Final answer:
The process of matching security buy and sell trade orders between two institutional firms for verification is known as verification. This process ensures that trades are executed accurately and reduces the risk of transactions being affected by imperfect information.
Step-by-step explanation:
The verification process of matching security buy and sell trade orders between two institutional firms is known as verification. This process is crucial in the financial world to ensure the integrity and smooth operation of stock exchanges. When institutional firms execute trades on securities exchanges, a system of checks and balances is utilized to confirm that the details of a buy order match the corresponding sell order. The primary goal is to mitigate the risks associated with imperfect information and to safeguard the interests of both parties involved in the transaction
For the financial capital market, in particular, mechanisms like co-signers and collateral are used to manage the risk of unexpected and detrimental events. These measures provide a degree of insurance to involved parties, similar to how reputations, guarantees, warranties, and service contracts assure product quality in the goods market, and occupational licenses and certifications assure competency in the labor market.