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Question

Difficulty: EasyTypes of Markets and Trading Venues

Which of the following statements correctly describe characteristics of secondary market transactions in securities?

  1. Transactions occur between investors, meaning the original issuing corporation does not receive proceeds from the trade.Answer
  2. B
    Issuing corporations receive capital directly from secondary market trades executed on stock exchanges.
  3. Trading in the secondary market provides liquidity to investors wishing to buy or sell existing holdings.Answer
  4. D
    A broker-dealer acting as an agent in a secondary market transaction trades directly out of its own inventory.

Answer

The correct statements are that secondary market transactions occur between investors (without proceeds going to the issuer) and that secondary markets provide liquidity for existing security holdings.
The correct statements accurately identify that secondary market trades take place between investors without generating proceeds for the issuing corporation, and that these markets serve to provide continuous liquidity for trading existing securities.

Step-by-Step Solution

1
Identify the defining characteristic of secondary market transactions versus primary market offerings.
Secondary market trades occur between investors; the issuing company receives money only in primary market sales.
Understanding issuer involvement is essential to distinguishing market types.
2
Evaluate the role of secondary markets for existing investors.
Secondary markets establish liquidity and continuous price discovery for outstanding securities.
Liquidity allows investors to buy and sell securities efficiently after initial issuance.

Key Concept

Secondary market trading dynamics and market functions
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Topics

Types of Markets and Trading Venues

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