A compliance manager is reviewing secondary market operational workflows for a registered broker-dealer across exchange platforms, over-the-counter (OTC) venues, and post-trade processing entities. Which of the following statements correctly describe the characteristics of these trading venues and clearing entities?
- Secondary market transactions on exchange venues occur between investors, where the issuing corporation receives no capital from the trade.Answer
- BWhen a broker-dealer fills a customer order as a broker in an agency capacity, it executes the transaction from its own proprietary inventory and earns a mark-up or mark-down.
- Over-the-counter (OTC) trading functions as a decentralized, negotiated market where market makers maintain inventory and post bid and ask quotes.Answer
- DThe Depository Trust Company (DTC) is responsible for trade netting and clearance, whereas the National Securities Clearing Corporation (NSCC) acts strictly as the central depository providing asset custody.
Answer
The correct statements are that secondary market transactions occur between investors with no proceeds going to the issuer, and that over-the-counter (OTC) trading operates as a decentralized, negotiated market facilitated by market makers.
Secondary market transactions take place strictly between buying and selling investors without raising proceeds for the issuing entity. Furthermore, over-the-counter (OTC) secondary trading takes place across a decentralized network where market makers compete by quoting bid/ask prices and executing trades as principal or agent.
Step-by-Step Solution
Key Concept
Secondary Trading Venues, Broker-Dealer Execution Capacities, and Clearing Entities