7.1.1.2 Negotiated Market
The negotiated market refers to the decentralized buying and selling of securities without one central market maker. The negotiated market includes both over-the-counter securities and the Nasdaq. Instead of a physical place with a single market maker, the negotiated market consists of electronic systems connecting multiple market makers who post competing bid and ask prices online. Orders are filled either automatically, with the computer matching the best quotes first, or by private negotiation. The negotiated market is composed of exchange-listed securities that trade on the Nasdaq stock exchange and securities that trade on over-the-counter markets, such as the Pink Sheets (now called OTC Link).
Nasdaq, the second largest stock exchange in the world by market capitalization, is a hybrid market that trades in both listed and OTC stocks. Nasdaq stands for National Association of Securities Dealers Automated Quotation System. It operates as a negotiated market but is registered as an exchange; its network of computers substitutes for a centralized trading floor. To be traded on the Nasdaq, an issuer must meet listing requirements, including SEC registration, and there must be at least three market makers for that security. Nasdaq market makers must agree to offer a firm bid and ask for the securities they are making a market in.
Nasdaq’s standard trading hours are 9:30 a.m. to 4:00 p.m., the same as the NYSE; however, Nasdaq also offers “pre-market” hours from 4:00 a.m. to 9:30 a.m. and “post-market” hours from 4:00 p.m. to 8:00 p.m. ET.
Exchange-listed securities may also be traded OTC. Securities that do not meet the listing requirements of Nasdaq and mainly trade OTC may be referred to on the exam as non-Nasdaq OTC securities. The OTC Link (Pink Sheets) is an electronic quotation system whose securities do not have to be registered with the SEC, although several are. Securities that trade OTC are typically of