Question

Secondary Market.
a. Is NASDAQ a specialists market or a dealers market? (1 point)
b. And briefly point out the major difference between a specialists and
dealers market. (4

Answer 1

In the primary market, investors buy securities directly from the company issuing them, while in the secondary market, investors trade securities among themselves

Nasdaq is a dealer market. The Nasdaq has an average of 14 market makers per stock

A dealer market is a financial market mechanism wherein multiple dealers post prices at which they will buy or sell a specific security of instrument.

A specialist holds an inventory of the particular stock, posts the bid and ask prices, manages limit orders and executes trades. If there is a large shift in demand on the buy or sell side, the specialist steps in and sells off his own inventory as a way to manage large movements and to meet the demand until the gap between supply and demand narrows.

A market maker in a dealer market stakes its own capital to provide liquidity to investors. The primary mode of risk control for the market maker is therefore the use of the bid-ask spread, which represents a tangible cost to investors.