In this chapter, the following content will be discussed: Brokers deal with public, dealers execute trades, exchanges are places where dealers operate, Electronic Communications Networks (ECNs) allow investors to communicate with each other, and to exchange. | Lecture 17: Brokers, Dealers, Exchanges & ECNs Brokers, Dealers Exchanges & ECNs Brokers deal with public. Example: Merrill Lynch Dealers execute trades Exchanges are places where dealers operate. Examples: NYSE, Nasdaq, Arizona Exchange Electronic Communications Networks (ECNs) allow investors to communicate with each other, and to exchange. Examples: Island, Instinet (now Inet) Brokers Deal with public, know potential buyers and sellers Churning versus providing information SEC penalizes “rogue brokers” who churn. Stockbroker Robert Magnan was convicted of criminal offense of churning, and barred from securities industry for life, 1999. Magnan’s clients had an annual turnover rate of 11, and investments would have had to earn annual return of 50% to pay transactions costs. Dealers Stand ready to buy and sell at posted prices, bid and asked Analogy to antiques dealers Why are antiques dealers’ bid-asked spreads so much wider than stock dealers? Exchanges New York Stock Exchange, established 1792 by the Buttonwood Agreement among 24 brokers. Exchanges provide standards and codes of ethics for broker members, standards for stocks. Regional Exchanges: American Stock Exchange, Philadelphia Exchange Listing requirements for stocks. Delisting too. NASDAQ –National Association of Securities Dealers Automatic Quotation System, 1971, first electronic exchange, replaced old “pink sheet” system for over-the-counter stocks. Markets to Lend (Not Sell) Shares “Loan Crowd” on floor of NYSE 1926-33 led active market Wall Street Journal reported “Loan Rate” often negative (Charles Jones & Owen Lamont) J. Edgar Hoover, Crash of 1929 Equilend was established in 2001 () sponsored by Barclays Global Investors, Bear Stearns, Goldman Sachs, JP Morgan, etc. Equilend Model New Exchanges NASDAQ in 1971 did not require that stocks have ever made a profit before listing, listed IPOs immediately. Intel, Microsoft refused NYSE switch Foreign imitators of NASDAQ: Neuer . | Lecture 17: Brokers, Dealers, Exchanges & ECNs Brokers, Dealers Exchanges & ECNs Brokers deal with public. Example: Merrill Lynch Dealers execute trades Exchanges are places where dealers operate. Examples: NYSE, Nasdaq, Arizona Exchange Electronic Communications Networks (ECNs) allow investors to communicate with each other, and to exchange. Examples: Island, Instinet (now Inet) Brokers Deal with public, know potential buyers and sellers Churning versus providing information SEC penalizes “rogue brokers” who churn. Stockbroker Robert Magnan was convicted of criminal offense of churning, and barred from securities industry for life, 1999. Magnan’s clients had an annual turnover rate of 11, and investments would have had to earn annual return of 50% to pay transactions costs. Dealers Stand ready to buy and sell at posted prices, bid and asked Analogy to antiques dealers Why are antiques dealers’ bid-asked spreads so much wider than stock dealers? Exchanges New York Stock Exchange, .
