Chapter 3

1. Explain the difference between NASD and Nasdaq.

***The difference between NASD or National Association of Securities Dealers and Nasdaq
or National Association of Securities Dealers Automated Quotation is that NASD is a self-
regulating body of brokers and dealers that oversees Over-The-Counter practices. NASD has
the requirements such as it issue license to brokers when they successfully complete a
qualification examination; it provide for onsite compliance examination for member firms
and the violation of fair practice can result in censure, fine, suspension, or expulsion of
member firms which this role of NASD serves to protect the interest of its members and
investors; it provide automated market surveillance; it review member advertising and
underwriting arrangements; and it provide a mechanism for the arbitration of disputes
between member firms and investors. While the Nasdaq is a national and international stock
market, in which a network of dealers, who make a market by standing ready to buy or sell
securities as specified prices. This Nasdaq is wholly owned subsidiary of NASD.
2. Distinguish between the third market and the fourth market.
*** The third market is an Over-The-Counter market for exchange listed securities. All off-
exchange transaction in securities listed on the organized exchange takes place in the so-
called third market. Today a few third market brokers provide investors with the flexibility to
trade when the NYSE is closed. While the fourth market refers to transactions made directly
between large institutions and wealthy individuals, bypassing brokers and dealers.
Essentially, the fourth market is a communications network among investors interested in
trading large blocks of stock. Several privately owned automated systems exist to provide
current information on specific securities that the participants are willing to buy or sell.
Through such automated systems the secrecy of the deals is somewhat ensured as anonymous
trading is allowed.
3. What are the two primary factors accounting for the rapid changes in U.S. securities
markets?
***The two primary factors that contributed to the rapid changes in the U.S. securities
markets are; (1) institutional investors have requirements and views often different from
individual investors. Large block activity on the NYSE is an indication of the institutional
participation that has increased more than three times in the last 15 years; and
(2)development of a fully competitive national system of securities trading called National
Market System, which provides the best price to the buyers and sellers of the securities.
4. What is the EAFE Index?
*** EAFE index or Europe Asia & Far East Index is a value weighted index of the equity
performance of the major foreign markets.

5. What is the NYSE’s current situation in terms of global trading?

*** The globalization of securities markets has influenced the trading practices of the NYSE.
In mid-1991, the NYSE began two after-hour ‘crossing sections’, which last from 4:15pm to
5:30pm. One session is for individual stocks and the other is for programme trading (basket
of stocks).

 WHAT HAVE I LEARNED IN THIS CHAPTER?

***In this chapter, I learned that financial market is very important to the economy. In order
for the business organizations to finance or expand their operations they will need capital in
large amounts which they are incapable of saving in a reasonable period of time. The
government organizations also need to generate funds to finance large projects of public
interest. The financial markets allow both the business and government organizations to raise
funds by issuing securities. Financial markets serve to channel funds from savers to
borrowers.