Third Market

What Is the Third Market?

A third market comprises of trading directed by non-exchange member broker-dealers and institutional investors of exchange-listed stocks. In other words, the third market includes exchange-listed securities that are being traded over-the-counter between broker-dealers and large institutional investors.

The term "over-the-counter" commonly alludes to the trading of securities that are not listed on broadly perceived exchanges, for example, the New York Stock Exchange (NYSE). These securities are rather traded through a broker-dealer network, as the securities don't meet the listing requirements of a centralized exchange. On account of the third market, the securities are exchange-listed, yet they are not being traded through the exchange.

How the Third Market Works

While hearing news about the financial markets, most investors have known about the primary and secondary markets, however there is a third market too. The primary market depicts the issuance of new securities, for example, a IPO or initial public offering of another stock or security. The secondary market is traditionally where stocks and securities are traded, which is the market most investors are know all about and execute their trades.

The third market is a marketplace or scene wherein brokers and institutional investors, like fund managers, can trade securities that are exchange-listed and are generally traded on a proper exchange like the NYSE. At the point when these exchange-listed securities and shares are traded in the third market, investors sidestep the secondary market and the exchanges.

Before selling exchange-listed securities to a non-member in a third market transaction, a member firm must fill all limit orders on the expert's book at a similar price or higher. Common institutional investors who partake in the third market incorporate investment firms and pension plans. The third market unites large investors willing and able to purchase and sell their own securities holdings for cash and immediate delivery. Securities can be purchased at lower prices in the third market due to the shortfall of broker's commissions.

Third-party trading systems sidestep traditional brokers and allow large and potentially rival foundations' block orders to "cross" with one another. Anonymity rules prevent either side from knowing the identity of the counter-party. There are extra rules and logic incorporated into flow management interfaces, however there is some data that can't be shared with the public, which gives the transaction adequate anonymity.

Third-market trading started during the 1960s with firms like Jefferies and Company, however today there are a number of brokerage firms zeroed in on third-market trading.

Third Market Makers

Third-market makers add liquidity to financial markets by facilitating buy and sell orders even on the off chance that there isn't a buyer or seller immediately available for the other side of the transaction. Third-market makers create a gain from their jobs as intermediaries by buying low and selling high. They likewise place trades for brokers on exchanges of which that broker isn't a member.

A third-market maker could act as a buyer when an investor needs to sell however just needs to make a small, short-term profit from buying a security at a favorable price and selling it to another investor at a higher price. Third-market makers some of the time pay brokers a small fee of a penny or two for every share to direct orders their direction. Some of the time brokers and third-market makers are indeed the very same.

Highlights

• Securities can frequently be purchased at lower prices in the third market since there are no broker fees.
• With a third market, exchange-listed securities are traded by investors operating outside a centralized exchange through a network of broker-dealers and institutional investors.
• With over-the-counter markets, securities that are not qualified for listing on traditional exchanges are bought and sold through a network of broker-dealers.
• Institutional investors, for example, investment firms and pension plans, will quite often participate in the third market, as do traders in the over-the-counter markets.