Lecture 2

Question 1

4 types of markets:

Answer 1

1. Quote Market
2. Order Market
3. Broker Market
4. Hybrid Market (order with some quote)

Question 2

In pure quote-driven markets, public traders cannot arrange trades among themselves, true or false

Answer 2

true

Question 3

In pure quote-driven markets; who supplies the liquidity?

Answer 3

The dealer

Question 4

In pure quote-driven markets what prices does the dealer quote?

Answer 4

their bid and ask prices

Question 5

An order driven market is an auction market, true or false?

Answer 5

true

Question 6

An order driven market where do trader issue all their orders too?

Answer 6

The exchange

Question 7

Does an order driven market have a dealer?

Answer 7

No

Question 8

What is the center of an order driven market?

Answer 8

The Trading Rules

Question 9

A brokered market is where whom arranges trades?

Answer 9

Broker

Question 10

In brokered markets who initiates the trade?

Answer 10

The sellers who contact the broker

Question 11

What role does the broker have in brokered markets?

Answer 11

To find counterparties

Question 12

What items are sold in brokered markets?

Answer 12

item that is unique

2. or items in a time of low liquidity and dealers are unwilling to hold inventories

Question 13

What is a hybrid market?

Answer 13

mix of both quote-driven markets and order driven markets

Question 14

what are the most common hybrid market?

Answer 14

those with dealer-specialists

Question 15

What market is hybrid markets and who operates in them?

Answer 15

order-driven markets in which the specialist must provide liquidity under some circumstances

Question 16

In the 4 market types how are intentions conveyed and displayed?

Answer 16

Information systems bring information into and out of the market.

Question 17

List the 4 Information systems that bring information into and out of the market:

Answer 17

• Information Collection Systems
• Information Distribution Systems
• Order Routing Systems
• Order Presentation Systems

Question 18

Transparent markets report complete information to the public quickly. what 2 kinds of transparency are there:

Answer 18

• Ex ante transparent

* Ex post transparent

Question 19

what is Ex ante transparent?

Answer 19

before trading you can see the intentions of all traders and all orders

Question 20

what is Ex post transparent?

Answer 20

a market that will quickly report all trades to the public shortly after they have happened

Question 21

ASX resolves the opening price using a set of rules –

Answer 21

Principle 1– maximize the volume
Principle 2 – Establishing the minimum surplus
Principle 3 – Ascertaining where the market pressure exists
Principle 4 – Consulting the reference price