As trading has grown and globalization of the capital markets has occurred over the years, institutionalization of securities markets transpired. The effects of the institutionalization of securities markets are as follows:

1. Commissions
Commissions are defined as the explicit fee to trade a security. Given the institutionalization of securities markets, commissions were structured by the SEC and work to limit unfair practices with respect to how firms charge commissions for trading.

2. Block Trades
Block trades are large trades that are primarily done through institutions. Given the growth of the financial markets, block trades have increased in frequency. As a result, block trading houses were developed to handle these trades in an organized and efficient manner so as not to disrupt the securities market and cause large-scale volatility.

3. National Market System
The National Market System (NMS) has been proposed; it would provide even greater efficiency with lower transaction costs. In proposals, the NMS would contain a centralized reporting system, a centralized quotation system, centralized limit order book and increased competition among all market makers.

4. Stock Price Volatility Impact
One theory of the institutionalization of securities markets is that volatility is increased given the increased institutional trading, typically done in block trades. The counter-argument to the theory is that institutional trading will decrease volatility because it will make the markets more liquid. As such, there is no empirical evidence that the institutionalization of securities markets has impacted stock price volatility.

Characteristics of Security Indexes

Related Articles
  1. Investing

    Understanding Block Trades

    A block trade is the sale or purchase of a large quantity of securities.
  2. Investing

    H&R Block Stock: Time to Consider Selling?

    The tax prep company's shares are up 33.6% YTD. Is it time to take gains, or do fundamentals support the new valuation?
  3. Investing

    Volatile Stocks: Great, If You Have The Stomach

    Volatile stocks can be a lucrative opportunity for short-term traders. For buy-and-hold investors, it's a much different story.
  4. Investing

    Tips For Investors In Volatile Markets

    Find out what to look out for when trading during market instability.
  5. Trading

    What is the Difference Between Institutional Traders and Retail Traders?

    The differences between retail and institutional traders lie in the size of the trade, level of sophistication, and the speed of transactions.
  6. Investing

    3 Reasons to Ignore Market Volatility (VIX)

    If you can keep your head while those about you are losing theirs, you can make a nice return in roiling markets.
  7. Tech

    What is Bitcoin Mining?

    Bitcoin mining is how Bitcoin gets released into circulation.
  8. Investing

    Roller coaster 2016 for Stocks? Exploring Global Stock Volatility

    Find out how much volatility global equity investors are in for during 2016 by seeing how much they've experienced over the past five years.
  9. Investing

    Arbitrage Squeezes Profit From Market Inefficiency

    This influential strategy capitalizes on the relationship between price and liquidity.
  10. Financial Advisor

    CWGIX: Overview of Capital World Growth & Income Fund

    Learn about the American Funds Capital World Growth and Income Fund, a world stock fund that seeks quality stocks on any of the world's largest exchanges.
Frequently Asked Questions
  1. Is There a Difference Between the Equity Market and the Stock Market?

    Equities and stocks refer to the same thing.
  2. What Happens to a Company's Stock When it Goes Bankrupt?

    Shareholders may be entitled to a portion of the liquidated assets in the wake of a bankrutpcy, but the stock will be worthless.
  3. What are Advantages and Disadvantages of Preference Shares?

    Preference shares have advantages and disadvantages for both investors and issuing companies.
  4. When am I eligible to receive Social Security benefits?

    Understand when you are eligible to begin collecting Social Security retirement benefits and how retiring at different ages ...
Trading Center