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Difficulty: EasyTypes of Markets and Trading Venues

Which of the following statements correctly describe secondary market trading venues? (Select all that apply.)

  1. The Third Market consists of over-the-counter trading of exchange-listed securities.Answer
  2. The Fourth Market consists of direct trading between institutional investors without broker-dealer intermediaries.Answer
  3. C
    Primary market trading involves individual investors buying and selling existing shares directly among themselves.
  4. D
    When a broker-dealer executes a trade in the secondary market as a principal dealer, it acts as an agent and earns a commission.

Answer

The Third Market consists of over-the-counter trading of exchange-listed securities, and the Fourth Market consists of direct trading between institutional investors without broker-dealer intermediaries.
The statements defining the Third Market (OTC trading of listed securities) and the Fourth Market (direct institutional trading without broker-dealer intermediaries) correctly articulate key secondary market trading venues.

Step-by-Step Solution

1
Analyze the definitions of secondary trading venue tiers.
The Third Market covers OTC trades of exchange-listed stocks, while the Fourth Market covers direct institutional block trading without broker-dealers.
Accurate knowledge of market venues helps identify valid secondary market execution structures.
2
Evaluate the remaining choices regarding market types and execution capacities.
Investor-to-investor trading occurs in secondary markets (not primary), and dealers trade in principal capacity with mark-ups/mark-downs (not agent capacity with commissions).
Differentiating primary from secondary transactions and agent from principal capacity eliminates erroneous distractor statements.

Key Concept

Secondary market venues encompass exchange trading, over-the-counter trading of listed stocks (Third Market), and direct institutional trading (Fourth Market).
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Topics

Types of Markets and Trading Venues

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