SIE (Securities Industry Essentials) Practice Exam

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How may NASDAQ market makers increase the ADTV in stocks?

By limiting the supply of shares
By increasing the bid-ask spread
May pay other brokerage firms to direct trades to them
By directly purchasing shares

The correct answer is: May pay other brokerage firms to direct trades to them

Market makers play a crucial role in NASDAQ by ensuring there is enough liquidity for trading to occur. They do this by offering to both buy and sell shares, creating an "ask" and "bid" price for investors. By paying other brokerage firms to direct trades to them, market makers are able to increase the average daily trading volume (ADTV) in stocks. Option A is incorrect because limiting the supply of shares would decrease the trading volume, not increase it. Option B is incorrect because increasing the bid-ask spread would discourage trading, again leading to a decrease in trading volume. Option D is incorrect because market makers are not allowed to directly purchase shares without going through the exchange. This would be considered insider trading. Therefore, option C is the correct choice as it directly addresses how market makers can actively increase the ADTV in stocks.