Modern Financial Markets

In this chapter, the major U.S. and European equity exchanges and alternative trading systems are described. I also introduce the global FX market and the U.S. institutional fixed income markets. Finally, I discuss the specifics of high-frequency trading, which has received somewhat controversial coverage in 2009 and 2010.


When a business issues a new security via initial public offering (IPO) at some exchange, it is said that the security is listed on this exchange. After IPO, the issuer sells this security to investors in a primary market. Subsequent trading of securities among investors other than the issuer is conducted in the secondary market (or aftermarket). Trading of exchange-listed securities in an OTC market is referred to as the third market. Alternative trading systems (ATS), which will be discussed later, are the typical examples of the third market.

The main U.S. primary markets are the New York Stock Exchange (NYSE) and NASDAQ. These markets are described in more detail in the two following sub-sections. There are also several U.S. regional exchanges and two new exchanges, BATS and Direct Edge. Regional exchanges were created primarily to list local companies that could not afford to become listed in the national exchanges. Current regional exchanges include Boston, Chicago, Pacific, and Philadelphia exchanges.1


The NYSE has been the major U.S. equity market. A brief history of the NYSE trading ...

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