Knowledge of Capital MarketsDifficulty 3/5
Two institutions trade a large block of stock directly with one another without using a broker-dealer. Which market is this?
- AThe primary market, where institutions trade directly with each other
- BThe fourth market, where institutions trade directly with each other
- CThe third market, where institutions trade directly with each other
- DThe second market, where institutions trade directly with each other
Show answer and rationale
Correct: B. The fourth market is institution-to-institution trading without an intermediary. The third market is the neighbouring idea that catches people out: exchange-listed securities traded over the counter.
- C — The third market is exchange-listed securities traded over the counter, not direct institutional trading.
- D — The second market is the traditional label for over-the-counter dealer trading of unlisted securities, not direct trading between institutions.
- A — The primary market is where securities are issued, not where existing holdings change hands.