A broker-dealer receives a retail customer's buy order for shares of a security listed on the New York Stock Exchange (NYSE). Rather than routing the trade to an exchange execution facility, the broker-dealer executes the order off-exchange by selling the shares directly out of its own proprietary inventory. How is this transaction venue categorized, and in what capacity and compensation structure is the broker-dealer operating?
- A Third Market transaction in which the firm acts as a principal and charges a mark-up.Cevap
- BA Third Market transaction in which the firm acts as an agent and charges a commission.
- CA Primary Market transaction in which the firm acts as an underwriter distributing newly issued shares.
- DA Fourth Market transaction in which the trade is cleared directly between institutional participants using the Continuous Net Settlement system.
Cevap
The transaction is a Third Market trade where the firm operates in a principal (dealer) capacity and earns a mark-up.
The correct response accurately identifies that trading exchange-listed securities off an exchange floor in the over-the-counter market is defined as a Third Market trade. Furthermore, because the firm fills the order directly out of its own inventory, it is acting as a principal (dealer) and receives compensation in the form of a mark-up.
Adım Adım Çözüm
Anahtar Kavram
Third Market Trading and Broker-Dealer Execution Capacities