Which statements are true with regards to OTC markets?

Which statements are true with regards to OTC markets?

• A. Facilitates trading of stocks not listed on an exchange
• B. A connection of broker-dealers via computers
• C. Can have more than one market maker per security
• D. All of the above

Answer: (D)

The answer encompasses a thorough understanding of the characteristics of over-the-counter (OTC) markets. OTC markets facilitate the trading of securities that are not listed on formal exchanges. This distinction is crucial because it denotes the existence of a wide range of securities, including smaller or less liquid companies, which may not meet the listing requirements of major stock exchanges. Additionally, OTC markets represent a network where broker-dealers connect through computer systems, allowing for efficient transactions and communications. This electronic network plays a vital role in the operation of OTC trading, enabling market participants to trade a variety of securities seamlessly. Moreover, the presence of multiple market makers for a single security is a key feature of OTC markets. This structure can lead to increased liquidity and more competitive pricing, as different firms can quote different prices for the same security. Therefore, having more than one market maker per security is not only possible but often occurs, fostering a dynamic trading environment. Collectively, these statements highlight the essential operational aspects of OTC markets, underscoring their role in the broader financial ecosystem.

The answer encompasses a thorough understanding of the characteristics of over-the-counter (OTC) markets. OTC markets facilitate the trading of securities that are not listed on formal exchanges. This distinction is crucial because it denotes the existence of a wide range of securities, including smaller or less liquid companies, which may not meet the listing requirements of major stock exchanges.

Additionally, OTC markets represent a network where broker-dealers connect through computer systems, allowing for efficient transactions and communications. This electronic network plays a vital role in the operation of OTC trading, enabling market participants to trade a variety of securities seamlessly.

Moreover, the presence of multiple market makers for a single security is a key feature of OTC markets. This structure can lead to increased liquidity and more competitive pricing, as different firms can quote different prices for the same security. Therefore, having more than one market maker per security is not only possible but often occurs, fostering a dynamic trading environment.

Collectively, these statements highlight the essential operational aspects of OTC markets, underscoring their role in the broader financial ecosystem.