In the Quote-Driven Market, stop trading occurs when ...

In the Quote-Driven Market, stop trading occurs when ...

• A. There is no quote available on the order book between two executable orders.
• B. The price deviates from the market price.
• C. The market is halted due to holidays.
• D. A new trade is executed at the reference price.

Answer: (A)

In a quote-driven market, liquidity is supplied by dealers who continuously post buy and sell quotes. Trading happens when an incoming order can be matched with those quotes. Stop trading occurs when there is no quote in the order book that lies between two executable orders—i.e., there’s no price at which a buyer and a seller can immediately agree to transact. If the best bid and best offer do not overlap and there’s no executable price inside the spread, there’s no way to match orders right away, so trading stops until quotes reappear or a price inside the spread is posted. For example, if the highest bid is 100 and the lowest ask is 102, there’s no executable trade available, so trading halts until a quote within or across the spread is provided. Other scenarios like a deviation from market price, market halts for holidays, or trades at a reference price describe different mechanisms and do not define stop trading in this context.

In a quote-driven market, liquidity is supplied by dealers who continuously post buy and sell quotes. Trading happens when an incoming order can be matched with those quotes. Stop trading occurs when there is no quote in the order book that lies between two executable orders—i.e., there’s no price at which a buyer and a seller can immediately agree to transact.

If the best bid and best offer do not overlap and there’s no executable price inside the spread, there’s no way to match orders right away, so trading stops until quotes reappear or a price inside the spread is posted. For example, if the highest bid is 100 and the lowest ask is 102, there’s no executable trade available, so trading halts until a quote within or across the spread is provided.

Other scenarios like a deviation from market price, market halts for holidays, or trades at a reference price describe different mechanisms and do not define stop trading in this context.