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Zorluk: OrtaTypes of Markets and Trading Venues

An institutional investment manager is evaluating execution venues for trading equity securities in the secondary market, specifically comparing physical exchanges, over-the-counter (OTC) trading, and Electronic Communication Networks (ECNs). Which of the following statements regarding these trading venues and execution mechanisms are correct?

  1. Over-the-counter (OTC) trading occurs in a decentralized market where market makers act as principals, trading from their own inventory using published bid and ask quotes.Cevap
  2. Electronic Communication Networks (ECNs) allow institutional investors to trade blocks of listed securities directly with one another anonymously on an automated basis.Cevap
  3. C
    Third Market trading occurs when an issuing corporation sells brand-new equity securities directly to accredited institutional investors to raise initial capital.
  4. D
    A broker-dealer facilitating an exchange trade on an agency basis trades directly from its proprietary inventory and earns a mark-up or mark-down.

Cevap

The statements confirming that OTC markets are decentralized principal markets with market makers quoting bid/ask prices, and that ECNs enable direct, anonymous institutional trading of listed securities, are both correct.
Over-the-counter (OTC) trading is a negotiated, decentralized market where market makers act as principals using their own inventory. Electronic Communication Networks (ECNs) comprise the Fourth Market, allowing direct and anonymous trading between institutional investors without broker-dealer market makers.

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1
Evaluate OTC market structure and principal trading mechanics
OTC trading is decentralized, and market makers act as principals taking positions in their proprietary inventory, making the statement correct.
Market makers provide liquidity in unlisted and OTC markets by posting bid and ask quotes.
2
Evaluate Electronic Communication Network (ECN) mechanics
ECNs match buy and sell orders directly between institutional participants anonymously, making the statement correct.
ECNs represent the Fourth Market and operate automated systems without intermediary broker-dealer market makers.
3
Distinguish Third Market trading from primary market transactions
Third Market refers to OTC secondary market trading of exchange-listed securities, not issuer primary distributions.
Confusing primary market capital raising with Third Market secondary trading is a conceptual misconception.
4
Differentiate agency broker role from principal dealer role
Agency execution involves acting as an agent for a commission, while principal execution involves trading from inventory for a mark-up/mark-down.
An agency trade does not involve inventory or mark-ups/mark-downs.

Anahtar Kavram

Secondary Market Structure and Trading Venues
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Konular

Types of Markets and Trading Venues

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