What Is an Orderly Market?
Let me explain what an orderly market is: it's any market where supply and demand are reasonably equal, putting it in a state of equilibrium. You can think of it as a site for exchanging goods, services, or financial securities that's fair, reliable, secure, accurate, and efficient. These orderly markets directly contribute to economic growth.
Key Takeaways
- An orderly market covers goods, services, or financial securities where supply and demand are reasonably equal.
- It's in a state of equilibrium.
- When trading is fair, reliable, secure, accurate, and efficient, these markets support economic growth.
Understanding an Orderly Market
In an orderly market, you'll see stable and competitive prices that reflect the true value of the good or service. For securities markets, the stock exchange's market surveillance team of specialists handles ensuring this order. They step in with their own capital when there aren't enough buyers or sellers, which helps cut down on market volatility. On the flip side, a disorderly market might involve market manipulation, insider trading, or other violations.
Exchange rules stop specialists from trading ahead of investors who've placed orders at the same price for buying or selling a security. If the market gets disorderly, investors might lose confidence and stop participating. The Federal Reserve also works to promote orderly market functioning by ensuring there's enough liquidity.
Examples of an Orderly Market
When a catalyst threatens an orderly market, various players step up to maintain it. Take June 23, 2016, when the U.K. voted to leave the European Union— that's the Brexit vote. The chief operating officer of the New York Stock Exchange, Stacey Cunningham, stayed up all night calming Wall Street money managers and traders.
The Brexit referendum could have harmed the U.S. equities market, but Cunningham reassured agents and stockholders that the NYSE's trading model would stabilize and protect the capital of listed companies.
By design, NYSE's designated market makers closely monitor markets and use their own capital to minimize disruptions and create price efficiency, especially in volatile times. The morning after, these market makers adjusted opening prices to better match actual supply and demand amid global uncertainty from the EU political upset.
In assessing this event, the NYSE claims superiority over Nasdaq in maintaining orderly markets during global economic stress. Separately, the rise of Fintech has sparked new discussions on keeping markets orderly. In 2017, Nasdaq hosted the EU Parliament, the European Commission, the European Securities and Markets Authority, and others for talks on Fintech's role in fair and orderly markets. The key takeaway was the need for more collaboration and openness between capital-market players and the Fintech industry.
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