SIE (Securities Industry Essentials) Practice Exam

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Where would institutions wish to trade stocks for the cheapest transaction costs and most privacy?

  1. New York Stock Exchange

  2. NASDAQ

  3. The Fourth Market

  4. Over-The-Counter

The correct answer is: The Fourth Market

Institutions may wish to trade stocks on the Fourth Market in order to minimize transaction costs and maintain privacy. Unlike the New York Stock Exchange (NYSE) and NASDAQ, the Fourth Market is not a centralized exchange, which means it does not have a physical location or a trading floor. The Fourth Market is known for its over-the-counter (OTC) transactions, which means trades are executed directly between parties without the oversight of public exchanges. This allows for lower brokerage fees and more privacy, as information about trades is not publicly disclosed like on the NYSE and NASDAQ. Additionally, OTC transactions can be customized to meet the specific needs of the institutions, allowing for more flexibility in trading. Therefore, the Fourth Market is the preferred choice for institutions looking for cheaper transaction costs and increased privacy.

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