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Zorluk: OrtaTypes of Markets and Trading Venues

Two major pension funds arrange the direct transfer of a large block of listed equity securities between their respective portfolios without using the services of a broker-dealer intermediary or traditional exchange floor. Which secondary trading market tier is utilized for this direct institution-to-institution trade?

  1. Fourth marketCevap
  2. B
    Primary market
  3. C
    Third market
  4. D
    National Securities Clearing Corporation (NSCC) market

Cevap

The Fourth market is the secondary trading venue tier consisting of direct trading between institutional investors without broker-dealer intermediaries.
The correct answer identifies the Fourth market. The Fourth Market consists of direct institution-to-institution trading of securities without using a broker-dealer intermediary. Institutions utilize proprietary networks and Electronic Communication Networks (ECNs) in the Fourth Market to reduce transaction costs and commissions when trading large block positions.

Adım Adım Çözüm

1
Analyze the trading participants and execution mechanism in the scenario.
The transaction involves two institutional entities (pension funds) executing a trade directly with each other without a broker-dealer.
Identifying the presence of intermediaries and the nature of the participating buyers/sellers determines the market venue classification.
2
Differentiate between the four market tiers of secondary trading.
First Market = Listed securities traded on an exchange floor/electronic order book. Second Market = Unlisted OTC securities. Third Market = Exchange-listed securities traded OTC via broker-dealers. Fourth Market = Direct institution-to-institution trading, usually via ECNs.
Applying definitions of trading venues narrows down the correct classification for institution-to-institution trades.
3
Match the scenario to the correct market tier.
Direct institutional trading without broker-dealers is defined as the Fourth Market.
The Fourth Market eliminates broker commissions by allowing large institutions to trade block positions directly.

Anahtar Kavram

Secondary Market Tiers and Trading Venues
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Konular

Types of Markets and Trading Venues

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