Investments, tenth edition

  Bond Trading 

 In 2006, the NYSE obtained regulatory approval to expand its bond-trading system to 

include the debt issues of any NYSE-listed firm. Until then, each bond needed to be regis-

tered before listing, and such a requirement was too onerous to justify listing most bonds. 

In conjunction with these new listings, the NYSE has expanded its electronic bond-trading 

platform, which is now called NYSE Bonds and is the largest centralized bond market of 

any U.S. exchange. 

 Nevertheless, the vast majority of bond trading occurs in the OTC market among bond 

dealers, even for bonds that are actually listed on the NYSE. This market is a network of 

bond dealers such as Merrill Lynch (now part of Bank of America), Salomon Smith Barney 

(a division of Citigroup), and Goldman Sachs that is linked by a computer quotation 

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system. However, because these dealers do not carry extensive inventories of the wide 

range of bonds that have been issued to the public, they cannot necessarily offer to sell 

bonds from their inventory to clients or even buy bonds for their own inventory. They 

may instead work to locate an investor who wishes to take the opposite side of a trade. In 

practice, however, the corporate bond market often is quite “thin,” in that there may be few 

investors interested in trading a specific bond at any particular time. As a result, the bond 

market is subject to a type of liquidity risk, for it can be difficult to sell one’s holdings 

quickly if the need arises.    

    3.6 

Globalization of Stock Markets 

   Figure 3.8  shows that NYSE-Euronext is by far the largest equity market as measured by the 

total market value of listed firms. All major stock markets today are effectively electronic.     

 Securities markets have come under increasing pressure in recent years to make inter-

national alliances or mergers. Much of this pressure is due to the impact of electronic 

trading. To a growing extent, traders view stock markets as computer networks that link 

them to other traders, and there are increasingly fewer limits on the securities around 

the world that they can trade. Against this background, it becomes more important for 

exchanges to provide the cheapest and most efficient mechanism by which trades can be 

executed and cleared. This argues for global alliances that can facilitate the nuts and bolts 

of cross-border trading and can benefit from economies of scale. Exchanges feel that they