Series 7 Exam Question 242: Answer and Explanation

Question: 242

Which of the following is true regarding dark pools of liquidity?

I. They represent pools of institutional and large retail clients.

II. They reduce the amount of transparency of information relating to securities trading.

III. Firms trading for their own inventory may be included.

IV. Trades executed by the pools are reported as exchange transactions.

• A. I and IV
• B. I, III, and IV
• C. I, II, and III
• D. II and III

Correct Answer: C

Explanation:

C. If dark pools of liquidity execute trades, the trades are reported as over-the-counter (OTC) transactions, not exchange transactions. Dark pools of liquidity represent pools of institutions, large retail clients, and firms trading for their own inventory. Since the clients and sizes of accounts remain anonymous, dark pools reduce transparency of the markets.