Question 1

What is the primary distinction between a listed security and an OTC security?

Accepted Answer

A listed security trades on a registered national securities exchange (e.g., NYSE or Nasdaq) and must meet the exchange's listing requirements, while an OTC security is not listed on a formal exchange and trades through dealer networks.

Question 2

What is the role of a Designated Market Maker (DMM) on the NYSE?

Accepted Answer

A DMM is obligated to maintain a fair and orderly market in assigned securities by posting continuous two-sided quotes and stepping in as buyer or seller of last resort when there is insufficient public order flow.

Question 3

In the context of exchange trading, what does 'auction market' mean?

Accepted Answer

In an auction market, buyers and sellers submit competing bids and offers simultaneously, and trades execute when a buyer's bid matches a seller's offer, with price discovery driven by supply and demand among participants.

Question 4

What is a market maker in the OTC market, and what is their primary obligation?

Accepted Answer

A market maker is a dealer firm that continuously posts firm bid and ask quotes for a specific OTC security and is obligated to buy or sell at least one normal unit of trading at their quoted prices.

Question 5

What is the OTC Bulletin Board (OTCBB) and how does it differ from the OTC Markets Group tiers?

Accepted Answer

The OTCBB was an electronic quotation system operated by FINRA for OTC securities; it has since been phased out. The OTC Markets Group now organizes OTC securities into three tiers: OTCQX (highest), OTCQB, and OTC Pink (lowest standards).

Series 7 Market Structure

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