Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

In financial markets, the secondary market is where previously issued securities are bought and sold among investors rather than being issued by the issuer directly. In this scenario, a broker-dealer selling securities out of its inventory to the public is a clear example of a secondary market transaction.

When a broker-dealer sells from its own inventory, they are facilitating trades between the existing holders of securities and new buyers, rather than creating new securities. This is fundamental because it supports liquidity in the market and allows investors to buy and sell securities without the need for the issuer to be involved, which characterizes the secondary market.

In contrast, the other options involve transactions that are representative of the primary market. In the primary market, securities are newly created and sold for the first time, typically involving the direct sale from the issuer (like municipalities, corporations, or the U.S. government) to the principal investors or the public. These transactions are crucial for capital formation as they help issuers raise funds for their operations or projects. Therefore, the correct answer aligns perfectly with the definition of the secondary market by highlighting a transaction that does not involve the original issuer.