell orders. They are most effective for high- volume, actively traded stocks. Money managers and institutions such as pension funds and mutual funds with large amounts of money to invest like ECNs because they cost far less than other trading venues. Global Trading and Foreign Exchanges Improved communications and the elimination of many legal barriers are helping the securities markets go global. The numb"