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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Little Board

What it is:

The Little Board is a nickname for the American Stock Exchange (AMEX).

The AMEX is a stock and options exchange in New York. The AMEX was called the New York Curb Market until 1953 because it started on the street near the New York Stock Exchange. In 1998, the National Association of Securities Dealers purchased the AMEX and operates it separately from the NASDAQ exchange.

How it works (Example):

Though not as large as the New York Stock Exchange (NYSE), the Little Board is a large exchange that serves as a market for equities, a variety of options and other derivatives, American Depository Receipts (ADRs), exchange-traded funds (ETFs), and other  financial instruments. The first ETFs traded on the Little Board in 1993.

Trading on the Little Board
When an investor wishes to buy or sell a security listed on the AMEX, he or she "places a trade" or an "order" by calling her broker or going to her online trading account. In either case, the order goes to a broker, who can get the order to the exchange several ways -- through a regional exchange, electronic communications network, or directly to the AMEX. Either way, the order eventually reaches the floor of the AMEX where floor brokers and specialists handle transactions.

Floor Brokers
Floor brokers execute buy and sell orders on behalf of their clients or the firms they work for. If you wanted to sell some shares of Company XYZ, for example, you might call your broker down the street and place a sell order. Your broker might in turn route the order to one of his firm's floor brokers who are actually on the floor of the exchange. The floor broker approaches the Company XYZ specialist (see below) and executes the trade. Some floor brokers are independent, meaning that they are not employed by any brokerage firm, but provide services to brokerage firms (i.e., they work for themselves). In either case, floor brokers are the people doing most of the shouting on the trading floor.

Being a floor broker requires owning a seat on the Little Board. A seat allows a person to trade on the floor of the exchange, either as an agent for someone else or for their own personal accounts (in which case, the person is called a floor trader).

Specialists
Although most buy and sell orders are matched electronically, specialists also match up brokers' buy and sell orders, and each specialist specializes in certain listed securities.

A specialist has four roles. First, he is the principal; that is, he is the primary party to a transaction, and his customers' interests come before his own. He must be willing to buy and sell out of his own inventory to steady the market if there is a buying frenzy or a huge sell-off. Second, he is an agent: He places orders on behalf of his clients and ensures that they get the best price as fast as possible. Third, he is a catalyst: He reports the prices of his securities in a timely manner and he sets the opening bid prices of his securities every morning based on supply and demand. Fourth, the specialist is an auctioneer; that is, he must disclose what the best buying and selling prices are and ensure that orders are transacted properly.

The Little Board does not employ specialists. Rather, each specialist works for one of a handful of companies.

AMEX Regulation
The Little Board is registered as a self-regulatory organization with the Securities and Exchange Commission (SEC). Thus, the SEC and a variety of federal laws require the Little Board to have rules that prevent fraud, manipulative practices and fair trading activity as well as investor protections. The Little Board also must enforce its rules, SEC regulations and any other laws that affect its business or trading activity.

Why it Matters:

In general, the Little Board has a reputation for having more liberal listing requirements than the NYSE. For example, initial public offerings must have a market capitalization of at least $60 million to be considered for listing by the NYSE; the Little Board only requires $3 million to $20 million (the AMEX has four sets of listing standards). As a result, the Little Board is often home for smaller issuers and more unique securities than other exchanges.

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