FRM Part I · FRM Exam Part I · Corporate Bonds
Which feature best describes the typical trading structure of the corporate bond market relative to the equity market?
Corporate bonds trade mainly over the counter through dealers, and many individual issues trade infrequently. This contrasts with equities, which trade on centralized exchanges with continuous order books. Institutional buy-and-hold investors dominate bond holdings, which contributes to lower liquidity.
- ATrading is mainly over-the-counter through dealers, with many issues trading infrequentlyCorrect
- BTrading is mainly on centralized exchanges with continuous order books for every issue
- CTrading is conducted solely through central clearing counterparties with daily margining
- DTrading is dominated by retail investors who trade each issue daily
Explanation
Corporate bonds trade mostly OTC via dealers, and many individual issues trade rarely because there are numerous issues per issuer and buy-and-hold investors dominate. Equities concentrate on exchanges with continuous order books.
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