U NI T 2 – T H E S T O C K M A R K E T

Financial Market AnalysisACCT3602

1

The Role of a Stock Market2

A stock exchange allows companies to raise funds by providing them with access to a pool of private and institutional investors. The role of an exchange is therefore to:

 Bring companies and investors together

 Enable issuers and companies to raise new capital Facilitate the process of investors subscribing in shares (securities)

 Provide capital to companies and investors Facilitates

– trading in securities after the IPO- buying and selling of securities between investors

 Organises and oversees a fair and efficient market

 Ensures an efficient price discovery process (the process of determining the price of the securities in the market place)

 Provides timely and accurate trading and company disclosure information to inform private investor trading

The Role of a Stock Market

 Central roles of a stock market:

 Making available cost-effective trading platforms.

 Bundling of liquidity by concentrating supply and demand.

 Guaranteeing the interchangeability, as well as the identical structuring of a particular category of security.

 Ensuring the greatest possible transparency for investors.

 Providing information on prices and volume.

Benefits of the Stock Market4

 Stock markets are an integral part of the economy  they provide unique services and benefits to corporations, individual investors and

governments.

 Benefits for Corporations  Raising Capital: A corporation is able to make an Initial Public Offering (IPO) on

the stock exchange and gain access to many investors, as well as to supply new capital for their business. Once listed, there is the opportunity for further issuance if needed. Access to the stock markets also facilitates growth by merger or acquisition through share purchases.

 Companies have many options to raise capital.

 Self financing – generation of one’s own capital from one’s own income, instead of acquiring it from external resources

Benefits of the Stock Market5

 Bank loans – are the most “traditional financial resources and are normally used to finance smaller projects.

 Fund raising options such as Private Equity and IPOs are used to finance extraordinary events such as mergers and acquisitions or to support companies during their growth phase.

Benefits of the Stock Market6

 Benefits for Investors

 Improved Returns: Equities have no maturity date and no fixed rate of return. This makes them a riskier investment than money market securities or bonds. What equities provide is the prospect of a combination of income and capital gains, plus a superior rate of return. The stock market gives the flexibility to invest small or large amounts and the choice of a vast number of different corporations and industries in which to invest.

 Benefits for the Economy

 Putting Peoples' Savings to Work: If individuals keep their savings in cash, or even a bank account, there is little or no benefit to the economy. Investment in stocks, however, is a direct investment in the success of individual businesses and helps promote stronger economic growth.

 Measure of the Economy's Performance: Although the health of the economy cannot be directly correlated with the performance of the Stock Market, it is true that the performance of share prices in general will be a good indication of its current condition and of the confidence of individuals within that economy.

Benefits of the Stock Market7

 Corporate Governance:  The regulations required for a corporation's stock to be listed on the Stock Exchange

and the ongoing requirements to maintain that listing are a good way to ensure that management standards and standards of record keeping within that corporation are maintained at a high level.

 There have been notable exceptions, but generally record keeping of publicly quoted companies has been shown to be better than that of private companies.

 Access to Funds for Governments:  In addition to corporations, governments themselves may issue bonds that are

quoted on the Stock Market to raise money for infrastructure, or other major projects. The stock exchange allows individuals to lend money to their government to fund their programs (NOT IN JAMAICA).

Types of Stock Markets8

Primary Equity Market

 When equity shares are initially issued, they are said to be sold in the primary market. Equity can be issued either privately (unquoted shares) or publicly via shares that are listed on a stock exchange (quoted shares). Public market offering of new issues typically involves the use of an investment bank in a

process called underwriting of securities.

 Private placement market includes securities which are sold directly to investors and are not registered with the securities exchange commission. There are different regulatory requirements for such securities.

 In the private equity market, venture capital is often provided by investors as ‘start-up’ money to finance new, high-risk companies in return for obtaining equity in the company.  In general, private placement market is viewed as illiquid. Such a lack of liquidity means that

buyers of shares may demand a premium to compensate for this unappealing feature of a security.

Types of Stock Markets9

Primary Public Market

 Initial public offering (IPO) means issuing public equity, i.e. when a company is engaged in offering of shares and is included in a listing on a stock exchange for the first time.  It allows the company to raise funds from the public.

 If a company is already listed and issues additional shares, it is called seasoned equity offering (SEO) or secondary public offering (SPO).

 When a firm issues equity at a stock exchange, it may decide to change existing unquoted shares for quoted ones.  In this case the proceeds from sale of shares are received by initial investors.

 However, when a company issues newly created shares, the raised funds are received by the company.

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The Process of Going Public

 The issuing company has to develop a prospectus with detailed information about the company operations, investments, financing, financial statements and notes, discussion on the risks involved.  This information is provided to potential investors for making decision in buying

large blocks of shares.

 The prospectus is registered with and approved by the Securities Exchange Commission (SEC). A prospectus issued in Jamaica has to be approved by the Financial Services Commission and the Companies Office of Jamaica, and reviewed by the JSE.

 Afterwards the prospectus is sent to institutional investors, meetings and road shows are organized in order to present the company.  Road show is presentation by an issuer of securities to potential buyers.

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Road shows  when the management of a company issuing securities or doing an initial public

offering (IPO) travels around the country to give presentations to analysts, fund managers and potential investors.  The road show is intended to generate excitement and interest in the issue or IPO, and is often

critical to the success of the offering.  A non-deal road show occurs where executives hold discussions with current and potential

investors, but nothing is offered for sale.

 Share issues are often underwritten by banks.  A bank, which is underwriting an issue agrees, for a fee, to buy any shares not acquired by

investors. This guarantees that the issuing company receives the funding that it expects.  In the case of rights issues, firms sometimes avoid paying a fee to underwriters by using the

deep discount route. In a rights issue, failure to sell the new shares would result in the share price (prior to the issue) falling below the sale price of the new shares.  The deep discount method prices the new shares at such a low level that the market price is

extremely unlikely to fall so far.

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 The share offer price is determined by the lead underwriter, which takes into account the prevailing market and industry conditions.

 During the road show the lead underwriter is engaged in book-building a process of collecting indications of demanded number of shares by investors at

various possible offer prices.

 IPO Factors: Public equity markets play a limited role as a source of new funds for listed corporations.  Because of information asymmetry, companies prefer internal financing (i.e.,

retained earnings) to external financing.

 Myers and Majluf (1984) have introduced the pecking-order theory, which states that companies adopt a hierarchy of financial preferences.

Types of Stock Markets13

Pecking Order Theory or Pecking Order Model  In corporate finance, this theory postulates that the cost of financing increases with

asymmetric information.  Financing comes from three sources, internal funds, debt and new equity.

 Companies prioritize their sources of financing, first preferring internal financing, and then debt, lastly raising equity as a “last resort”.

 This theory maintains that businesses adhere to a hierarchy of financing sources and prefer internal financing when available, and debt is preferred over equity if external financing is.  Thus, the form of debt a firm chooses can act as a signal of its need for external finance.

 On the other hand, during equity markets growth and share price increase periods, IPO market tend to increase dramatically,  A drop in share prices is followed by decrease in net issuance of public equity.

 A large number of the issues in the late 1990s were ‘new economy’ offerings, like the technology, media, and telecommunications sector.

Types of Stock Markets14

 Among other factors the economic cycle is considered to play a significant role in a company’s decision to issue public equity.

 Equity is often used to finance long-term investments  which fluctuate over the business cycle.

 Shiller (2003) has related the timing of equity issuance with investor sentiment.  Developments in investor optimism over time may have an impact on the cost of

equity, thus influencing the amount of equity issued.  E.g., excessive increases in risk aversion resulting in falling stock market prices could

raise the cost of equity, preventing companies from new equity issues. Companies also issue equity in order to finance the acquisition of other companies, either by using the cash proceeds of public offerings or by issuing shares, which are subsequently exchanged for the shares of a target company. Therefore merger and acquisition (M&A) cycles can also be expected to correlate with equity issuance activity.

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There are important advantages and disadvantages of initial public offerings (IPOs).

 Advantages of IPOs:  Possibility to obtain funds to finance investment.

 The price of a company’s shares acts as a measure of the company’s value.

 Increases of company financial independence (e.g. from banks) due to listing of a company’s shares on a stock exchange.

 Possibility to diversify investments of current company owners by selling stakes in the company in a liquid market.

 Increased recognition of the company name

 Improved company transparency

 A disciplining mechanism for managers

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Disadvantages of IPOs:

 High issuance costs due to underwriters’ commission, legal fees, and other charges.

 High costs due to disclosure requirements.

 Risk of wider dispersed ownership.

 Separation of ownership and control which causes ‘agency problems’.

 Divergence of managers’ and outside investors’ interests.

 Information asymmetry problems between old and new shareholders.

 Risk of new shareholders focusing on short-term results.

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IPO market has received negative publicity due to several problems:  Spinning

 occurs when investment bank allocates shares from an IPO to corporate executives. Bankers’ expectations are to get future contracts from the same company. It is an abuse of the underwriter’s mandate to place shares fairly.

 Laddering When there is a substantial demand for an IPO, brokers encourage investors to place the

first day bids for the shares that are above the offer price. This helps to build the price upwards. Some investors are willing to participate to ensure that the brokers will reserve some shares of the next hot IPO for them. It will result in the demand for shares in the secondary market from investors who were not allotted shares in the IPO, thus pushing up the stock price.

 Excessive commissions These are charged by some brokers when the demand for an IPO is high. Investors are

willing to pay the commissions if they can recover the costs from the return on the very first day, especially when the offer price of the share is set significantly below the market value.

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Secondary Equity Market

 Equity instruments are traded among investors in a secondary market  no new capital is raised and the issuer of the security does not benefit directly from

the sale.

 Secondary markets are also classified into organized stock exchanges and over-the-counter (OTC) markets.

 Apart from legal structure, numerous historical differences are found in the operations of national stock markets. The most important differences are in the trading procedures.  The trading on secondary markets takes place among investors, however most often

through specialized intermediaries – stock brokers (dealers), who buy or sell securities for their clients.

Types of Stock Markets19

 Securities’ trading in the secondary market form the means by which stocks or bonds bought in the primary market can be converted into cash.  The knowledge that assets purchased in the primary market can easily and cheaply be

resold in the secondary market makes investors more prepared to provide borrowers with funds by buying in the primary market.

 Effective secondary market is an important basis of successful primary market.  If transaction costs are high in the secondary market the proceeds from the sale of

securities will be reduced, and the incentive to buy in the primary market would be lower.

 Also, high transaction costs in the secondary market might tend to reduce the volume of trading and thereby reduce the ease with which secondary market sales can be executed.

 Therefore high transaction costs in the secondary market could reduce primary market asset liquidity.  In consequence there can be adverse effects on the level of activity in the primary market

and hence on the total level of investment in the economy.

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Organized Exchanges  Stock exchanges are central trading locations, in which securities of corporations are

traded. These securities may include not only equity, but also debt instruments as well as derivatives.

 Equity instruments can be traded if they are listed by the organized exchange i.e. included in a stock exchange trading list.

 The list is comprised of instruments that satisfy the requirements set by the exchange, including minimum earnings requirements, net tangible assets, market capitalization, and number and distribution of shares publicly held.

 Each stock exchange specifies their set of requirements.

 Advantages of listing on the stock exchange to the corporation and its shareholders are:  The ability to sell shares on the stock exchange makes people more willing to invest in the

company.

 Investors may accept a lower return on the shares and the company can raise capital more cheaply.

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 Stock exchange provides a market price for the shares, and forms basis for valuation of a company.

 The information aids corporate governance, allows monitoring the management of the company.

 Listing makes takeover bids easier, since the predator company is able to buy shares on the stock market.

 The increased transparency may reduce the cost of capital.

 Disadvantages of Listing:  Listing on the stock exchange is costly for the company.

 It requires a substantial amount of documentation to be prepared, e.g. audited and prepared according to IFRS financial statements.

 It increases transparency, which may cause problems in terms of market competition and in takeover cases.

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 Stock market dealers and brokers fulfil specific functions at the equity market.  Dealers make market in securities, maintain securities inventories and risk their

own funds.

 Brokers do not own securities but execute matching of buyers and sellers for a specific fee.

 Dealer may function as a broker, or as market maker. Dealers stand ready to buy at the bid price and to sell at the ask price

 They make profit from the average spread.

 Primary Risk for Dealers when the stock prices are going down, dealers experience loss of value of stock

inventory.

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 In order to profit from different price movement directions dealers make positioning.  If the dealer expects the stock prices to increase, it buys the stock; taking a long

position.

 Profit is earned, if the stock is sold at a higher price.

 If a dealer expects the stock price to decline, he tries to benefit from a short position (sell). In a short sale the security is borrowed and sold with the expectation of buying this security back later at a lower price.

 The investor tries to sell high and buy low, profiting from the difference.

 Proceeds from a short sale cannot be used by the short-seller, and must be deposited at the broker or margin account.

 The short-seller must pay any cash dividends to the lender of the security.

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 If the dealer’s forecast is wrong, the dealer must close the position at an unfavourable price and absorb the loss.  This creates the risk of dealer bankruptcy, and forces stock exchanges as well as

securities exchange commissions to impose specific regulations in order to prevent this type of price manipulations.

 Security dealers are heavily levered.  Typically the dealer’s equity forms a small percentage of the market value of his

inventory.

 Most dealers financing is in the form of debt (e.g. bank loan). Majority of dealer debt financing is in the form of repurchase agreements

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There are several types of stock exchange members:

 Commission Brokers – who execute buy and sell orders for the public for a fee. This is the largest group of market participants, acting as agents of lenders or buyers of financial securities. They may find the best price for someone who wishes to buy or sell securities.

 Odd-lot Brokers – a group of brokers, who execute transactions of fewer than 100 shares. These brokers break round-lots (a multiple of 100 shares) into odd-lots and vice versa for a fee. Odd-Lot orders are not posted to the bid/ask data on exchanges

 Registered Trader – who owns a seat on a stock exchange and trades on his own account. Large volume of trades, along with the possibility of speedy execution of orders, allow the traders to cover their large investments into the seat of a stock exchange.

 Specialists – who are market makers for individual securities listed on an organized stock exchange. Their purpose is to reduce variability of the securities prices. When there are too many sell orders, the specialists have to perform the role of buyers to keep the prices from falling for a period. When there are too many buy orders, the specialists have to perform the role of sellers to prevent the temporary rise in prices.

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 Issuing Intermediary – who undertakes to issue new securities on behalf of a borrower. An issuing house acts as an agent for the borrower in financial markets. This task is usually carried out by investment banks

 Market-maker is an intermediary who holds stock of securities and quotes a price at which each of the securities may be bought and sold. Market-making is usually performed by the securities divisions of the major banks

 Arbitrageur – who buys and sells financial assets in order to make a profit from pricing anomalies. Anomalies occur when the same asset is priced differently in two markets at the same time. Since financial markets are well informed and highly competitive, usually these anomalies are very small and do not last long. Anomalies are usually known, thus there is no risk of arbitrage, which makes it different from speculation.

 Hedger – who buys or sells a financial asset to avoid risk of devaluation of currency, change of interest rates or prices of the securities in the market.

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Over-the-Counter (OTC) Market

 Over-the-counter (OTC) market is the marketplace for the trading financial instruments by dealers, which are generally unlisted financial instruments, via electronic means. These markets are networks of dealers, who make markets in individual securities.

 Common equity shares that are traded on it can be listed and unlisted shares.

 Two large segments of OTC markets can be distinguished:  Unorganized OTC markets with unregulated trading taking place between

individuals. Typically these markets do not restrict possibilities to buy and sell outside of organized exchanges.

 Highly organized and sophisticated OTC markets, often specializing in trading specific company shares. Examples of organized over-the-counter markets are the NASDAQ and upstairs markets in the United States.

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 Trading takes place via a computer network.

 Market makers display the prices at which they are prepared to buy and sell, while investors trade with the market makers, usually through brokers.

 The upstairs market is mainly used by institutional investors and handles large buy and sell orders (block trades).  Institutions place orders through brokers, who attempts to find a transaction

counterparty.

 In the absence of such a counterparty, the broker attempts to execute the order with market makers.

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Electronic Stock Markets

 An electronic stock exchange refers to a stock bourse where the majority, if

not all, trades take place through electronic trading platforms or portals.

 Today, most stock markets around the world are electronically-traded exchanges, where buyers and sellers meet on a virtually-created platform to

exchange various kinds of financial securities such as stocks, bonds, currencies, commodities, and derivatives.

 They are adapted mainly to serve execution of orders to institutional

investors mainly.

 Registered and regulated electronic stock exchanges were developed from electronic communication networks (ECN). Some electronic communication

networks (ECNs) exist along with official exchanges.

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 An ECN is a computer-based system of trading that allows investors to trade securities and other financial products electronically without having physical contact in the market. ECN removes middlemen when trading securities.

 The popularity of ECNs stems from the possibility to execute security trade orders efficiently by allowing complete access to orders placed on other organized or electronic exchanges,  It, therefore, eliminates the practice of providing more favourable quotes exclusively to most

important clients. As a result quote spreads between the bid and ask prices are reduced.

 ECNs enhance trading of financial products between investors regardless of their region or geographical locations.

 Trading occur on a computerized system and outside traditional marketplaces. In the U.S. for e.g., ECNs are required to register with the SEC as broker-dealers.

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 Since ECNs can execute orders of stocks listed and traded on organized or other electronic exchanges, they form the increasing competition among the stock exchanges.  Examples of well known electronic trading systems include Instinet (acquired by

NASDAQ), Archipelago (merged into NYSE), SETS (London Stock Exchange’s premier electronic trading system).

 As an alternative to organized stock exchanges the Alternative Trading Systems (ATS) have developed  It is based on the idea there is no necessity to use an intermediary in order to

conduct a transaction between two parties.

 In fact the services of a broker or a dealer are not required to execute a trade. The direct trading of stocks between two customers without the use of a broker or an exchange is called an ATS.

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 The alternative trading system (ATS) allows buyers and sellers to match up and conduct transactions without going through an exchange.  The network provides a platform for mutual funds and institutional traders to conduct

transactions without revealing their identity.

 There are two types of alternative trading systems (ATS):  crossing network

 dark pools

 Crossing network is an alternative trading system that matches buy and sell orders for execution without first routing the order to an exchange or other displayed market. The main purpose of a crossing network is to allow people to buy and sell outside public channels – possibly anonymously. By bypassing public channels, sales that happen over the crossing network don't affect the price of the security since Brokers crossing networks don't show an order book.

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 Electronic crossing networks do not display quotes but match large buy and sell orders of a pool of clients (dealers, brokers, institutional investors) anonymously. These networks are batch processors that aggregate orders for execution. Market orders are crossed once or a few times per day at prices, which are determined in the primary market for a security. The trade price is formed as a midpoint between bid and ask prices, observed in the primary market at a certain time.

 Crossing Networks, while often lumped together with ‘dark pools,’ proponents of crossing networks often say they are indeed different.

 Examples of crossing networks are Liquidnet, Pipeline, ITG's Posit, ETF One, and Goldman Sachs' SIGMA X.

 The dark pool gets its name because details of these trades are concealed from

the public; clouding the transactions like murky water.  Some traders that use a strategy based on liquidity feel that dark pool liquidity should be

publicized, in order to make trading more "fair" for all parties involved.

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Advantages and Disadvantages

 Electronic crossing networks provide low transaction costs and anonymity, which are important advantages for large orders of institutional investors.  They are specifically designed to minimize market impact trading costs.

 However, there is no trading immediacy, since the traders have to wait until the crossing session time to execute the orders and an offsetting order entered by other market participant.

 Thus their execution rates tend to be low. Besides, if they draw too much order flow away from the main market, they can reduce the quality of the prices on which they are basing their trades.

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 Dark pools are private crossing networks, which perform the traditional role of a stock exchange and provide for a neutral gathering place at the same time.  Their participants submit orders to cross trades at prices, which are determined externally.

Thus they provide anonymous (“dark”) source of liquidity.

 Dark pools do not display quotes but execute transactions at externally provided prices.  Buyers and sellers must submit a willingness to transact at this externally provided price in

order to complete a trade.

 The key advantage of dark pools systems is that they are designed to prevent information leakage and offer access to undisclosed liquidity.

 Please watch this video for more information https://www.youtube.com/watch?v=hq9waP7goSc

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Program Trading

 This is simultaneous buying and selling of a large portfolio of high rated stocks with a significant aggregated value.

 Another understanding of programme trading refers to the use of computer system (Designated order turnaround (DOT)), which allows traders to send orders to many trading posts at the exchange.

 Program trading is used to reduce the susceptibility of stock portfolio to stock market movements, e.g. by selling a number of stocks which become overpriced, or by purchasing of stocks which become under-priced.

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 Critics of program trading state that it is one of the major reasons for decline or rise in the stock market and increased market volatility.

 Due to these concerns, stock exchanges implement collars which restrict program trading when a wide stock index changes (e.g. by 2

percent) from the closing index on the previous trading day.

 When the collars are imposed, program trading for the sell orders becomes allowed when the last movement in the stock price was up (or “uptick”).

 Conversely, when program trading is for the buy orders, it becomes allowed when the last movement in the stock price was down (or “downtick”). Such restrictions are supposed to half the stabilizing effect on the market.

Secondary Equity Market Structure38

The mechanism by which buyers and sellers interact to determine price and quantity of securities in the trade is called market structure.

Cash Market vs Forward Markets

 Cash markets stocks are traded on a cash basis and transactions have to be settled within a specified few days

period, typically, three days after the transaction.

 to increase the number of trades most cash markets allow margin trading.

 Margin trading allows the investor to borrow money or shares from a broker to finance the transaction.

 Forward markets  all transactions are settled at a predetermined day, e.g. at the end of a period (month).

 This is a periodic settlement system, in which a price is fixed at the time of the transaction and remains at this value in spite of market price changes by the settlement time.

 In order to guarantee a position, a deposit is required.

 Such a system does not prevent short-term speculation.

Secondary Equity Market Structure39

Continuous Markets and Auction Markets

 Continuous markets  transactions take place all day and market makers are ensuring market liquidity at moment.

 Dealer market  dealers publicly post bid and ask prices simultaneously, and these become firm commitments to make

transaction at the prices for a specific transaction volume.  Investors are addressing the dealers offering the best price (quote).

 Auction market  the supply and demand of securities are matched directly and the price is formed as an equilibrium price.

 An open outcry system allow brokers to negotiate loudly until price, which is an equilibrium of buy and sell orders, is

determined.

 Call auction  a method of determining the market price of a security by finding the price, which balances buyers and

sellers. Such price fixing takes place periodically each day at defined time.  In a call auction market all orders are put into an order book until an auction and are executed at a single

price. Liquidity requires that such trades take place one or several times during a day. Such trading procedures are aimed at defining the auction price that maximizes the trading volume.

Secondary Equity Market Structure40

Order-driven markets and Quote-driven markets

 Order – driven market – a market without active market makers, in

which buy and sell orders directly confront each other.  Typically order-driven trading systems are computerized. If all orders at a price cannot be

executed, a priority is given to the oldest order.

 Order driven markets are highly formalized as the auction rules for matching trades have. A group of stock exchanges worldwide (e.g. Paris, Frankfurt stock exchanges) use electronic order-driven systems, which allow all limit orders to be stored in the central order book.

 A new arriving order is immediately matched with the previously submitted orders from the order book. The trader can view all submitted orders and foresee what trades will be executed if a new order is entered. The highest limit order and the lowest limit order are in fact the bid and ask prices of the market. One of the examples of trading platform of the order-driven system is XETRA, used by Frankfurt stock exchange.

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 Quote-driven market structure or Price-driven market

 a market in which dealers (market makers) adjust their quotes continuously to reflect supply and demand. A typical quote-driven system is applied by NASDAQ

 This is a dealer market.

 Anyone who wants to trade in a quote-driven market must trade with a dealer. Either the investors negotiate with the dealers themselves or their brokers negotiate with the dealers.

 Quote-driven markets require little formal organisation, however require mechanisms for publishing the dealers’ price quotations and for regulating

the conduct of dealers.

 Stock exchanges usually provide the dealers or market makers with privileged access to certain administrative procedures or market information.

 In return for these privileges, dealers have particular obligations, i.e. to quote ‘firm’ bid and ask prices at which they guarantee to make trades of up to specified volumes.

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Hybrid markets

 Hybrid market structures are the ones, which have elements of, for example, quote driven and order-driven market structures.

 A market that integrates traditional floor trading with electronic auction trading has been developed by NYSE (US).

 Another example is Euro-next, which uses an order-driven trading system with a centralized electronic order book.  Euro-next also enables small and medium-sized listed companies to hire a designated

market maker to act as ‘liquidity provider’ in their stock.

 London Stock Exchange combines electronic order-driven trading with liquidity provision by market makers.

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 In reality quote-driven markets tend to be more fragmented.  Dealers quote different bid and ask prices, information on executed orders can be

made available with some delay. As a result, order-driven markets tend to be more transparent than quote-driven markets.

 Liquidity can be also different.  Investors can trade immediately in continuous order-driven markets, but have to

wait for the next price fixing in a call market.

 The price, however, depends on the availability of sufficient number of orders, i.e. liquidity.

 Thus investors may prefer to negotiate price individually with dealers in quote-driven markets.

 In quote driven markets information about transactions may be delayed also.