CFA Level I Exam · Equity Issuance and Trading

Market Structures and Trading Venues for CFA Level I

Updated 7 October 2026 · Fact-checked

Market structure describes how and where securities trade. Call markets match all orders at one price at set times; continuous markets trade whenever orders match. Quote-driven markets trade against dealers, order-driven markets match public orders by rules, and brokered markets use intermediaries. Exchanges, ATSs and dark pools are venues. Match each description to its feature.

Understand Market Structures and Trading Venues

A trading venue is where buyers and sellers meet. A market structure is the set of rules that decides how orders become trades. The exam tests whether you can match a short description to the right term.

First, ask when trades happen. In a call market, orders are collected and then executed together at a single price at a specific time. This is called a call auction. It concentrates liquidity at one moment. Exchanges often use it for the opening and closing, and for thinly traded stocks. In a continuous market, trades occur any time the market is open, whenever a buy order and a sell order can be matched. Prices can change from trade to trade.

Second, ask who provides liquidity. In a quote-driven market (also called a dealer or price-driven market), dealers post bid and ask prices and you trade against them. The dealer earns the bid-ask spread and takes the other side of your trade using its own inventory. Foreign exchange and most bond trading work this way. In an order-driven market, buy and sell orders from the public are matched by rules. The usual rules are order precedence (price first, then time, sometimes display and size) and a trade-price rule. Most stock exchanges are order-driven, using an electronic limit order book. Hybrid markets mix both, such as an order book plus designated market makers.

Third, brokered markets are used for hard-to-trade assets, such as large blocks, unique or illiquid securities, or real estate. A broker searches for a counterparty because no continuous market exists. The broker's skill is finding the other side and keeping the deal confidential.

Finally, venues. Exchanges are regulated, have listing requirements, and show prices to the public. An alternative trading system (ATS) is a non-exchange venue that matches orders, often run by a broker-dealer. It usually does not list securities or set rules for issuers. Depending on jurisdiction, similar venues are called multilateral trading facilities. A dark pool is an ATS (or similar venue) that does not publish pre-trade quotes or orders. Large investors use it to cut market impact. The trade-off is less transparency and possible fragmentation of liquidity.

Key formulas to remember

Call market: Orders collected → one price at a set time (call auction); Single clearing price, all orders executed together. Lots of liquidity at one moment.
Continuous market: Trades happen whenever bid and ask orders can be matched during trading hours; Prices can differ from trade to trade.
Quote-driven (dealer) market: Dealers post bid and ask; dealer earns the spread; You trade against the dealer. Typical: FX, bonds.
Order-driven market: Public orders matched by rules: order precedence + trade-pricing rule; Typical: electronic limit order book on an exchange.
Brokered market: Broker finds a counterparty for hard-to-trade or large trades; Used for block trades, illiquid assets, unique assets.
ATS and dark pool: ATS = non-exchange matching venue; dark pool = ATS with no pre-trade transparency; All dark pools are ATSs or similar; not all ATSs are dark.

How to solve Market Structures and Trading Venues questions

Most questions give a short description and ask you to name the structure or its feature. Work through the clues in order.

1Underline the key clue words in the stem: dealer, quote, order book, auction, broker, hidden, display.
2Decide the timing question: one price at set times (call) or trades whenever orders match (continuous).
3Decide who supplies liquidity: dealers with their own inventory (quote-driven) or public orders matched by rules (order-driven).
4If the asset is illiquid, unique or a very large block and someone searches for a counterparty, think brokered market.
5For venues, check regulation and transparency: listed and regulated with public quotes means exchange; non-exchange matching means ATS; no pre-trade display means dark pool.
6Eliminate the two options that contradict a clue, for example a dealer spread in an order-driven answer.
7Re-read the stem to confirm which structure or feature is asked for before choosing.

Quickest way: Clue-to-term matching

When to use it: Use it for any definition or scenario question in this topic when you have under 90 seconds.

Dealer or spread or inventory: quote-driven.
Order book or matching rules: order-driven.
Single price at a set time: call market.
Trades any time: continuous market.
Broker seeks counterparty: brokered market.
No pre-trade display: dark pool, which is a type of ATS.

Common mistakes in Market Structures and Trading Venues

Saying a call market trades continuously through the day.
The word 'call' is confused with calling a broker or with ongoing quotes.
Fix: Link call with auction: orders pile up, then one price at one time.
Treating all dark pools and ATSs as the same thing.
Both are non-exchange venues and are often discussed together.
Fix: An ATS is the broad category. A dark pool is an ATS (or similar venue) with no pre-trade transparency.
Assuming order-driven means no market makers can exist.
Students memorise labels as exclusive categories.
Fix: Hybrid markets exist. Identify the main mechanism the question describes.
Thinking dealers match public orders for a fee rather than trading as principal.
Dealers and brokers are mixed up.
Fix: A dealer trades from its own inventory and earns the spread. A broker acts as an agent for a client.
Believing dark pools are illegal or unregulated.
The word 'dark' suggests secrecy.
Fix: They are generally regulated venues. The only 'dark' feature is no pre-trade display of orders.

Worked examples

Example 1

A trading venue collects buy and sell orders for a thinly traded stock and executes them all at one price at 11:00 each day. Which market structure does this describe? A. Call market B. Continuous market C. Quote-driven market

Show the solution

Clue: orders are collected and executed together at one price at a set time.
That matches the definition of a call market (call auction).
A continuous market trades whenever orders match, so B contradicts the clue.
A quote-driven market relies on dealers posting quotes, which is not mentioned, so C is wrong.

Answer: A. Call market

Example 2

An institution wants to sell a large block of shares without revealing its order before the trade, to limit market impact. Which venue is most suitable? A. A dark pool B. A listed exchange with a public limit order book C. A dealer market quoting the stock publicly

Show the solution

Clue: the order must not be revealed before execution, so there should be no pre-trade transparency.
A dark pool does not display orders pre-trade, which fits.
A public limit order book shows orders, which would reveal the intention and increase market impact.
A public dealer quote shows prices and does not meet the need to hide the order.

Answer: A. A dark pool

Exam tips

Expect definition-matching questions. Learn the clue words, because options never use 'all of the above'.
When two options look right, check the timing clue (set time versus any time) and the liquidity clue (dealer versus public orders).
Remember dark pool means no pre-trade transparency, not no regulation.
Brokered markets show up with block trades and unique assets. Think search for a counterparty.
There is no penalty for a wrong answer, so always answer after eliminating at least one option.

Practice questions from Equity Issuance and Trading

Market Structures and Trading Venues: frequently asked questions

What is the difference between a call market and a continuous market?

A call market gathers orders and executes them together at one price at a set time. A continuous market trades whenever a buy and sell order can be matched during trading hours. Call markets concentrate liquidity, while continuous markets give immediacy.

What is the difference between quote-driven and order-driven markets?

In a quote-driven market, dealers post bid and ask prices and you trade against them. In an order-driven market, public orders are matched by rules such as price and time priority. Many real markets are hybrids.

What are dark pools and alternative trading systems?

An ATS is a non-exchange venue that matches buyers and sellers, often operated by a broker-dealer. A dark pool is an ATS that does not show orders or quotes before trading. Investors use it to reduce market impact on large orders.

How do dealer markets work?

Dealers quote a bid price where they buy and a higher ask price where they sell. They trade from their own inventory and earn the spread. Foreign exchange and many bond markets work this way.