CFA Level I · CFA Level I Exam · Equity Issuance and Trading
Which of the following is the most likely reason an investor seeking to sell a very large block of a thinly traded stock would use a brokered market rather than an order-driven exchange?
The most likely reason is that a broker can discreetly find counterparties and negotiate the large trade. Brokered markets suit large, illiquid or unique positions where displaying the order on an exchange would move the price against the seller.
- ABrokered markets guarantee a lower commission
- BA broker can search out counterparties discreetly and negotiate the tradeCorrect
- CBrokered markets eliminate the need for any price negotiation
Explanation
Brokered markets suit unique or large illiquid trades because brokers find counterparties and negotiate while limiting information leakage. Commissions are not guaranteed lower, and price negotiation is still required, so the other options are wrong.
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