Types of secondary market trading structures

Question

Compare and contrast a variety of types of secondary market trading structures.

Answer 1

There exist two basic types of secondary market trading structures:

a) Dealer and
b) Agency.

In dealer market, the dealer serves as the market maker for security, holding an inventory of the security.  Dealer buys at his bid price and sells at his asked price from this inventory.  All the public trades go through dealer.  In agency market, public trades go through the agent who matches it with other public trade.  Both dealer and agency markets may be continuous trade markets, but non-continuous markets tend corresponds to be only agency markets.

a) Over-the-counter trading,
b) Specialist markets, and
c) Automated markets, are types of continuous market trading systems.

Call markets and crowd trading are types of non-continuous trading market systems.  Continuous trading systems are enviable for actively traded issues, while call markets and crowd trading provide advantages for the smaller markets with many thinly traded issues since they mitigate the possibility of sparse order flow over the short time periods.