THE THIRD MARKET

Reported by:
Nix Albalos
Kim Ritua
•A stock may be both listed on an exchange and
also traded in the OTC market, called the THIRD
MARKET.
What is third market?
• A third market consists of trading by non exchange-
member brokers/dealers and institutional investors of
exchange-listed stocks.
• In other words, the third market involves exchange-listed
securities that are being traded over-the-counter
between brokers/dealers and large institutional
investors.
• Dealers in this market could not be members of the
NYSE until NYSE Rule 390 was repealed in 1999.
Consequently, these non-NYSE member dealers were
not restricted by the fixed minimum commissions set
prior to 1975.
• The third market grew as institutional investors used it in
the early 1960s to avoid these fixed minimum
commissions.
• Even after 1975, however, only a handful of dealers
actively participated in the third market primarily
because of NYSE Rule 390. After the repeal of Rule 390
during late 2000, however, third market activity for NYSE-
listed stocks showed significant growth potential.
• Like Nasdaq, third market is a network of broker/dealers
that aggregates quotation information and provides
inter-participant order routing tools, but leaves order
execution to market participants.
• Third market trading was pioneered in the 1960s by firms such as Jefferies &
Company although today there are a number of brokerage firms focused on
third market trading, and more recently dark pools of liquidity.
• Jefferies LLC is an American global investment bank and institutional securities
firm headquartered in New York.
• Jefferies was founded by Boyd Jefferies in 1962. The firm started with $30,000 in
borrowed capital, which Boyd Jefferies used to purchase a seat on the Pacific
Coast Stock Exchange. In the early years, the firm was a successful trader and
pioneer in what would be called the "third market", which allowed for the
trading of listed stocks directly between institutional investors in an over-the-
counter style, providing liquidity and anonymity to buyers.
Why it matters?
• The third market brings together large investors willing and able to
purchase and sell their own securities holdings for cash and
immediate delivery. Securities can be purchased at lower prices
in the third market because of the absence of broker's
commissions.
Fourth Market and how it differs from
Third Market
THIRD MARKET FOURTH MARKET

Fourth market trading differs from third

A third market trading consists of market trading in the way that there is
nonexchange-member no intermediary. Institutions directly
brokers/dealers and institutional trade with each other without brokers
investors of exchange-listed stocks. or dark pools.