SIE practice questionmediumAuction Market vs. Dealer Market
The NYSE is considered an auction market because:
- AMarket makers set the prices for all securities
- BSecurities are sold to the highest bidder at periodic auctions
- CBuyers compete with other buyers and sellers compete with other sellers to get the best price✓ Correct answer
- DOnly institutional investors may participate in the bidding process
Explanation
Why C — Buyers compete with other buyers and sellers compete with other sellers to get the best price
In an auction market like the NYSE, buyers compete with other buyers (bidding up prices) and sellers compete with other sellers (offering lower prices), with transactions occurring at the point where bids and asks meet. This differs from a dealer market (like Nasdaq) where market makers set bid and ask prices and trade from their own inventory. The auction market is open to all qualified participants, not just institutions.
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