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What does number of member firms means?

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    • Avatar of RaviVoodaRaviVooda
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        • CFA Level 3
        20 Oct 2017 at 6:44 pm
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        No of companies that trade in the market @vincentt

      • Avatar of RaviVoodaRaviVooda
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          • CFA Level 3
          20 Oct 2017 at 7:22 pm
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          @vincentt, as per our curriculum we only have 2 things mentioned

          Liquidity characteristics – Low bid ask spread, High depth, Resilient market (values near to intrinsic values/ prices adjust quickly)
          Factors contributing to Liquidity – Many buyer and sellers, diversity of opinion, information and investment needs, Readily accessible electronic/physical location and market integrity

          In the question, by firms I think mean which are based out of selling and buying in markets (given the context)

        • Avatar of RaviVoodaRaviVooda
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            • CFA Level 3
            20 Oct 2017 at 6:58 pm
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            @vincentt yes they are referring to brokers only. However brokers here can mean a broader definition like investment management firms who do buy and sell side research

          • Avatar of vincenttvincentt
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              • CFA Level 3
              20 Oct 2017 at 7:05 pm
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              @RaviVooda‌ hmmm… i thought they were referring to firms hence my answer was more firms would better reflect the market risk of a country. However that’s only true for an index not an equity market. Kinda puzzled.

            • Avatar of vincenttvincentt
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                • CFA Level 3
                20 Oct 2017 at 6:49 pm
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                @RaviVooda‌ are they not referring to the amount of brokers (market makers)?

                The answer:
                Number of member firms

                The presence of many buyers and sellers contributes to increased market liquidity. Betania has a larger number of member firm than Alphastan. Since both markets are quote driven, Betania has more potential buyers and sellers. The additional buyers and sellers create more competition and greater diversity of opinion, leading to higher market quality.

                The answer makes me feel that they are referring to something else (not companies) as they mention “since both markets are quote driven…”, wouldn’t orders driven have the same potential buyers and sellers?

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