Third Market

The third market is a negotiated OTC market where institutional investors and broker-dealers buy and sell exchange-listed securities. Third market activities generally involve large institutional investors who buy and sell on their own behalf, rather than in an agency capacity. Securities traded in the third market are cheaper to execute, because they save on brokerage commissions.

The third market arose out of the fixed commission rate structure on the national exchanges, which prevailed until January 1975. Institutions such as mutual funds and pension funds increasingly sought to avoid high fixed commission rates by doing business directly with broker-dealers off the exchan