Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

How does a private investor purchase investment trust shares in the secondary market?

1. Through an online broker only.

2. Through a stockbroker or financial intermediary.

3. Directly from the investment company.

4. Only at initial public offerings.

The correct answer is: Through a stockbroker or financial intermediary.

A private investor typically purchases investment trust shares in the secondary market through a stockbroker or financial intermediary. The secondary market is where previously issued shares are bought and sold among investors, and this process requires a facilitator, such as a stockbroker, who can execute trades on behalf of the investor. In this context, a stockbroker serves as an important bridge between the investor and the market, providing access to the necessary platforms and tools for conducting transactions. They can offer market insights, execute trades, and sometimes provide additional research and advice, enhancing the investor's decision-making process. While online brokers might be a popular choice for purchasing shares, they do not represent the only means by which shares can be purchased, nor are they specifically required for all transactions. Direct purchases from the investment company would typically occur during an initial public offering or in a primary market setting, not in secondary market transactions. Therefore, relying solely on initial public offerings is not applicable for an investment in the secondary market, making stockbrokers or financial intermediaries the correct channel for this type of investment.