What is the expected action in a secondary market transaction?

What is the expected action in a secondary market transaction?

• A. New securities are created
• B. Securities move from one investor to another
• C. Issuers participate in transactions
• D. Commissions are eliminated entirely

Answer: (B)

In a secondary market transaction, the core action involves the buying and selling of existing securities among investors, rather than the issuance of new ones. When a security is traded in the secondary market, ownership changes hands but the issuer of the security does not receive any funds from that transaction. Instead, the funds are exchanged directly between the buying and selling investors. This characteristic distinctly differentiates secondary market transactions from primary market transactions, where new securities are offered for sale and the proceeds go to the issuer. In light of this, options suggesting the creation of new securities, participation of issuers in transactions, or the complete elimination of commissions do not accurately describe the nature of secondary market activities. These transactions focus exclusively on the exchange between investors, without involving the original issuers or resulting in new security creation.

In a secondary market transaction, the core action involves the buying and selling of existing securities among investors, rather than the issuance of new ones. When a security is traded in the secondary market, ownership changes hands but the issuer of the security does not receive any funds from that transaction. Instead, the funds are exchanged directly between the buying and selling investors. This characteristic distinctly differentiates secondary market transactions from primary market transactions, where new securities are offered for sale and the proceeds go to the issuer.

In light of this, options suggesting the creation of new securities, participation of issuers in transactions, or the complete elimination of commissions do not accurately describe the nature of secondary market activities. These transactions focus exclusively on the exchange between investors, without involving the original issuers or resulting in new security creation.