Question of the Week

A person purchases stock XYZ (an Over The Counter stock) from a company who is also the market maker for XYZ. The price that the person would pay for the stock:

a) Does not include a markup
b) Includes the markup and commission
c) Includes the markup
d) Is discounted for the markup
e) None of these are true.


Answer:

The correct answer is c

When the firm is a market maker in the stock then it must act as a principle. Principal is the main party to a transaction, acting as either a buyer or seller for his/her own account and risk. Because the market maker must act as principal the person would only be charged a markup, not a commission.

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