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FRM Part II · FRM Exam Part II · Tokenization and Financial Market Inefficiencies

Which statement best describes how market fragmentation across separate trading venues and ledgers creates a friction in traditional markets?

Fragmentation across venues and ledgers splits liquidity and information into silos, which hinders liquidity aggregation and price discovery. Prices can diverge, search and trading costs rise, and interoperability is poor, which is a key inefficiency that tokenization proposals seek to address through shared platforms.

  1. AIt hinders liquidity aggregation and price discovery because assets and information are siloedCorrect
  2. BIt guarantees a single consolidated price
  3. CIt eliminates the need for intermediaries
  4. DIt makes settlement instantaneous

Explanation

Siloed venues and ledgers split liquidity and information, so prices may differ and trading costs rise. Fragmentation does not produce a single price, remove intermediaries or speed settlement.

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