What Are Market Makers
The market makers are firms that buy and sell stocks of their own inventory. A commercial markup is added to the offered price. You can determine the amount using the on-line NASDAQ National Market Issues stock list or from the newspapers list. Equally, when a st
ock is sold, an amount known as markdown is subtracted from the base price.
In negotiating with the OTC an agency cannot charge commission nor perform as a market maker. The agency has to decide in between charging a commission and earn a markup or a markdown. Market makers or negotiators can buy or sell valuables of their own accounts.
AMEX and NASDAQ´s fusion in 1999 reduced some differences between floor negotiations and computerized market. Two of the benefits that came with fusion were the lowest prices and best negotiations.
During many years spreads (difference between supply and demand) where much larger for NASDAQ stocks than those negotiated on floor markets. In 1997 NASDAQ was fined for making much too large spreads in stocks negotiations.
NASDAQ has made some changes in order to reach larger volumes of negotiations. It launched a super-montage negotiation system in October 14th 2002 to stand up against negotiations losses at ECN.
In 2002, the ECN took away 49% of negotiations in stocks listed under the NASDAQ system. The super-montage system allows stock agents issue many shares to buy and sell instead of one. It additionally shows the availability of stocks in five different market price levels instead of the usual market price data about the stocks bought and sold. It is not important which system is better because as long as there is competition between NASDAQ and ECN better prices will the investors find.
Some structural flaws in NASDAQ´s negotiation system made ECNs grow. There was no compensation stock exchange for OTC negotiations; therefore, buying or selling stocks wasnt always available for interested groups.
This lack of centralism made it possible to charge large spreads, what boomeranged as a $1 billion fine against NASDAQ in 1997. In that year the SEC authorized ECNs the use of the electronic board for NASDAQ´s negotiations, so that joined to the latters orders, those from the former could also be shown in level 2 quoting system.
Level 2 quoting system are market prices supplies and demands provided by the stock market-makers that are within NASDAQs system The ECNs provide the individual and group investor with an alternative negotiation system. ECNs compare negotiations -buying and selling orders- electronically having increased their volume of negotiations by lowering spreads. Negotiating with ECNs is advantageous for large company investors, who wish to negotiate big blocks of stocks. If large company investors used the marke
t-makers or NASDAQ markets, common investors in general would be able to see their negotiations and market prices would change. ECNs allow group investors negotiate in anonymity.
ECNs also allow individual investors negotiate before opening and after closing hours. The diversity of NASDAQ negotiations going to ECNs reduce NASDAQs rent when not able to re-sell their quotas and negotiation data to agents and investors.
Competence between NASDAQ and ECNs can only make market prices better to investors. NYSEs plan to buy ECN Archipelago in April 2005 could change the basic ways stock markets operate. This combination would allow NYSE widen its position to what options and future markets respect, as well as being able to compete in the automated trade market for NASDAQs and ETFs stock lists.
Following this announcement and to improve even more its competitive position and encourage its offers, NASDAQ also announced that it would buy Instinet and ECNs. This combination would allow investors negotiate stocks from NYSE through NASDAQs system in an easy way. Foreign stocks are listed and negotiated in its respective markets. Financial newspapers and the on-line financial websites as Yahoo give market prices information about foreign companies that are the most negotiated in Europe, Asia, Australia, South Africa and Canada.