The securities once issued in primary market become the part of secondary market. It provides a place or mechanism for active trading of securities among investors themselves. The stock market is a secondary market, which aids to the liquidity of securities traded there on. When investors have to buy securities in secondary market, they have to contact the securities brokers for opening the account for purchase of securities. After the account has been opened, the securities broker conveys the order of investor to the securities dealers who handle the inventory of securities. There are two basic types of stock markets- organized stock exchange and over-the-counter market.
Organized stock exchange are the physical locations where securities are traded under some established rules and regulation through the license members of the exchange. It is one of the important secondary markets where the investors buy and sell the securities between themselves. Organized stock exchanges facilitate the trading of securities, which are listed in it. This means the securities, which are not listed, are not traded in organized stock exchange.
There are many organized stock exchanges around the world. One of the best known is New York Stock Exchange (NYSE), which deals with the trading of more than 50% of the volume of total shares traded in United States. Other well known exchanges are London Stock Exchange, Tokyo Stock Exchange, Hong Kong Stock Exchange. There can be more than one stock exchanges in a country, for example, Bombay Stock Exchange, Delhi Stock Exchange, Calcutta Stock exchange in India.
Over-the-counter (OTC) market was traditionally concerned with trading of securities which were not listed in an organized stock exchange. However, today the securities listed in organized stock exchange are also traded in OTC market. OTC market is an informal type of market for securities where no compulsory listing of securities is required. Any security can be traded on OTC market as long as a registered dealer is willing to make a market in the security (willing to buy and sell the security). It is not a central physical place like an organized stock exchange, rather it is the network of brokers and dealers scattered across the country. Buy ans sell in an OTC market are conducted through negotiated bidding through a network of communication line and computer system, which links brokers and dealers in o\OTC market to their clients. The brokers and dealers in OTC market can compete with both investment bankers and the organized exchanges because they can operate in both primary as well as secondary market. There is an international link of communication system used by the brokers and dealers in OTC market, which facilitates the investors for selection of most competitive market makers as opposed to being forced to trade with monopolistic market maker, National Association of Securities Automated Quotation System (NASDAQ) in the United States and Over-the-Counter Exchange India (OTCEI) in India are the examples of OTC market.