Procedures in negotiation floors in markets

Although the NYSE claims that auctions procedures in negotiation floors in markets have a favorable results in price to clients in more than a third of total negotiations market negotiation floors have loss some business before the negotiation market.

In a negotiators market negotiators make market with stocks from their own inventory and for that they use a computerized electronic system. Many negotiators can provide bid and ask prices for their own stocks. This way of negotiating takes place in the NASDAQ system for OTC negotiations. The National Association of Securities Dealers (NASD) implemented the National Association of Securities Dealers Automated Quotation (NASDAQ) system which allows subscribed brokerage firms get stock market prices within the system. When one buys or sells stocks one should allocate its order using a brokerage firm. The order is sent to the firm’s  Negotiations Department whom will start the search for the best buying price within the market makers stock list.

To cover the needs of different brokerage firms NASDAQ provides three market price levels:

• Level 1. This basic level provides a single market price for each type of stock.
• Level 2. This level provides instant market prices (bid and ask prices) over NASDAQ stocks from every stock list of all the different market-makers. A brokerage firm takes the investors order for a particular stock to search for a better price (the lowest ask price in cas eof buying and the highest bid price if selling) in the market prices..
• Level 3. This level is exclusively for market-makers and dealers and provides level 2 market prices and the ability to change them.

Many critics have been made in relation to the potential interest conflict between market-makers and dealers in respect to negotiations carried out at the OTC market.

That a brokerage firm is allowed to act simultaneously as an agent to its clients and as negotiator in their own interest could be considered a conflict of interests. Acting as an agent, an agent should be able to find the best prices fro his clients, but this responsibility is shadowed when the agent’s brokerage firm is also looking for their own profit over a closed business. You have no need now to look for more competitive and better prices if your brokerage firm can cover your order as a market-maker and therefore also cover tour expected profits.