Securities Industry Essentials (SIE) ExamKnowledge of Capital MarketsEasy
A financial advisor is discussing market structures with a new investor. The advisor explains that a market where securities are traded directly between institutional investors without the use of an exchange is known as the:
- AFourth Market
- BFirst Market
- CSecond Market
- DFifth Market
Show answer & explanationAnswer & explanation
Correct answer: A. Fourth Market
The Fourth Market refers to direct trading between institutional investors, often through electronic communication networks (ECNs), bypassing broker-dealers and exchanges. This allows for large block trades without affecting public exchange prices.
Why the other options are wrong
- B. The First Market refers to trading of listed securities on exchanges.
- C. The Second Market refers to the trading of unlisted securities (OTC securities).
- D. The Fifth Market is not a recognized term for market structures in this context.
Fourth Market
The Fourth Market is a market where institutional investors trade securities directly with each other, often via Electronic Communication Networks (ECNs), bypassing broker-dealers and exchanges.
- Direct trading between institutions.
- Bypasses traditional exchanges and broker-dealers.
- Primarily uses ECNs for execution.
- Aims to reduce transaction costs and market impact.
Memory trick: Fourth means 'for us' (institutions) directly.