Which of the following statements about over-the-counter market makers is NOT true?

Which of the following statements about over-the-counter market makers is NOT true?

• A. Market makers trade for their own profit and risk
• B. The NASD limits the number of market makers per security
• C. A market maker's quote is considered firm for 100 shares
• D. Market makers must provide continuous bids and offers for a security

Answer: (B)

The statement regarding market makers that is not true is that the NASD limits the number of market makers per security. In fact, the NASD (now called FINRA, the Financial Industry Regulatory Authority) does not impose a limit on the number of market makers that can operate for a particular security. Market makers are essential participants in the over-the-counter (OTC) market, and their presence can vary widely for different securities. The other statements are accurate reflections of how market makers operate. They do trade for their own profit and take on significant risks associated with their trading activities. The quotes provided by market makers are generally considered to be firm for a standard minimum unit of trading, often set at 100 shares. Additionally, it is a mandate for market makers to maintain ongoing bids and offers for the securities they handle, ensuring liquidity in the market. This continuous provision of quotes helps facilitate trading and ensures that there are buyers and sellers available for transactions.

The statement regarding market makers that is not true is that the NASD limits the number of market makers per security. In fact, the NASD (now called FINRA, the Financial Industry Regulatory Authority) does not impose a limit on the number of market makers that can operate for a particular security. Market makers are essential participants in the over-the-counter (OTC) market, and their presence can vary widely for different securities.

The other statements are accurate reflections of how market makers operate. They do trade for their own profit and take on significant risks associated with their trading activities. The quotes provided by market makers are generally considered to be firm for a standard minimum unit of trading, often set at 100 shares. Additionally, it is a mandate for market makers to maintain ongoing bids and offers for the securities they handle, ensuring liquidity in the market. This continuous provision of quotes helps facilitate trading and ensures that there are buyers and sellers available for transactions.