Syndicate
Circular Market or Out Loud Negotiations
Since the birth of the stock exchange markets, the ways of trading evolved until reaching the circular market system. In these, the agents that negotiated with different securities would do the trading during a lapse of time, generally very short, to quote after, in this same space, another security.
As said before, this system is still used at some stock exchange markets in the world, be it in a majority way as in the NYSE or in a less representative ways in others.
On the following, and in a general way, the characteristics of such cases: At the New York stock exchange market (NYSE). All the negotiations take place in circular markets: the NYSE uses a circular market as a physical place in which to quote or cross operations and in which only members can operate, that is, the owners of the market (they are usually investment banks).
Today, all negotiations of any type of security are done through specialists or specialists of the circular market corresponding to a type of security. The specialist is an agent that only exists in the NYSE. He can act on his own and on account of others (including other brokers or intermediaries).
The figure of the specialist only appears by the necessity of economies. For example, lets suppose that the last crossing of shares of general motors was at $74. Before this the investor decides too order to its broker to buy general motors at $73. = If there wouldn’t exit an specialist, such broker would have to go to by its own around the place to try to find someone willing to sell at $73. =. This is very inefficient. So there is an incentive to designate someone to whom my broker may transmit my order of buying and that, he will well cross with others he already has, or that he will maintain for future crossing, for each broker for having to find a counterpart.
The specialist registers in its site al the orders he receives plus the ones he introduces on its own. He is subject to a series rules but at the same time he enjoys of certain benefits that makes it worth to work as a specialist.
Apart from the negotiation in circular markets, the NYSE also regulates the mechanism for executing operations between members outside the market. This is called negotiations of blocks (big packages of shares) and it is done on the upstairs market.