It is instructive to have a glimpse into the leading stock markets abroad.
Stock Market in the US:
The two largest stock exchanges in the US, as well as the world, are the New York Stock Exchanges (NYSE) and the NASDAQ.
New York Stock Exchange: The World’s biggest stock exchange in terms of market capitalization, the NYSE has fairly listing requirements which seeks to ensure that only large financially strong companies get listed.
Trading on the NYSE takes place through a system of brokers and specialists. Brokers serve as a link between the investors and the market. Specialists play a dual role: (1) They match, buy and sell orders when prevailing prices permit them to do so(2) They buy and sell stocks on their own account when they cannot match customer orders.
NASDAQ: NASDAQ is short form for National Association of Securities Dealers Automated Quotations System. While the market capitalization of NASDAQ is less than that of NYSE, NASDAQ is the biggest exchange of the world in terms of turnover. The success of NASDAQ is mainly due to investors in technology stocks, a high proportion of which has been listed on this exchange. For example, technology heavyweights like Cisco, Intel, and Microsoft have their Iisting only on NASDAQ. The light listing requirements of NASDAQ attracts young technology companies and the low listings costs at NASDAQ keeps them with that exchange when they have grown.
NASDAQ is a dealer market which has substantial human involvement. Market makers post the prices at which they are willing to buy and sell on the screens of brokers, who in turn choose among competing marketeters to handle the desired trade.
Over 500 market makers compete to take markets in over 5000 issues via a screen based system of competing quotes. NASDAQ requires that all listed stocks must have at least two market makers. The average number of market makers per stock is about 10 and some of the large capitalization stocks have about 40 market makers. Yet, there is a criticism that there is inadequate competition among market makers, particularly for small capitalization.
Stock Market in the UK:
The stock market in the UK underwent a radical reform in 1986, referred to popularly as the big bang which led to the amalgamation of all the exchange in UK and Ireland into the international Stock exchange of UK and Ireland headquarters in London . This has led to the emergence of a single electronic national market of UK and the closure of regional exchanges. Investors can access this market through local brokers or local branches of national brokers. Equities are traded on this market using the Stock Exchange Automatic Quotation (SEAQ) system. A quote driven system or the Stock Exchange Automatic Execution Facility (SEAF) is an ‘order-driven’ system. Under the quote driven mechanism, market makers provide two way quotes via SEAQ. Based on these quotes, market participants contact the market makers to negotiate and trade. Under the order driven mechanism clients give their orders to brokers which are fed to the SAEF. These are automatically executed according to certain rules.
Informed observers believe that the big bang has veritably transformed the stock market in the UK. It has led to significant improvement in terms of turnover, liquidity, amount of capital raised and lowering of the bid-ask spread. Volatility however has not changed.
Stock Market in Japan:
The Tokyo Stock Exchange (TSE) is the dominant stock exchange in Japan, accounting for about four-fifths of total trading. The TSE divides stocks into two sections. The First Section consists of about 1200 most actively traded stocks; the Second Section consists of about 400 less actively traded stocks. Trading in the larger stocks of the First Section occurs on the floor of the exchange. The remaining stocks of the First Section and the Second Section are traded electronically.
The TSE relies on saitories who match orders but do not trade on their own account. A saitori maintains a public limit order book, matches market and limit orders, and slows down price movements when simple matching of orders would result in price changes greater than what is prescribed by the exchange.