Market structure

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Market Structure is a term used to describe the organization, mechanisms, and rules that govern the functioning of financial markets. It encompasses various aspects of market operations, including the types of securities traded, the participants involved, the trading platforms, and the regulatory framework. Market structure is a crucial element that defines how securities are bought and sold, how prices are determined, and how information flows within financial markets.[1]

Equity Markets[edit]

Definition: In equity markets, also known as stock markets, market structure refers to the arrangement and infrastructure that govern the trading of ownership shares in publicly traded companies. Key components of equity market structure include:

Exchanges: Equity trading typically occurs on organized stock exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. These exchanges provide the platforms where buyers and sellers can execute trades.

Order Types: Equity markets offer various order types, including market orders, limit orders, and stop orders. These order types determine how trades are executed and at what prices.

Market Participants: Equity markets involve a wide range of participants, including retail investors, institutional investors, market makers, and high-frequency traders. Each group plays a distinct role in shaping market dynamics.

Regulatory Framework: Equity markets are subject to regulations designed to ensure fairness, transparency, and investor protection. Regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC), oversee these markets.

Derivatives Markets[edit]

Definition: Derivatives markets encompass a wide range of financial instruments whose values are derived from underlying assets, such as stocks, bonds, commodities, or indices. Market structure in derivatives markets involves:

Exchanges and Over-the-Counter (OTC) Markets: Derivatives can be traded on organized exchanges like the Chicago Mercantile Exchange (CME) or in OTC markets, where contracts are customized and negotiated directly between parties.

Clearing and Settlement: Central clearinghouses play a crucial role in derivatives market structure by ensuring the proper execution, risk management, and settlement of derivative contracts.

Market Participants: Participants include hedgers looking to manage risk, speculators seeking profit opportunities, and market makers who provide liquidity. Derivatives markets often attract a diverse set of players due to their versatility.

Regulatory Oversight: Derivatives markets are subject to regulatory oversight, with agencies like the Commodity Futures Trading Commission (CFTC) in the United States overseeing futures and options markets.

Capital Markets[edit]

Definition: Capital markets encompass a broader category that includes both equity and debt markets. These markets are essential for raising capital and facilitating investments. Key aspects of capital market structure include:

Securities Issuance: Capital markets provide a platform for companies and governments to issue securities, such as stocks and bonds, to raise funds for various purposes, including expansion and infrastructure development.

Investor Base: Capital markets cater to a diverse investor base, ranging from retail investors to large institutional investors like pension funds and asset management firms.

Primary and Secondary Markets: The primary market involves the issuance of new securities, while the secondary market involves the trading of previously issued securities among investors. Both segments are essential components of capital market structure.

Regulatory Framework: Capital markets are subject to extensive regulatory oversight, with regulatory authorities ensuring compliance with securities laws and investor protection measures.


  1. SEC Proposals: Market Structure. U.S. Securities and Exchange Commission.