Brokered Markets

primary market

A market in which new issues of securities are offered to the public.

The next level of organization is a brokered market. In markets where trading in a good is active, brokers find it profitable to offer search services to buyers and sellers. A good example is the real estate market, where economies of scale in searches for available homes and for prospective buyers make it worthwhile for participants to pay brokers to conduct the searches. Brokers in particular markets develop specialized knowledge on valuing assets traded in that market.

An important brokered investment market is the so-called primary market, where new issues of securities are offered to the public. In the primary market, investment bankers who market a firm's securities to the public act as brokers; they seek investors to purchase securities directly from the issuing corporation.

Another brokered market is that for large block transactions, in which very large blocks of stock are bought or sold. These blocks are so large (technically more than 10,000 shares but usually much larger) that brokers or "block houses" often are engaged to search directly for other large traders, rather than bring the trade directly to the stock exchange where relatively smaller investors trade.

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