Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

The correct answer highlights that secondary market transactions primarily involve investor-to-investor transactions. In the secondary market, previously issued securities are bought and sold among investors, as opposed to the primary market, where new securities are created and sold for the first time. This setting enables investors to trade stocks, bonds, and other financial instruments, providing liquidity and the opportunity for price discovery based on supply and demand.

In contrast, options that reference issuers or custodians do not fit the definition of secondary market transactions. Issuers are only involved in the primary market by offering new securities to investors. Custodians provide safekeeping of securities and may assist in transactions but are not involved in the trading aspect itself. Brokers act as intermediaries in these transactions, facilitating the buying and selling between investors, but they do not constitute the transactions themselves in the manner described. Therefore, the essence of the secondary market revolves around direct exchange between investors, making investor-to-investor transactions the most accurate descriptor.