The third market refers to trading of exchange-listed securities on the over-the-counter market. In the past, members of an exchange were required to execute all their trades of exchange-listed securities on the exchange and to charge commissions according to a fixed schedule. This procedure was disadvantageous to large traders when it prevented them from realizing economies of scale on large trades. Because of this restriction, brokerage firms that were not members of the NYSE and so not bound by its rules, established trading in the OTC market of large NYSE-listed stocks. These trades could be accomplished at lower commissions than would have been charged on the NYSE, and the third market grew dramatically until 1972, when the NYSE allowed negotiated commissions on orders exceeding $300,000. On May 1, 1975, frequently referred to as "May Day," commissions on all NYSE orders became negotiable, and they have been ever since.

2. Look again at Table 3.1, which gives the history of seat prices on the NYSE. Interpret the data for 1975 in light of the changes instituted on May Day.

The fourth market refers to direct trading between investors in exchange-listed securities without the benefit of a broker. The direct trading among investors that characterizes the fourth market has exploded in recent years due to the advent of electronic communication networks, or ECNs. ECNs are an alternative to either formal stock exchanges like the NYSE or dealer markets like Nasdaq for trading securities. These ECNs allow members to post buy or sell orders and to have those orders matched up or "crossed" with orders of other traders in

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