nonexchange-member broker-dealers and institutional investors trading Over The Counter in exchange-listed securities.
nonexchange-member broker/dealers and institutional investors trading Over The Counter in exchange-listed securities. The third market rose to importance in the 1950s when institutional investors began buying common stocks as an inflation hedge and fixed commission rates still prevailed on the exchanges. By trading large blocks with nonmember firms, they both saved commissions and avoided the unsettling effects on prices that large trades on the exchanges produced. After commission rates were deregulated in May 1975, a number of the firms active in the third market became member firms so they could deal with members as well as nonmembers. At the same time, member firms began increasingly to move large blocks of stock off the floor of the exchanges, in effect becoming participants in the third market. Before selling securities off the exchange to a nonmember, however, a member firm must satisfy all limit orders on the specialist's book at the same price or higher.
