An investor purchases shares of a stock listed on the New York Stock Exchange (NYSE) through an over-the-counter (OTC) market maker. The broker-dealer fills the customer's order directly using shares held in its own proprietary inventory, charging a markup on the transaction. Which market venue classification and execution capacity correctly describe this transaction?
- AThe transaction takes place in the primary market, with the firm acting in an agency capacity to raise fresh capital for the issuer.
- The transaction takes place in the third market, with the broker-dealer acting in a principal capacity.Cevap
- CThe transaction takes place in the third market, with the broker-dealer acting in an agency capacity.
- DThe transaction takes place in the fourth market, where clearance and settlement are handled directly by the Depository Trust Company (DTC) acting as the central netting clearing house.
Cevap
The transaction takes place in the third market, with the broker-dealer acting in a principal capacity.
The correct answer identifies that trading exchange-listed equity securities over-the-counter occurs in the third market. Furthermore, because the firm fills the customer order directly out of its own inventory and charges a markup, it is operating in a dealer/principal capacity.
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Anahtar Kavram
Third Market Trading and Principal Broker-Dealer Capacity