Legal Definitions - market intermediary

A market intermediary is a professional or organization whose primary business involves facilitating the buying and selling of financial assets, such as stocks, bonds, or other securities. They do this by engaging in transactions with both those who wish to sell and those who wish to buy, effectively acting as a bridge between different participants in the financial markets. Their role helps ensure that markets are liquid and that transactions can occur smoothly.

• Example 1: A Broker-Dealer Firm

  Imagine an individual who wants to sell 100 shares of Company X, and another individual who wants to buy 100 shares of Company X. A broker-dealer firm acts as the market intermediary. The firm might buy the shares from the seller and then immediately sell them to the buyer, or it might match the buyer's and seller's orders directly. In either scenario, the firm is involved in transactions on both sides of the market – facilitating the sale for one client and the purchase for another, thereby connecting the two parties.

• Example 2: A Market Maker on a Stock Exchange

  Consider a large institutional investor who needs to quickly sell a significant block of shares in a less frequently traded stock, but there aren't enough immediate buyers at their desired price. A market maker steps in as the intermediary. A market maker's business is to continuously quote both a "bid" (the price at which they will buy) and an "ask" (the price at which they will sell) for specific securities. In this situation, the market maker would buy the shares from the institutional investor (one side of the market) and then hold them in their inventory, hoping to sell them later to other investors (the other side of the market) at a slightly higher price. They provide essential liquidity by always being ready to transact.

• Example 3: An Investment Bank Underwriting a New Stock Offering

  When a technology startup decides to go public and issue new shares to raise capital, an investment bank often acts as an underwriter, serving as a market intermediary. The investment bank agrees to purchase all the newly issued shares directly from the startup company (one side of the market). The bank then resells these shares to various investors, such as mutual funds, pension funds, and individual investors (the other side of the market). By buying from the company and selling to the public, the investment bank acts as a crucial intermediary, facilitating the flow of new securities into the market.