The market fundamentals keeps on changing leaps and bounds, and coupled with the passage of time, the ardent investor is required to inculcate ample knowledge about the trading strategies along with the type of market in which s/he is trading. Evidently, the nature of the corresponding market itself holds the key to change the trading strategies too. Basically, there exist two types of markets, e.g. Order-driven and Quote-driven; with their own merits and demerits and considering this; a new market has evolved combining the merits of both the aforementioned markets.

These two markets can be differentiated by what is displayed in the market depth in terms of orders quoted by the designated market makers/dealers or clients and the presence of market makers or dealers itself. The order-driven market displays all bid and ask prices and quantities as quoted by clients (buyer or seller) e.g. limits orders, while the quote driven market focuses only on the bid and ask prices and quantities quoted by the market makers or other designated parties. Market makers generate both bid and ask quotes frequently to provide liquidity in the market and the difference of bid and ask is the spread earning for them.

Individual orders are not seen in a quote-driven market; the market maker will either fill traders order from its own inventory or match traders with another order. The major benefit of this type of market is the liquidity in which market makers are required to give minimum quotes in the prescribed manner but the major drawback of the quote-driven market is that, it does not showcase adequate transparency in the market, which incidentally is the biggest advantage of the order-driven market. It clearly displays the market orders and at what price the traders are willing to buy at or sell for. The drawback is that in an order-driven market, there is no guarantee of order execution (until there is a Clearing House) but in the quote-driven market, there is that guarantee.

Considering the merits and demerits of these different natures of markets, the new hybrid system has been evolved combining the attributes of both. Such hybrid system has been experimented and incorporated by the popular international exchanges including NASDAQ, London Stock Exchange and many others; where market shows the bid and ask prices and quantities quoted by market makers and traders too, so that all market participants can view all the limit orders in the market depth.

In the context of Nepal, Nepal Stock Exchange (NEPSE), the only national level stock exchange, is operating based on the pure order-matching system whereas most of the commodity exchanges are following quote-driven mechanism. Recently, MEX Nepal has taken one step further by upgrading its mechanism to the popular hybrid system. And to further accelerate the development of the capital market, NEPSE can also opt for such hybrid system after accomplishment of its ongoing Central Depository System (CDS) in order to facilitate traders with both attributes.