Securities Industry Essentials (SIE) ExamKnowledge of Capital MarketsMedium
The 'Third Market' refers to the trading of which of the following?
- AExchange-listed securities traded over-the-counter (OTC).
- BUnlisted securities traded over-the-counter (OTC).
- CExchange-listed securities traded on an exchange.
- DForeign securities traded on U.S. exchanges.
Show answer & explanationAnswer & explanation
Correct answer: A. Exchange-listed securities traded over-the-counter (OTC).
The Third Market involves the trading of exchange-listed securities by institutional investors in the over-the-counter (OTC) market, facilitated by broker-dealers who are not members of the exchange where the security is listed.
Why the other options are wrong
- B. Unlisted securities traded OTC describe the Fourth Market, or typical OTC trading.
- C. Exchange-listed securities traded on an exchange describe the First Market.
- D. Foreign securities can trade on U.S. exchanges (e.g., ADRs) or OTC, but this isn't the specific definition of the Third Market.
Third Market
The Third Market is an over-the-counter (OTC) market for securities that are listed on an exchange.
- Institutional investors often use it for large block trades.
- Facilitated by non-member broker-dealers or market makers.
- Allows trading outside of exchange hours or with potentially better pricing.
Memory trick: Third Market: 'Traded' 'Through' 'The' OTC for listed.