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Question

Difficulty: EasyTypes of Markets and Trading Venues

When an investor purchases existing shares of a publicly traded corporation from another investor on a national securities exchange, in which market does this trade take place?

  1. Secondary marketAnswer
  2. B
    Primary market
  3. C
    Third market
  4. D
    Fourth market

Answer

The secondary market is where existing securities are bought and sold among investors.
The transaction takes place in the secondary market because existing shares are being traded between investors, and the issuing company receives no proceeds from the trade.

Step-by-Step Solution

1
Identify the participants and nature of the security transaction in the scenario.
The trade involves existing stock being transferred from one retail investor to another investor on a formal exchange.
Determining whether new capital is being raised by the issuer or existing shares are being exchanged dictates the market venue classification.
2
Classify the market structure based on the transaction type.
Trading existing securities between investors without issuer proceeds defines secondary market activity.
The primary market raises capital for issuers, whereas the secondary market provides liquidity for current security holders.

Key Concept

Secondary market trading of existing securities
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Topics

Types of Markets and Trading Venues

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