basis. Another new entry to the underwriting field is W. R. Hambrecht & Co., which also con- ducts IPOs on the Internet geared toward smaller, retail investors. Unlike typical invest- ment bankers, which tend to favor institutional investors in the allocation of shares, and which determine an offer price through the book-building process, Hambrecht conducts a "Dutch auction." In this procedure, which Hambrecht has dubbed OpenIPO, investors sub- mit a price for a given number of shares. The bids are ranked in order of bid price, and shares are allocated to the highest bidders until the entire issue is absorbed. All shares are sold at an offer price equal to the highest price at which all the issued shares will be ab- sorbed by investors. Those investors who bid below that cut-off price get no shares. By al- locating shares based on bids, this procedure minimizes underpricing. To date, upstarts like Wit Capital and Hambrecht have captured only a tiny share of the underwriting market. But the threat to traditional practices that they and similar firms may pose in the future has already caused a stir on Wall Street. Other firms also distribute shares of new issues to online customers. Among these are DLJ Direct, E*Offering, Charles Schwab, and Fidelity Capital Markets. The accompanying box reports on recent develop- ments in this arena. I. Introduction 3. How Securities Are Traded The McGraw−Hill Companies, 2001           70 PART I Introduction       CONCEPT C H E C K ☞ QUESTION 2 Your broker just called. You can buy 200 shares of Good Time Inc.s IPO at the offer price. What should you do? [Hint: Why is the broker calling you?]       3.2 WHERE SECURITIES ARE TRADED   Once securities are issued to the public, investors may trade them among themselves. Pur- chase and sale of already-issued securities take place in the secondary markets, which con- sist of (1) national and local securities exchanges, (2) the over-the-counter market, and (3) direct trading between two parties.     The Secondary Markets   There are several stock exchanges in the United States. Two of these, the New York Stock Exchange (NYSE) and the American Stock Exchange (Amex), are