An institutional market maker receives a customer order to purchase 5,000 shares of a New York Stock Exchange (NYSE)-listed equity security. Rather than routing the trade to an exchange floor or an Electronic Communications Network (ECN), the firm fills the order off the exchange floor directly from its own inventory. Which of the following correctly identifies the trading venue classification and the capacity in which the broker-dealer acted?
- Third market transaction executed in a principal capacity with a mark-upCevap
- BFourth market transaction executed in an agency capacity with a commission
- CPrimary market transaction executed in a principal capacity with an underwriting spread
- DSecondary exchange market transaction cleared by the Depository Trust Company (DTC) acting as central counterparty netting agent
Cevap
Third market transaction executed in a principal capacity with a mark-up
The correct answer identifies the trade as a Third Market transaction executed in a principal capacity. The Third Market encompasses over-the-counter trading of securities listed on an exchange. When a firm fills an order out of its own inventory, it acts as a dealer (principal) rather than a broker (agent), receiving a mark-up on a purchase or mark-down on a sale.
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Anahtar Kavram
Third Market venue dynamics and broker-dealer principal capacity