How a Securities Trade is implemented

Securities transactions take place either on an exchange or in the over-the-counter (OTC) market. While the purpose of both is to match securities buyers and sellers, the way that they carry this out is very different. For instance, let's look first at the country's oldest and most prestigious exchange, the New York Stock Exchange (NYSE).
When a customer wants to buy or sell a stock that trades on the NYSE, he or she places an order with a firm that's a member of the exchange. Only member firms can transact business on the exchange. Being a member of an exchange is referred to as "owning a seat" on that exchange. The customer's order is transmitted electronically to the floor clerk at the firm's clerk booth. The floor clerk gives the order to a floor broker who proceeds out to the trading post (the specific location on the trading floor where that particular stock is traded). Each stock trades at only one trading post on the exchange floor.
At the trading post, the floor broker will attempt to execute the client's order. The order can be executed either with a floor broker from another firm or with the specialist who is responsible for maintaining an orderly market in that stock. For example, let's assume that the floor broker for ABC Securities has an order to purchase 5,000 shares of Microsoft stock. When the floor broker arrives at the Microsoft trading post, if a floor broker from another firm has 5,000 or more shares for sale, the two would negotiate a price and complete the transaction. (With actively traded stocks, there are usually several floor brokers at the post looking to execute orders.)
If, on the other hand, the floor broker arrives at the trading post and there are no others present with shares to sell, the broker can transact business with the specialist in that stock. The specialist's role is to maintain an orderly market and to provide liquidity to the marketplace. When no one else is available to buy or sell, the specialist stands ready to perform that function.
Obviously, this process tends to be somewhat labor-intensive and therefore only suitable for larger orders. Orders for a relatively few shares are executed automatically at the bid and ask prices posted by the specialist. Therefore, small orders – of a thousand shares or less – can normally be executed instantly.
Any security transaction that does not take place on a security exchange is said to occur in the over-the-counter (OTC) market. Regularly traded in the OTC market are U.S. government and agency securities, corporate and municipal bonds, and small capitalization stocks, to name just a few.
Unlike the centralized trading floors of exchanges, the OTC market has no central location. The actual OTC market is instead a telecommunications market. It consists of firms located throughout the country, any of which can trade with another firm electronically. Since phone lines are available in virtually every part of the country, the OTC market effectively operates without geographical or physical boundaries.