Explanation:
None of the statements are incorrect.
Statement I is correct: Specified pool markets identify the number and the balance of the pool prior to the trade, whereas, in TBA markets, the number and balance are not revealed until settlement.
Statement II is correct: TBA markets of pass-through securities are more liquid than specified pool markets. TBA trading creates liquidity by allowing thousands of different MBS to be traded in a handful of TBA contracts.
Statement III is correct: Specified pools with high loan balances trade for lower prices (since smaller loan balances are associated with slower prepayment speeds, making them more valuable).
Further information: Agency mortgage-backed securities trade simultaneously in a market for specified pools (SPs) and in the to-be-announced (TBA) forward market. TBA trading creates liquidity by allowing thousands of different MBS to be traded in a handful of TBA contracts.
Q.931 Fixed-rate mortgage pass-through securities or the fixed-rate mortgage pool can trade in both specified pool markets and to-be-announced (TBA) markets. Which of the following differences between specified pool markets and to-be-announced markets of pass-through securities is/are incorrect?
I. Specified pool markets identify the number and the balance of the pool prior to the trade, whereas, in TBA markets, the number and the balance are not revealed until the settlement
II. TBA markets of pass-through securities are more liquid than specified pool markets
III. Specified pools with high loan balances trade for lower prices
A
Statement I is incorrect.
B
Statement II is incorrect.
C
Statement III is incorrect.
D
None of the statements are incorrect.
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