Overview: The Who and the Why
There are many different types of participants in the US equities market, each with distinct needs and objectives. Here we will focus on participants and trading mechanics involved in institutional trading.
Obviously, the stock market wouldn't exist if there were no public companies. It's common in the stock trading world to conflate the companies that issue stock (aka issuers) with the stock shares themselves.
When an issuer plans an IPO, it typically hires underwriters to be responsible for selling the initially offered stock; underwriters typically make some kind of committment to sell a particular amount of stock at the IPO price.
In the private equity world of companies whose stock is not publicly traded, the term "investors" typically refers to entities who purchase and hold shares in the company. But things are simpler in this context....
Trading venues are the entities who match orders to buy and sell stock, and execute the resulting trades. A more common phrasing for that would be: "trading venues are where buyers and sellers find each other, and trades take place."
A broker is a firm that facilitates trading on behalf of an investor. The brokers are collectively referred to as the "sell-side. "In the US equities market, only broker-dealers are allowed to participate directly on an exchange.
A large segment of the trading ecosystem is proprietary trading firms - companies that use their own capital to buy and sell securities directly in the market. By most estimates, these firms comprise roughly 50% of all trading volume in the US.
Technology vendors provide services that are useful (sometimes arguably required) for other participants.;tThe goal of a technology vendor is typically to maximize its revenue in the long-term, but this may be consistent with low pricing in the short-term.
Clearing / Back Office
After a buyer and a seller are matched on a trading venue, there are back office processes that need to be done. The buyer needs to pay the seller, and the seller needs to produce the security.
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