A retail client of a registered representative notices that a closed-end fund is trading on an exchange at a discount to its net asset value (NAV). The client places an order to purchase 500 shares of this fund. How is this trade executed, and who receives the proceeds from the sale?
- The order is filled on the secondary market at the prevailing market price, with proceeds going to the selling shareholder.Cevap
- BThe order is filled directly by the fund sponsor through a continuous primary offering at the next calculated NAV per share.
- CThe fund sponsor redeems portfolio assets to issue new shares to the client at the discounted market price.
- DThe order is processed at the previous business day's closing NAV, with proceeds deposited into the fund's investment portfolio.
Cevap
The order is filled on the secondary market at the prevailing market price, with proceeds going to the selling shareholder.
Closed-end funds issue a fixed number of shares during an initial public offering. After the IPO, the shares trade on secondary markets (exchanges or OTC) based on market supply and demand. Consequently, an investor purchasing closed-end fund shares buys them from another investor at the prevailing market price, and the proceeds go directly to the selling investor rather than the fund sponsor.
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Closed-End Fund Trading Dynamics and Secondary Market Execution
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