Examkin

Question

Difficulty: EasyTypes of Markets and Trading Venues

An institutional investor trades a large block of exchange-listed stock directly with another institutional investor through an Electronic Communications Network (ECN), bypassing traditional broker-dealer intermediaries. Which market tier is utilized for this direct execution?

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

Answer

Fourth market
The fourth market refers specifically to direct trading of securities between institutional investors (such as mutual funds, pension funds, and insurance companies) without utilizing broker-dealers as intermediaries. These trades are predominantly handled by Electronic Communications Networks (ECNs) to reduce fee overhead and preserve anonymity.

Step-by-Step Solution

1
Identify the trading participants and execution venue described in the scenario
The scenario describes institutional investors trading exchange-listed stock directly with each other using an Electronic Communications Network (ECN).
Market tiers are defined by the type of securities traded, the venue used, and whether broker-dealers act as intermediaries.
2
Match the transaction characteristics to the correct secondary market tier
Direct trades between financial institutions without broker-dealer intervention take place in the fourth market.
The fourth market specifically handles private, direct institutional-to-institutional secondary trading, primarily executed via proprietary ECN systems to minimize transaction costs and market impact.

Key Concept

Fourth Market Institutional Trading and ECN Execution
Estimated Time:45s
Rate this question

Topics

Types of Markets and Trading Venues

More questions from this topic