2. the screens and can take some

2. Order-Driven Markets:

In the stock exchanges of Canada and many European countries ‘investors enter their limit orders into a computer which aggregates them into market-wide supply and demand schedules. At the opening (call), the system crosses supply and demand, which provides the opening price and already executes the highest possible volume of orders.

Unmatched orders remain displayed in a public limit-order book – computer screens, and remain there until they expire, are matched with a new order that came in later, or are withdrawn. The screens show quantities available for, for example, three or five different price levels at both sides of the fork or inside quote (the best buy and sell orders).

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Brokers see the screens and can take some of the outstanding orders when a customer wants them, or they can add/cancel orders, or match new buy and sell orders internally (in-house crossing) if this is possible at a price within the fork or big trades, close to fork; such in-house trades must traditionally be reported to the exchange, though.

Nowadays also customers can see the book, at a price. In Japan, “intermediaries” keep the book; they change the price to balance supply and demand, but like the bookmakers of old in Europe or Canada they do not in principle buy and sell themselves.

The main advantage of market making is that investors can quickly buy and sell large amount of shares; in order-driven systems, liquidity and immediacy can be poor if there is little interest in a particular stock.

Whereas, in case of bilateral market making, the aggregation of information is less perfect because – or, better perhaps, if – investors see only one market-maker’s quote and market makers see only a small part of demand and supply. Also, an order-driven market is very transparent since every move is recorded in the book.

3. Hybrid Markets:

The markets, like NYSE and AMEX (American Exchange), have market makers (called specialists) but also a limit-order book. ‘It must be added that the market-making part has dwindled to next-to-nothing in recent years.

Euronext is primarily organised as an order-driven market, but now has “liquidity providers” that undertake to continuously post bids and asks in the limit-order book so that investors can trade the securities at all times.

Deutsche Borse’s XETRA system is explicitly hybrid; tellingly, the version of XETRA run in Vienna is called EQOS (Electronic Quote and Order-Driven System). Also London’s SETS is hybrid.’

Clearing and settlement:

All contracts are being run through a Central Counterparty (CCP), who takes over the counterparty default risk, the idea borrowed from futures exchanges. Settlement requires the help of a central security depository (CSD), which holds the bearer shares and keeps a register of who currently owns the shares, or which acts as letterbox for the issuer’s registrar of shareholders.

Same share is not always tradable in two or more places, because of securities law of particular country. The shares may be bearer shares (anonymous pieces of shares) or registered shares (shareholders registered in the company’s register of shareholders). In the stock exchanges of the US the share certificate in a non-US company is called American depository receipt, which is a dollar- denominated negotiable certificate.

Such ADRs were invented by J. P. Morgan Chase. The structure of an ADR includes a ratio, which tells us how many underlying shares are represented by one receipt. An ADR can be cancelled and exchanged for its underlying shares at anytime. ADR is different from a New York share in terms of flexibility and reporting requirements. ADR comes in three versions (called levels).

Table 11.8: ADR Programmes by type:

Level ILevel IILevel IIIPPGDE
Public Offering Level IIIPrivate Placement Rule 144A ADRGlobal


DescriptionUnlisted program in the U.S.Listed on a U.S. exchangeShares offered and listed on a U.S. exchangePrivate placement to Qualified Institutional BuyersGlobal offering of securities outside issuer’s home market

U.S. exchanges




U.S. private placement marketNon U.S. exchanges
SEC RegistrationRegister under Form F-6Register under Form F-6Register under Forms F-1 and F-6NoneVaries depending on structure of the U.S offering
U.S. Reporting RequirementsExempt under Rule 12g3-2(b)Form 20-FForm 20-FExempt under Rule 12g3-2(b)Varies depending on structure of the U.S. offering

A Global Depository Receipt is the reverse of an ADR. A US share gets converted into a version traded outside the US. GDRs lose their US-security status. Global Depository Receipts (sometimes spelled “Global Depositary Receipts”), or simply GDRs, were developed on the basis of American depositary receipts (ADRs), to securitize the ownership in shares.

GDRs are, in simple terms, securities that represent an underlying foreign share. Global Depository Receipts are traded instead of the original shares on exchanges worldwide. The benefit is that, once the Global Depository Receipt is established, it can then be traded on any stock exchange in the world. If the currency is euros, the instrument is known as EDR (European Depository Receipt).