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Question

Difficulty: MediumTypes of Markets and Trading Venues

An institutional investor places an order with a broker-dealer to purchase a large block of exchange-listed common stock. The broker-dealer fills the order off the floor of the exchange in the over-the-counter (OTC) market. In which secondary market segment was this transaction executed?

  1. A
    Primary market
  2. Third marketAnswer
  3. C
    Fourth market
  4. D
    National Securities Clearing Corporation (NSCC)

Answer

The transaction was executed in the Third market.
The third market is defined as over-the-counter (OTC) trading of exchange-listed securities. When a broker-dealer executes a transaction in listed stocks away from the primary exchange venue, it takes place in the third market segment.

Step-by-Step Solution

1
Analyze the characteristics of the security being traded
The shares are exchange-listed common stock traded after their initial public issuance.
This establishes that the transaction occurs in the secondary market rather than the primary market.
2
Examine the trading venue and execution mechanism
The execution took place off the physical exchange floor in the over-the-counter (OTC) market via a broker-dealer.
Trading exchange-listed securities in the OTC market defines the third market.

Key Concept

Third Market OTC Trading of Exchange-Listed Securities
Estimated Time:1m 0s
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Topics

Types of Markets and Trading Venues

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