A financial advisor is explaining secondary trading venues to a client comparing stock exchanges with over-the-counter (OTC) networks. Which of the following statements correctly compare exchange-listed markets with OTC equity markets?
- Exchange-listed markets operate primarily through centralized auction mechanisms, whereas OTC markets rely on a decentralized network of market makers conducting negotiated trades.Cevap
- Exchange trading features centralized price discovery via bid and offer matching, while OTC security prices are determined through bilateral quote negotiations between market participants.Cevap
- CSecondary market transactions conducted over-the-counter result in the issuing firm directly receiving net capital proceeds from the transaction.
- DMarket makers executing customer orders as principal dealers in the OTC market charge an explicit agency commission rather than applying a mark-up or mark-down.
Cevap
The correct statements are that exchange-listed markets operate primarily through centralized auction mechanisms while OTC markets rely on decentralized market maker negotiations, and that exchange trading features centralized price discovery while OTC prices are determined through bilateral inter-dealer quote negotiations.
The correct statements accurately contrast the centralized auction design and continuous order-matching of listed exchanges with the decentralized, inter-dealer negotiated structure of over-the-counter (OTC) markets.
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Exchange Auction vs. OTC Negotiated Market Structures
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