Which market mechanism uses quote-based pricing to treat orders and quotes differently?

Which market mechanism uses quote-based pricing to treat orders and quotes differently?

• A. Pre-trade transparency
• B. Central Limit Order Book (CLOB)
• C. Quote Driven Market (QDM)
• D. OUCH Trading Interface (OTI)

Answer: (C)

In a quote-driven market, liquidity is supplied by market makers who post two-sided quotes, and the prices available to trade come from those quotes. Trading occurs against those posted quotes, with the quotes effectively setting the executable price, while actual orders are handled in relation to what the quotes show. This creates a clear distinction between the quotes that represent what dealers are willing to pay or accept and the customer orders that arrive for execution. It’s different from a central limit order book, where trades are driven by resting orders in an order book rather than dealer quotes, and from interfaces or transparency rules that don’t define price formation in the same way. So the mechanism that uses quote-based pricing to treat orders and quotes differently is a quote-driven market.

In a quote-driven market, liquidity is supplied by market makers who post two-sided quotes, and the prices available to trade come from those quotes. Trading occurs against those posted quotes, with the quotes effectively setting the executable price, while actual orders are handled in relation to what the quotes show. This creates a clear distinction between the quotes that represent what dealers are willing to pay or accept and the customer orders that arrive for execution. It’s different from a central limit order book, where trades are driven by resting orders in an order book rather than dealer quotes, and from interfaces or transparency rules that don’t define price formation in the same way. So the mechanism that uses quote-based pricing to treat orders and quotes differently is a quote-driven market.