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Question

Difficulty: MediumTypes of Markets and Trading Venues

A broker-dealer executes a trade for a security listed on the New York Stock Exchange (NYSE) in the over-the-counter (OTC) market between two investor accounts. Which secondary market trading venue classification best describes this transaction?

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

Answer

The Third Market
The Third Market consists of over-the-counter (OTC) trading in securities that are listed on an exchange (such as the NYSE or Nasdaq). When a broker-dealer executes a transaction for an exchange-listed stock in the OTC market, the trade occurs in the Third Market.

Step-by-Step Solution

1
Identify the type of security being traded and where it is primary-listed.
The security is an exchange-listed equity (listed on the NYSE).
Market structure classification depends on where the security is listed versus where the trade is executed.
2
Identify the venue where the transaction was executed.
The trade was executed off the exchange floor in the over-the-counter (OTC) market.
Trading listed securities off-exchange in the OTC market defines third market activity.
3
Match the listing and execution characteristics to the market structure definition.
OTC trading of exchange-listed securities is classified as the Third Market.
This distinguishes it from primary listings, direct institution trades (Fourth Market), or standard exchange floor execution.

Key Concept

Third Market Trading Venues
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Topics

Types of Markets and Trading Venues

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