Financial Industry Regulatory Authority (FINRA) Practice Exam

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What is the role of an issuer in the secondary market?

The issuer receives sale proceeds from transactions
The issuer is actively involved in trading
The issuer is completely out of the transactions
The issuer determines market prices

The correct answer is: The issuer is completely out of the transactions

In the secondary market, the role of the issuer is characterized by a hands-off approach regarding the trading of their securities. Once a security is issued and sold to investors in the primary market, the issuer does not participate directly in subsequent trading activities that occur in the secondary market. During secondary market transactions, investors buy and sell securities amongst themselves without any involvement from the issuer. This means that the issuer does not receive proceeds from these transaction sales; rather, the financial gains from such trades are realized by the investors as they buy and sell among themselves. The issuer's primary role is finished once securities are issued and sold to the public. Furthermore, the issuer has no influence on the market price set by the forces of supply and demand in the secondary market, nor do they engage in active trading of their own securities once they are publicly available. This lack of involvement further reiterates the notion that the issuer remains completely detached from secondary market activities, supporting the understanding that the correct answer accurately captures the issuer's role in this context.