ek 101, pt 10 question 5

[Pamplemousse123]

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number 5 of pt 10 is:
according to the passage, in the existing system, institutional investors looking to buy large numbers of shares cannot avoid:
a. price creeping problem
b. paying large commissions to NYSE brokerages
C. revealing their intentions to other sellers
d. buying their shares in a piecemeal fashion

can someone explain to me why it is C? according to the passage, you can avoid a and c by the computerized "crossing sections" method. I chose B because they said that the brokerages are the ONLY ones allowed to take orders on NYSE and they charge monopolistic rents. Answer explanation says there are other systems like NASDAQ but isn't that using outside knowledge?

very curious about this one! 😕 let me know.
thanks in advance.

 

[TieuBachHo]

Here is what I think,

"Cross Sections" method only limits to a smaller groups of institutional buyers and sellers but it doesn't completely eliminate the buyers from revealing their buying intentions since "such large sellers usually dont' exist". This means that when I advertise my wholesale buying intention with an offer price, there must be other whole sellers availabe to match. If not, then my offer buying intention is revealed to those institutional sellers. (They, then, still can jack up their price, but this is just speculative. Therefore, it wouldn't be the best answer). Thus, choice C is the best answer since it's drawn directly from the passage. NYSE is a SPECIFIC example to NYSE and thus it's not indicative of a whole stock exchange system. NYSE brokers charge monopolistic rents to NYSE traders ONLY. You don't have to know NASDAQ but you should know that other systems exist.