The Fourth Market
BA 543 Section 001
Kechen Yang
April. 23/2013
Agenda
 Definition
 Electronic Communication Networks (ECNs)
 How the Fourth Market works?
 Why ?
Fourth Market
 The direct trading of
exchange-listed securities
between investors (large
institutions)
•
Due to electronic
communications
networks (ECNs)
Electronic Communications
Networks (ECNs)
 Private trading networks
 Bypass brokers and dealers
 Most effective for high-volume, actively traded stocks
 ECNs offer such advantages as lower costs, anonymity, open
limit order books, and after-hours trading
 Levy a small surcharge

No higher than a few cents/per share
Electronic Communications
Networks (ECNs) cont’d
 Instinet
 RediBook
 B-Trade (Bloomberg)
 Tradebook
 Archipelago (run by the Pacific Exchange)
Trade Processing
Participants(Institutions)
ECNs
Offer Post（in code）
Execution
If Accepted
Exposed to other
participants
Steps
 Connect to ECNs
 Personally
 Through a brokerage
 Enter a bid
 Place orders (limit orders, listed anonymously)
 Match/accepted
 Execution
Vs. Traditional Market
 Directly trade between two parties
 Avoid brokerage fees- without a broker intermediary
 Avoid exchange transaction fees
Why fourth market
 Institutions trades

Large volume
Over 10,000 shares
> $200,000 of a security
 Consequently substantial savings

Avoid commissions
 Quicker at Reasonable price
 Anonymous
Exercise
 T F 1. The general public is not allowed to engage
in the fourth market.
 2. Fourth market trades
a. Occur on national exchanges.
b. Occur on regional exchanges.
c. Occur only through the Internet.
d. Are direct trades between institutional investors.
 3. The over-the-counter market is both a primary
and _______ market.
Q&A
Reference
 “Introduction to Finance: Markets, Investments, and Financial
Management” by Ronald W. Melicher, Edgar A. Norton
 “Investments: An Introduction” by Herbert B. Mayo
 Financial Instruments: Equities, Debt, Derivatives, and Alternative
Investments by David M. Weiss
 Electronic Communications Networks (ECNS) - How Ecns Work Trading, Systems, System, and Market
http://ecommerce.hostip.info/pages/376/ElectronicCommunications-Networks-ECNS-HOW-ECNSWORK.html#ixzz2R93z2lZA
 http://www.investopedia.com/articles/02/101102.asp
 http://wiki.mbalib.com/wiki/%E7%AC%AC%E5%9B%9B%E5%B8
%82%E5%9C%BA
 http://www.answers.com/topic/fourth-market#ixzz2R8lcbn8S
Thank you!