Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What is the fourth market primarily associated with?

1. Direct trading among institutional investors via ECNs

2. Trading in public offerings

3. Small investor trades through brokers

4. Market filled with private equity investors

The correct answer is: Direct trading among institutional investors via ECNs

The fourth market is primarily associated with direct trading among institutional investors via electronic communications networks (ECNs). This market is characterized by transactions that take place directly between institutions without going through traditional exchanges, allowing for better pricing and increased efficiency. ECNs facilitate these trades by matching buy and sell orders from large institutional players like mutual funds, pension funds, and insurance companies, who often prefer to trade large volumes without influencing market prices. This differs from the other options, which do not capture the essence of the fourth market. Trading in public offerings pertains to the primary market where new securities are issued and sold. Small investor trades through brokers refer to retail market activities primarily involving individual investors, who typically execute trades through middlemen. The mention of private equity investors suggests a focus on investing in private companies rather than the direct trading activities characteristic of the fourth market. The focus on institutional investors and their capacity to trade directly underscores a key feature of the fourth market.