In the over-the-counter (OTC) market, of which the Nasdaq is a large part, the market makers are analogous to the specialists at the exchanges. The market maker creates the bid and ask prices for an OTC security. This person or firm generally maintains inventory and stands ready to buy and sell the security at the quoted price to maintain an orderly market. Just like a specialist on an exchange, the market maker can act as a principal or as an agent.
Quotations on the Nasdaq must be firm: that is, the dealer has to be prepared to trade at least 100 shares at that level.
Exchange Option Markets
The options exchanges have their own cast of characters. These are some of the trading floor participants at the CBOE:
- Market maker: Increases liquidity by making bids and offers on his or her own account in specific options classes (same role filled by a "registered options trader" on the Amex).
- Floor broker: Handles public orders, acting solely as an agent.
- Order book official: Accepts public market or limit orders in specific options classes.
The Amex, where LEAPS and index options are traded, has a participant called a specialist who functions as both a market maker and an order book official.
Secondary markets also exist for the following securities:
- Corporate bonds (including high-yield)
- Municipal bonds
- U.S. Treasury and government agency bonds
- Commercial paper
- Negotiable (jumbo) CDs
- Eurodollar bonds
- Bankers' acceptances (BAs)
- Pass-throughs and CMOs
The Currency Market
InvestingThe over-the-counter market is a decentralized market in which unlisted securities trade.
InsightsHere are the answers to all the questions you have about stock exchanges but are too afraid to ask!
InvestingA market maker is a firm or an individual that stands ready to buy and sell a particular security throughout the trading session to maintain liquidity and a fair and orderly market in that security. ...
InvestingOTC trades tend to be for smaller company stocks and debt securities. Debt securities such as bonds are generally traded by investment banks making markets for specific issues.
Personal FinanceEnsure that you and your clients are getting the best deal by avoiding these three pitfalls.
InsightsLearn some of the important differences in the way these exchanges operate and the securities that trade on them.
TradingThese unique instruments take options trading to a whole new level.
InvestingKnowing how the primary and secondary markets work is key to understanding how stocks trade.
InsightsIn a dealer market, market participants buy and sell through dealers who are designated as market makers.
TradingLearn the pros and cons of trading forex through these two types of brokers.