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40-490: However, Instinet is best known for being the first off-exchange trading alternatives, with its "green screen" terminals prevalent in the 1980s and 1990s, and as the founder of electronic communication networks , Chi-X Europe and Chi-X Global. According to industry research group Markit, in 2015 Instinet was the 3rd-largest cash equities broker in Europe. Instinet was founded by Jerome M. Pustilnik and Herbert R. Behrens and

80-436: A choice of many electronic trading platforms rather than being restricted to one institution's offering. In 1995, the U.S. Securities and Exchange Commission (SEC) promulgated Rule 17a-23, which required any registered automated trading platform to report information, including participants, orders, and trades every quarter. Requiring platforms to comply with enhanced pre- and post-trade transparency requirements has provided

120-601: A multi-asset investment company eToro was founded, focusing on copy trading , social trading , and other types of trading services. In 2017, the bitcoin exchange Binance was founded. Trading systems evolved to allow for live streaming prices and near instant execution of orders as well as using the internet as the underlying network meaning that location became much less relevant. Some electronic trading platforms have built-in scripting tools and even APIs allowing traders to develop automatic or algorithmic trading systems and robots. The client graphical user interface of

160-532: A narrow range of quantity, quality, and identity which is defined by the exchange and identical to all transactions of that product. This is necessary for there to be transparency in stock exchange-based equities trading. The OTC market does not have this limitation. Parties may agree on an unusual quantity, for example in OTC, market contracts are bilateral (i.e. the contract is only between two parties), and each party could have credit risk concerns with respect to

200-482: A proprietary trading system that represented an improvement of their displayed prices. Another order handling rule required a market maker to display the size and price of any customer limit order that either increased size at the quoted price or improved the market maker's quotation. Decimalization was instituted in 2001 by the SEC, requiring market makers to value financial instruments by increments of $ 0.01 as opposed to

240-501: A result of Lupien's refocusing of Instinet (which the business was renamed in 1985), the firm grew rapidly in the mid-1980s. During the Crash of 1987 electronic trading system allowed trading when brokers and market makers were unwilling to answer their phones during the free-fall. Reuters , which in 1985 had acquired a portion of the firm, acquired the entire business in May 1987, though under

280-472: A stronger incentive for users to trust electronic trading platforms. Market fragmentation led some Nasdaq market makers on Instinet to quote prices that were better than their own quotes on Nasdaq. To address this discrepancy, the SEC introduced the Order Handling Rules in 1996. These rules required stock exchange specialists and Nasdaq market makers to publicly display any price quoted on

320-477: Is a bilateral contract in which two parties (or their brokers or bankers as intermediaries) agree on how a particular trade or agreement is to be settled in the future. It is usually from an investment bank to its clients directly. Forwards and swaps are prime examples of such contracts. It is mostly done online or by telephone. For derivatives , these agreements are usually governed by an International Swaps and Derivatives Association agreement. This segment of

360-542: The International Swaps and Derivatives Association examined OTC Derivative Bilateral Collateralization Practice as one way of mitigating risk. OTC derivatives are a significant part of the world of global finance. The OTC derivatives markets grew exponentially from 1980 through 2000. This expansion has been driven by interest rate products, foreign exchange instruments and credit default swaps. The notional outstanding of OTC derivatives markets rose throughout

400-573: The OTCQX stocks (traded through the OTC Market Group Inc). Other OTC stocks have no reporting requirements, for example Pink Sheets securities and "gray market" stocks. However, in 2021, the pink sheets market came under the spotlight of greater regulatory scrutiny. Some companies, with Wal-Mart as one of the largest, began trading as OTC stocks and eventually upgraded to a listing on fully regulated market. By 1969 Wal-Mart Stores Inc.

440-643: The 1970s, financial transactions started to migrate to electronic trading platforms. Platforms and trading venues included electronic communication networks , alternative trading systems , " dark pools " and others. The first electronic trading platforms were typically associated with stock exchanges and allowed brokers to place orders remotely using private dedicated networks and dumb terminals . Early systems would not always provide live streaming prices and instead allowed brokers or clients to place an order which would be confirmed some time later; these were known as ' request for quote ' based systems. In 1971, Nasdaq

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480-417: The OTC market is occasionally referred to as the " Fourth Market ". Critics have labelled the OTC market as the "dark market" because prices are often unpublished and unregulated. Over-the-counter derivatives are especially important for hedging risk in that they can be used to create a "perfect hedge". With exchange traded contracts, standardization does not allow for as much flexibility to hedge risk because

520-468: The Sherwood Group, as president and Chief Operating Officer and David N. Rosensaft as Vice President (later SVP) of New Products Development. Rittereiser later depqrted to becme CEO of First Jersey and was replaced by Joseph Taussig as COO. Together, they successfully introduced many innovations which made Instinet an integral tool for traders on both the "buy" and "sell" sides of the market. As

560-520: The United States to Instinet, with the goal of eventually making it the electronic trading arm for all of Nomura. However, in September 2012, Nomura announced that it would instead make Instinet its execution services (cash, program and electronic trading) arm in all markets globally excluding Japan. Instinet is credited with several firsts in electronic trading. In addition to launching one of

600-647: The United States, over-the-counter trading in stock is carried out by market makers using inter-dealer quotation services such as OTC Link (a service offered by OTC Markets Group ). Although exchange-listed stocks can be traded OTC on the third market , it is rarely the case. Usually OTC stocks are not listed nor traded on exchanges, and vice versa. Stocks quoted on the OTCBB must comply with certain limited U.S. Securities and Exchange Commission (SEC) reporting requirements. The SEC imposes more stringent financial and reporting requirements on other OTC stocks, specifically

640-407: The ability to profit from OTC derivatives activities and financial markets participants benefitted from them. In 2000 the authors acknowledged that the growth in OTC transactions "in many ways made possible, the modernization of commercial and investment banking and the globalization of finance". However, in September, an IMF team led by Mathieson and Schinasi cautioned that "episodes of turbulence" in

680-524: The automated buying and selling of equity securities on an anonymous, confidential basis. Uptake of the platform was slow through the 1970s, and in 1983 Instinet turned to William A. "Bill" Lupien, a former Pacific Stock Exchange specialist, to run the company. Bill Lupien decided to market the system more aggressively to the broker community, rather than focus exclusively on the buyside as his predecessors had. To expand its market, Lupien brought on board Fredric W. Rittereiser, formerly of Troster Singer and

720-420: The contract is a one-size-fits-all instrument. With OTC derivatives, though, a firm can tailor the contract specifications to best suit its risk exposure. OTC derivatives can lead to significant risks. Especially counterparty risk has gained particular emphasis due to the credit crisis in 2007 . Counterparty risk is the risk that a counterparty in a derivatives transaction will default prior to expiration of

760-404: The current market price . In an OTC trade, the price is not necessarily publicly disclosed. OTC trading, as well as exchange trading, occurs with commodities , financial instruments (including stocks ), and derivatives of such products. Products traded on traditional stock exchanges, and other regulated bourse platforms, must be well standardized. This means that exchanged deliverables match

800-457: The deal Instinet would remain an independent, New York-based subsidiary. Lupien and then COO Murray Finebaum would resign shortly thereafter. Under Reuters, the Instinet platform continued to grow through the late 1980s and into the early 1990s. By the time that the U.S. Securities and Exchange Commission introduced the Order Handling Rules and alternative trading systems (ATS) regulation in

840-414: The electronic trading platforms could be used to place various orders and were also sometimes called trading turrets (though this may be a misuse of the term, as some refer to the specialized PBX phones used by traders). During the period from 2001 to 2005, the development and proliferation of trading platforms saw the setting up of dedicated online trading portals, which were electronic online venues with

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880-432: The end of 2012 totalled US$ 346.4 trillion . The Bank for International Settlements statistics on OTC derivatives markets showed that "notional amounts outstanding totalled $ 693 trillion at the end of June 2013... The gross market value of OTC derivatives – that is, the cost of replacing all outstanding contracts at current market prices – declined between end-2012 and end-June 2013, from $ 25 trillion to $ 20 trillion." In

920-399: The exception of large, established foreign firms". Reputable companies located outside the U.S., he notes, sometimes sell stock over-the-counter to gain access to American markets while avoiding the expense of keeping two sets of audited paperwork to be listed on multiple stock exchanges (one in their homeland or to international standards, and one for American standards). An over-the-counter

960-475: The firm from Silver Lake for a reported $ 1.2 billion. Instinet is today operated as an independent subsidiary of Nomura and run by CEO Ralston Roberts. In December 2009, in commemoration of its 40th anniversary, Instinet worked with the Make-a-Wish Foundation to grant wishes to 40 children with life-threatening illnesses. In May 2012, Nomura announced that it would transfer electronic trading in

1000-610: The firm's market share. As a result, Instinet in 2002 merged with the Island ECN , renaming the Island technology platform Inet . Reuters went on to IPO Instinet in 2001 keeping a 62% ownership stake. It would hold this until the 2005 acquisition of Instinet by NASDAQ in 2005, in which Nasdaq retained the INET ECN and subsequently sold the agency brokerage business to Silver Lake Partners . In February 2007, Nomura purchased

1040-436: The first electronic trading platforms in 1969, Instinet developed: Over-the-counter (finance) Over-the-counter ( OTC ) or off-exchange trading or pink sheet trading is done directly between two parties, without the supervision of an exchange . It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity , providing transparency, and maintaining

1080-435: The late 1990s "revealed the risks posed to market stability originated in features of OTC derivatives instruments and markets. Electronic trading platform In finance, an electronic trading platform also known as an online trading platform , is a computer software program that can be used to place orders for financial products over a network with a financial intermediary . Various financial products can be traded by

1120-530: The late 1990s. In 1992, Instinet expanded internationally. Douglas Atkin led the effort and by 1998 Instinet was operating in over 20 world markets and had grown revenues to approximately $ 100 million. Instinet was the dominant electronic communication network . However, these rules also gave rise to new competitors, some of whom employed new pricing schemes. By the early 2000s, these competitors, helped by missteps at Instinet that included rapid expansion, over-spending and slow uptake of technology, had managed to erode

1160-436: The market. E-Trade , a company that started as an online brokerage service, soon also launched its own platform aimed at the consumer. These platforms rapidly gained popularity with E-Trade's growth rate at 9% per month in 1999. In the late 2000s, with the emergence of digital tools, a new generation of investment companies started to appear, which began to offer services to assist non-professional investors in trading. In 2007,

1200-437: The other party. The OTC derivative market is significant in some asset classes: interest rate , foreign exchange , stocks , and commodities . In 2008, approximately 16% of all U.S. stock trades were "off-exchange trading"; by April 2014, that number increased to about 40%. Although the notional amount outstanding of OTC derivatives in late 2012 had declined 3.3% over the previous year, the volume of cleared transactions at

1240-552: The period and totalled approximately US$ 601 trillion at December 31, 2010. In their 2000 paper by Schinasi et al. published by the International Monetary Fund in 2001, the authors observed that the increase in OTC derivatives transactions would have been impossible "without the dramatic advances in information and computer technologies" that occurred from 1980 to 2000. During that time, major internationally active financial institutions significantly increased

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1280-800: The previous standard of $ .0625. This change significantly lowered margins, providing an incentive for big dealers to utilize electronic management systems and eventually leading to lowered trading costs. Electronic trading platforms frequently provide historical data, including graphs, to help their customers make trading decisions. These diagrams may be expanded to contain a large number of dates and are frequently employed in technical analyses of particular instruments. To help consumers make decisions about their contracts, trading platforms frequently include recent news. Articles on certain businesses may be included, as well as updated ratings provided by independent companies that focus on particular commodities. The same information that professional traders have access to

1320-492: The share of their earnings from derivatives activities. These institutions manage portfolios of derivatives involving tens of thousands of positions and aggregate global turnover over $ 1 trillion. At that time prior to the financial crisis of 2008, the OTC market was an informal network of bilateral counter-party relationships and dynamic, time-varying credit exposures whose size and distribution tied to important asset markets. International financial institutions increasingly nurtured

1360-594: The surge in Retail Investing. The term 'trading platform' is generally used to avoid confusion with ' trading system ' which is more often associated with the trading method or strategy than the computer system used to execute orders within financial circles. In this case, platform is used to mean a type of computing system or operating environment such as a database or other specific software. Financial transactions had traditionally been handled manually, between brokers or counterparties. However, starting in

1400-782: The term trading platform is also used in reference to the trading software alone. Electronic trading platforms typically stream live market prices on which users can trade and may provide additional trading tools, such as charting packages, news feeds and account management functions. Some platforms have been specifically designed to allow individuals to gain access to financial markets that could formerly only be accessed by specialist trading firms using direct market access . They may also be designed to automatically trade specific strategies based on technical analysis or to do high-frequency trading . Electronic trading platforms are usually mobile-friendly and available for Windows, Mac, Linux, iOS and Android, making market entry easier and helping with

1440-476: The trade and will not make the current and future payments required by the contract. There are many ways to limit counterparty risk. One of them focuses on controlling credit exposure with diversification , netting , collateralisation and hedging . Central counterparty clearing of OTC trades has become more common in recent years, with regulators placing pressure on the OTC markets to clear and display trades openly. In their market review published in 2010,

1480-563: The trading platform, over a communication network with a financial intermediary or directly between the participants or members of the trading platform. This includes products such as stocks , bonds , currencies , commodities , derivatives and others, with a financial intermediary such as brokers , market makers , Investment banks or stock exchanges . Such platforms allow electronic trading to be carried out by users from any location and are in contrast to traditional floor trading using open outcry and telephone-based trading. Sometimes

1520-549: Was created by the National Association of Securities Dealers and operated entirely electronically on a computer network. Nasdaq was opened on 8 February 1971. It rapidly gained popularity and by 1992, it accounted for 42% of trade volume in the US. With the advent of electronic financial markets, electronic trading platforms were also soon launched. In 1992, Globex became the first electronic trading platform to reach

1560-539: Was incorporated in 1969 as Institutional Networks Corp. The founders aimed to compete with the New York Stock Exchange by means of computer links between major institutions, such as banks, mutual funds, and insurance companies, with no delays or intervening specialists. Through the Instinet system, which went live in December 1969, the company provided computer services and a communications network for

1600-620: Was incorporated. In 1972, with stores in five states, including Arkansas, Kansas, Louisiana, Oklahoma and Missouri, Wal-Mart began trading as over-the-counter (OTC) stocks. By 1972 Walmart had earned over US$ 1 billion in sales — the fastest company to ever accomplish this. In 1972 Wal-Mart was listed on the New York Stock Exchange (NYSE) under the ticker symbol WMT. In Kiplinger in 2017, Dan Burrows wrote that American OTC markets are rife with penny stock fraud and other risks, and should generally be avoided by investors "with

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