Final answer:
The statement that the NASD limits the number of market makers per security is false. Market makers are crucial for the liquidity of securities in the over-the-counter markets and must provide continuous bids and offers for the securities they make a market in.
Step-by-step explanation:
All of the following are true regarding over-the-counter market makers EXCEPT: the NASD limits the number of market makers per security. This statement is false because the National Association of Securities Dealers (NASD) does not limit the number of market makers for a given security. Market makers are firms or individuals that stand ready to buy and sell securities for their own account at publicly quoted prices, and they trade for their own profit and at their own risk. They must provide continuous bids (buy prices) and offers (sell prices) for security to create liquidity in the markets. Additionally, a market maker's quote is considered firm for at least 100 shares, which means they are obligated to buy or sell at least 100 shares at the quoted price.
Market makers play a critical role in the over-the-counter (OTC) markets, where securities are traded outside of traditional exchanges such as the New York Stock Exchange (NYSE) or NASDAQ. These entities facilitate trades by using their own capital to take the opposite side of a customer's trade, providing liquidity and smoother price movements. The OTC markets are an important part of the financial system, allowing for trading in securities that may not meet the criteria for being listed on a formal exchange.