Professional Documents
Culture Documents
“ASSIGNMENT # 1”
Stock exchange and Over the Counter (OTC) market are the types of financial market
who connect the borrowers of funds and the lenders of funds. Stock exchange and
OTC market will be explained in this assignment and at the end, their respective
.differences will be highlighted
STOCK EXCHANGE
Cambridge dictionary defines stock exchange as "a place where parts of the
ownership of companies are bought and sold, or the organization of people whose job
is to do this buying or selling". Some of the famous stock exchanges are NYSE,
AMEX. There is limited number of corporations that can sell their shares on the stock
exchange. To be listed on the stock exchange corporations have to go through lengthy
legal proceedings. Once listed on the stock exchange corporations can raise funds by
.offering their shares in the stock exchange
In order to buy stock e.g. at New York Stock Exchange (NYSE), the investor does not
have to go to the NYSE, rather he will buy his desired stock via stock broker, who
will perform on behalf of the investor. There are dozens of brokerage houses working,
some of the famous ones are Merrill Lynch, Morgan Stanley and Charles Schwab.
The stock brokers often charge a commission for their services. These stock brokers
apart from just trading stocks also provide useful information regarding which stock
to invest and which one to avoid, when to buy and when to sell the stock in order to
maximize the investor's profit. The stock price of a company is determined by the
speculation regarding the future of the company, company’s financial performance,
.political-economic conditions of the country and many other factors
Stock exchange plays a vital role in the financial system. Without stock exchange it
would have been very difficult for the corporations and the investors to coordinate
.with each other
Business dictionary defines OTC markets as "OTC securities trading system in which
brokers or dealers (called market makers) negotiate over telephone or computerized
networks instead of through a stock exchange. Trading rules for this market are
established and enforced by the National Association of Securities Dealers. In dollar
terms, it is the largest securities market in the US. Also called outside market or third
market. E.g. NASDAQ- National Association of Securities Dealers Automated
".Quotation
The computerized systems are equipped with matching engines that help to match the
needs of buying and selling parties and trade takes place at the best possible price
acceptable to both the parties. Like in NASDAQ brokers are connected with each
other via thousands of computers which all are then connected with the central
computerized system of NASDAQ. The NASDAQ is so efficient that it releases
minute by minute changes in the stock prices and thus makes trading incredibly
convenient. Shares listed on the stock exchange can also be legally sold over the
counter. OTC market is also famous for trading of foreign exchange. OTC market
plays a significant role in raising funds for less recognized corporations. Recently the
trading volume of OTC market had surpassed the trading taking place in stock
.exchanges, though OTC market tends to be more risky than stock exchanges
Has detailed rules and regulations in Rules and regulations to trade are quiet
order to be enlisted lax
Has a physical location or venue Has no physical location
These are the considerable differences between the stock exchange and OTC market.
Both play an essential role in constructing an efficient financial system by connecting
the deficit and surplus units of the economy through competent intermediaries or
.stock brokers