Certified Financial Management Specialist Practice Exam

What does the Over-The-Counter (OTC) market primarily facilitate?

1. Trading of listed securities

2. Trading of commodities

3. Trading of unlisted securities

4. Trading of foreign currencies

The correct answer is: Trading of unlisted securities

The Over-The-Counter (OTC) market primarily facilitates the trading of unlisted securities. This market provides a platform for securities that are not listed on formal exchanges, like the New York Stock Exchange or NASDAQ, allowing for the trading of a wide range of financial instruments, including stocks of smaller companies, bonds, derivatives, and other financial products. In the OTC market, transactions are typically conducted directly between parties, often through broker-dealers who negotiate trades privately. This setting allows for more flexibility in terms of price negotiations, trading methods, and accessibility to securities that may not meet the listing requirements of a formal exchange. While trading of listed securities generally occurs on formal exchanges, and commodities and foreign currencies are typically traded in more specialized markets, the OTC market uniquely serves the space for unlisted securities, providing critical access for both issuers and investors. This decentralized and less regulated environment is essential for trading securities that have not undergone the rigorous listing process.