SIE practice questionmediumOTC Market Structure
Which statement about the OTC (over-the-counter) market is TRUE?
- AAll securities traded OTC must meet the same listing standards as NYSE securities
- BThe OTC market only handles government bonds
- CIt is a physical location where trades are executed on a trading floor
- DIt is a negotiated market where dealers trade through a network of computers and phones✓ Correct answer
Explanation
Why D — It is a negotiated market where dealers trade through a network of computers and phones
The OTC market is a decentralized, negotiated dealer market — there is no physical trading floor. Dealers communicate through computer networks and telephones. Unlike exchanges, the OTC market does not have uniform listing standards, which means riskier and less transparent securities may trade there. The OTC market handles many types of securities including stocks, bonds, and derivatives — not just government bonds.
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