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Markets: exchange or over-the-counter

Markets: exchange or over-the-counter

Financial markets are complex organizations with their own economic and institutional structures that play a critical role in determining how prices are established—or “discovered,” as traders say. These structures also shape the orderliness and indeed the stability of the marketplace. As holders of subprime collateralized debt obligations and other distressed debt securities found out in the months following the August 2007 onset of the financial turmoil that led to the global economic crisis, some types of market arrangements can very quickly become disorderly, dysfunctional, or otherwise unstable. There are two basic ways to organize financial markets—exchange and over the counter (OTC)—although some recent electronic facilities blur the traditional distinctions […]