Which of the following statements about the over-the-counter market is false?
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A. B. C. D.B
The over-the-counter (OTC) market refers to the trading of securities outside of formal exchanges such as the New York Stock Exchange (NYSE) or NASDAQ. Here's an explanation of each of the statements and whether they are true or false:
A. Mutual funds and other new issues are initially issued over the counter This statement is true. Many mutual funds and new issues of securities are first issued through the OTC market. This allows for a wider distribution of these securities to potential investors.
B. Security prices are determined through auction bidding This statement is false. Unlike exchange-traded securities, OTC securities do not have a centralized location or formal exchange where trading takes place. Instead, they are traded directly between buyers and sellers. As a result, prices are negotiated through dealers rather than through auction bidding.
C. Broker dealers must be resigned This statement is unclear and could be interpreted in different ways. However, assuming the statement is meant to say that broker dealers must be registered, then it is true. Broker dealers who trade OTC securities are required to be registered with the Financial Industry Regulatory Authority (FINRA).
D. Securities are traded at many locations throughout the country This statement is true. Unlike exchange-traded securities, which are traded at a centralized location, OTC securities can be traded at multiple locations throughout the country. This allows for greater access to these securities for investors who may not be located near an exchange.
In summary, the false statement about the OTC market is that security prices are determined through auction bidding. OTC securities are instead traded directly between buyers and sellers, with prices negotiated through dealers.