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Question

Difficulty: MediumTypes of Markets and Trading Venues

An institutional investor executes a trade for a large block of exchange-listed stock directly with another institutional investor using an Electronic Communication Network (ECN), without involving a broker-dealer as a market maker. In which market venue did this transaction take place?

  1. The fourth marketAnswer
  2. B
    The primary market
  3. C
    The secondary exchange floor acting as a principal dealer
  4. D
    The Depository Trust & Clearing Corporation venue

Answer

The transaction took place in the fourth market.
The fourth market consists of direct trading between institutional investors through Electronic Communication Networks (ECNs) without utilizing broker-dealers as market maker intermediaries.

Step-by-Step Solution

1
Analyze the transaction type and execution mechanism.
The trade involves existing securities traded directly between two institutional investors via an Electronic Communication Network (ECN).
Identifying the trading participants and direct electronic matching system helps pinpoint the market segment.
2
Classify the market structure segment.
Direct institutional trading that bypasses broker-dealers and market makers via ECNs is defined as the fourth market.
The primary market handles new issues, the secondary market involves traditional exchanges/OTC, the third market involves exchange-listed stocks traded OTC by market makers, and the fourth market consists of direct institutional ECN trading.

Key Concept

Fourth Market Execution via ECNs
Estimated Time:1m 0s
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Topics

Types of Markets and Trading Venues

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