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Difficulty: MediumTypes of Markets and Trading Venues

A broker-dealer receives a customer order to buy shares of a security listed on the New York Stock Exchange (NYSE). Instead of executing the trade on the NYSE exchange floor or electronic order book, the broker-dealer routes and executes the trade over-the-counter (OTC) with a market maker. Which secondary market venue classification describes this trade?

  1. The Third MarketAnswer
  2. B
    The Primary Market
  3. C
    The Fourth Market
  4. D
    The Second Market

Answer

The Third Market is the venue where exchange-listed securities are traded over-the-counter (OTC).
The correct answer is the Third Market. The Third Market is defined as the over-the-counter (OTC) market where exchange-listed securities (such as NYSE- or Nasdaq-listed stocks) are bought and sold off-exchange by institutional investors and broker-dealers.

Step-by-Step Solution

1
Identify the type of security being traded.
The trade involves a NYSE-listed equity security.
Market classification depends on whether the underlying asset is exchange-listed or unlisted.
2
Identify the trading venue and mechanism.
The execution takes place over-the-counter (OTC) via a broker-dealer/market maker off the main exchange.
Trading listed stocks off-exchange in the OTC market defines Third Market activity.

Key Concept

Third Market Trading
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Topics

Types of Markets and Trading Venues

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