posted on 06-06-2019

Third Market

Updated August 10, 2020
Written By
Paul Tracy

What is a Third Market?

The third market is an over-the-counter (OTC) market in which brokers and large institutional investors trade exchange-listed securities between one another.

How Does a Third Market Work?

The third market is an OTC venue in which brokers and institutional investors (e.g., insurance companies and mutual funds) trade securities listed and publicly traded on a registered exchange (e.g., NYSE or AMEX). Unlike most exchange trading, buyers and sellers in the third market trade with each other for the benefit of their own portfolios rather than in an agency capacity on clients' behalf.

Why Does a Third Market Matter?

The third market brings together large investors willing and able to purchase and sell their own securities holdings for cash and immediate delivery. Securities can be purchased at lower prices in the third market because of the absence of broker's commissions.