This week’s study question from the Solomon Online Exam Simulator question database is now available.
Question (Relevant to the Series 7, Series 24, Series 55, and Series 62):
Which of the following is not true of an ECN?
A: ECNs can act in an agency or a principal capacity
B: ECNs allow institutional investors to trade with other investors excluding the broker as a go-between
C: Subscribers to an ECN may include institutional investors, broker-dealers and market makers
D: ECN traders can remain anonymous
Correct Answer: A
Rationale: Some standard characteristics of ECNs include:
a. ECNs always act in an agency capacity and do not trade for their own account.
b. ECNs allow institutional investors to trade with other investors excluding the broker as a go-between. Fourth market participants rely on ECNs.
c. Subscribers to an ECN may include institutional investors, broker-dealers and market makers. Individuals that wish to trade through an ECN must have an account with a broker-dealer and their order can then be routed to the ECN for execution.
d. ECNs allow traders to remain anonymous.
e. ECNs are often open 24 hours a day, and are therefore often used by traders after regular market hours.
f. Subscribers pay a fee to the ECN to participate.
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