The Limit Up/Limit Down (LULD) Rule applies to all National Market System (NMS) stocks that include all securities listed on the NYSE and Nasdaq. This includes exchange-traded funds and any other exchange-listed security, regardless of the bid or offer pr
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In a cross trade, a broker-dealer acts as an agent for both the buyer and seller. The cross trade must be disclosed on the confirmation to each customer in order to notify them of the capacity in which the broker-dealer acted.
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Difference Between Nasdaq Level 1 and 2
Nasdaq Level 3 service is available only to market makers. Although it displays the same information as Level 2, it is also interactive. Market makers can update their quotations through the Level 3 screen, as well as make trade and volume reports to Nasd
The Rule 10b-18 safe harbor provision that is available to issuers applies only to open market purchases of common stock by the issuer. The safe harbor does not apply to purchases of any other type of security, even if the security is related to the commo
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A member firm has a customer limit order to buy 1,000 shares at $36.40. If the member firm purchases stock at $36.40 to facilitate a customer market order to buy stock, it is:
A. Required to fill the customer limit order
B. Not required to fill the custom
B. One of the exceptions to the Prohibition Against Trading Ahead of Customer Orders (Manning Rule) is the riskless principal exception. If the proprietary trade is to facilitate a riskless principal basis transaction, (the market order from a customer to
Under the TRF reporting rules, an order-entry firm:
A. Must report its side of the trade within 10 seconds
B. Does not have any obligations if it reasonably believes that the market maker will report the trade accurately
C. Must either enter its version o
D.
Under the TRF rules, the order-entry side of the transaction must do one of the following:
Enter a version of the trade within 20 minutes of execution using the OE function on Nasdaq Workstation II
Accept market-maker trade entries on the TRF through A
.N modifier
The modifier ".N" is used to report a trade that settles the next day.
Which of the following orders or executions is NOT required to be reported to OATS?
A. An executed buy order of 5,000 shares of a NYSE listed security
B. An order to sell 4,000 shares of a security trading on the Pink Sheets
C. An execution reported by a
A.
Order information that must be reported to OATS includes transactions in equity securities listed on the Nasdaq Stock Market. Transactions in OTCBB and Pink Sheets securities also report to OATS. Proprietary trading by market makers is not required to
The Department of Justice did not find that Nasdaq market practices, such as implicit pricing conventions, resulted from "an express agreement reached among all of the market makers in a smoke-filled room." Nevertheless, the DOJ and the SEC found the prac
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A customer liquidates $10,000 of stock through a broker-dealer and uses the proceeds to purchase $10,000 of another stock. The broker-dealer's total markup for the transactions is $600 which, on a percentage basis, is:
A. 6%
B. 3%
C. 0%
D.Not determinable
A.
A proceeds transaction is one in which a broker-dealer sells stock for a customer and uses the proceeds of the sale to purchase other stock. The broker-dealer is required to consider the entire dollar amount involved in the transaction when determining
All of the following entities may participate directly in the Nasdaq Market Center Execution System, EXCEPT:
A. Order-entry firms
B. Institutional investors
C. Market makers
D. UTPs
The following market participants are allowed to participate directly in the Nasdaq Market Center Execution System: Order-Entry Firms, Registered Market Makers, Unlisted Trading Privileges (UTPs). ECNs participate through the ADF. Other market participant
At 3:50 p.m. EST, an order imbalance indicator begins. The imbalance indicator provides information regarding market-on-close (MOC), limit-on-close (LOC), and imbalance only orders (IO). The imbalance indicator is sent at the following times and frequenci
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A Nasdaq market maker may become registered in another security by contacting Nasdaq Market Operations. Registration in that issue is effective on the day the registration request is entered.
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In which of the following circumstances may a member firm recoup a commission for selling shares of a new issue that are subsequently flipped by a customer?
A. The managing underwriter assesses a penalty bid on the entire syndicate
B. A customer of a synd
A.
Flipping is defined as the initial sale of a new issue within 30 days following the offering date of the IPO. In many circumstances, this may create downward pressure on the price of the security in the secondary market and, for this reason, underwrite
Which TWO of the following disclosure items would be included on an order ticket?
I. Whether the firm acted as principal or agent
II. Whether the order was solicited or unsolicited
III. The commission charged by the broker-dealer
IV. The designation DNR,
Answer is D.
A market maker that has inadvertently withdrawn from Nasdaq due to keying in the wrong symbol can be immediately reinstated if:
-It notifies Nasdaq Market Operations within one hour of the withdrawal and follows up with a written notification,
-It is clea
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A broker-dealer must provide the customer with a risk disclosure document on penny stocks once, prior to effecting the first transaction for the customer. The other items must be disclosed in connection with each transaction.
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ATS (Alternate Trading system)
An Alternative Trading System (ATS) is an SEC approved nonexchange trading system. An ATS provides an alternative method to trading on an exchange and enhances the liquidity of securities in the marketplace. Examples of these systems include a broker-deal
The syndicate manager has just informed you that your firm will be participating in a follow-on offering of a thinly traded OTC equity security that happens to be a stock for which your firm makes a market. Under Regulation M your firm:
A. Must withdraw i
A.
A member firm that is participating in a distribution of an OTC equity security is required to withdraw its quotations during the Regulation M restricted period. Passive market making and filing for excused withdrawal status are only available for a re
Which of the following statements is NOT TRUE about a market maker peg order?
A. If the market maker places the order with an offset, it will be repriced with every tick of the security
B. If the repricing would bring the peg above the limit price, then t
C.
A market maker is NOT required to use this functionality to comply with its quoting obligation, as some firms may use their own system. If the market maker places the order with an offset, it will be repriced with every tick of the security. Offset can
The SEC has just suspended trading in an OTC equity security. After the trading suspension is lifted, it is important for market makers, before resuming their quotations, to review their obligations under:
A.SEC Rule 144
B. SEC Rule 10b-10
C. SEC Rule 15c
C.
In order to resume quotations after a Section 12(k) suspension, (trading halt) a broker-dealer must reestablish compliance with Rule 15c2-11 by (i) obtaining and/or supplementing the information required to initially establish compliance with the rule,
Under SEC Rules regarding partial tender offers, which of the following is prohibited?
A. Tendering stock one does not own
B. Tendering stock that has been purchased, but not yet received
C.Changing the terms of a tender offer
D. Tendering only part of th
A.
It is considered to be a manipulative or fraudulent act to tender securities that one does not own (short tendering). To be considered the owner of securities that are the subject of a tender offer, an individual must own the stock (have a long positio
All of the following statements are TRUE regarding the filing of a backing-away complaint through FQCS, EXCEPT:
A. Prior to filing a complaint, FINRA encourages a firm that believes it has been the subject of backing away to contact the other firm and res
D.
In order to investigate backing-away complaints on a real-time basis, FINRA requests that such complaints be filed within five minutes of the alleged violation. If the aggrieved firm directly contacts the other side first, the five-minute window is wai
If the distribution (stock dividends or cash dividends) has a value of 25% or more of the subject security, the ex-dividend date is the first business day following the payable date. For cash dividends, stock dividends, or warrants that are less than 25%
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To be eligible for the safe harbor provision available under Rule 10b-18, there are four main conditions that must be met:
-Only one broker-dealer at a time may be used to effect purchases
-The time during which the purchases may occur in the market is re
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Restricted stock generally must be held for six months before being sold under Rule 144. This is true for both affiliates of the issuer and nonaffiliates. However, once nonaffiliates have held the stock for one year, they may resell the shares without fol
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Block Positioner
The term block positioner refers to a firm that buys and sells a large quantity of an equity security by committing its own capital. The Securities Exchange Act of 1934 uses this term to define a type of market maker in a security. In order for a firm to
An order to buy 1,000 shares at $25.00 has been entered into the Nasdaq Market Center Execution System. If the issuer declares a cash dividend of $.11, the system will:
A. Not automatically adjust the order
B. Automatically adjust the order upward
C. Auto
C.
In response to an issuer's corporate action, such as a cash dividend, the Nasdaq Market Center Execution System will reduce an open buy order by an amount enough to cover the cash dividend. Rather than the system automatically adjusting sell orders, th
Stabilizing bid
The SEC defines stabilizing as the placing of any bid or the effecting of any purchase for the purpose of pegging, fixing, or otherwise maintaining the price of a security. As its definition implies, the act of stabilizing is generally manipulative. Howev
Exemption "trade-through" requirements for stopped orders
The transaction that constituted the trade-through was the execution by a trading center of an order for which, at the time of receipt of the order, the trading center had guaranteed an execution at no worse than a specified price (a stopped order), where
Canceling a MOC order at 3:55 pm
MOC and LOC orders are considered on-close orders. These orders can be entered, cancelled, or modified between 9:30:01 a.m. ET and 3:50:00 p.m. ET and are not shown in the Nasdaq Market Center Execution System. MOC and LOC orders can only be cancelled bet
Broker-Dealer Y makes a market in UpDown Corp., a Nasdaq stock. During a period of intense customer demand for the security, Y finds its inventory of UpDown totally depleted. If another customer wishes to purchase the stock, Y:
A. Must refuse the order
B.
D.
Market makers can sell stock short to customers in order to provide liquidity to the market. This type of short selling is recognized by certain regulations, such as Regulation SHO, as different from speculative short selling. It is viewed as a legitim
Block size orders
10,000 shares OR have a value of at least $200,000 Block sized
Form T
-traded wasn't reported for some reason (exampleThe transaction was executed 13 months ago)
-The market maker is no longer active
-The ticker symbol for the security is no longer available
When a market participant's quote is about to be exhausted, there are three things that can happen.
-The market participant may manually update its quote
-The market participant may elect to use the Automatic Quote Refresh (AQR) functionality, which will
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Securities sold in the following transactions are NOT subject to the penny stock disclosure rules:
Transactions with an institutional accredited investor
Private placements
Transactions with the issuer, officers, directors, general partners, or 5% owners
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Transactions exempt from the trade-through restrictions of Regulation NMS are reported with an appropriate modifier noting the exemption. These trades include intermarket sweep orders, stopped stock, and benchmark orders such as volume-weighted average pr
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SCAN -Through ACT Trade Scan, an order-entry firm can do all of the following, EXCEPT:
A. Accept trades as entered by the contraparty
B. Unilaterally break a matched trade
C. Decline trades it believes it did not agree to
D. Change its capacity on a trade
B.
ACT Trade Scan can be used by both order-entry firms and market makers to:
view trades entered into the system
accept, decline, or cancel open trades (Market makers can also correct trades.)
break a matched or accepted trade (if both sides make the app
The maximum civil penalty for insider trading violations is disgorgement of profit and up to three times the amount gained or loss avoided (treble damage).
The maximum criminal penalties per violation for individuals are a fine of up to $5,000,000 and/or
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Which of the following statements is TRUE regarding the difference between the trading of listed stocks on exchanges and through CQS?
A. Exchange trades are reported to the Tape while CQS trades are not
B. CQS transactions are done primarily on an agency
C.
Most exchanges award the market-making franchise for a particular stock to a single specialist or designated market maker (DMM), while any FINRA member can choose to quote an exchange-traded stock on the CQS. Exchange-listed securities are covered by t
Rule 105 of Regulation M mandates that securities from an offering cannot be used to cover short sales effected during the shorter of:
the period beginning five business days prior to the pricing of the offering and ending with the pricing of the issue, o
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If there are at least two market makers displaying two-sided quotations for an OTCBB security, the system will calculate and display the inside market based on all the quotes in the system for that security, including any one-sided priced quotes.
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ADF suspension due to system outages
An ADF market participant that experiences three unexcused system outages within a five-business-day period will be suspended from quoting for all securities in the ADF market for 20 business days. A system outage is considered a period of time when quote
Definition of a Market Maker
The classic definition of "market maker" includes a dealer in a security that holds itself out as being willing to buy or sell the security for its own account on a regular or continuous basis. The Exchange Act definition, however, includes not only these
Penny Stock
-For securities quoted on the OTCBB and the Pink Sheets, if the bid price is $5.00 or higher, the security would NOT be defined as a penny stock.
-Example - this considered a penny stock -- A security quoted on the OTCBB at 4.85 - 5.03
NASDAQ market maker trying to quote an OTC issue
Nasdaq market makers are not required to register in order to make a market in an OTC equity security; however, corporate information about the issuer must be collected and reviewed.
Restricted list
Firms that conduct investment banking, research, or arbitrage activities must maintain some form of watch and restricted lists as part of their Information Barrier procedures designed to prevent the misuse of inside information. A restricted list contains
If a transaction occurs between two reporting order-entry firms, the seller is required to submit the trade report.
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OATS includes:
-Partial/Full
-Date
-Time
-Price
-Order Identifier
-Capacity (agent, principal, riskless principal)
-The exchange where the transaction was reported
-Orders that are executed from proprietary transactions or in the course of a member's market-making activ
In general, Nasdaq quotes must be firm and two-sided. However, a one-sided, firm, stabilizing bid is permitted if Nasdaq is properly notified.
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A riskless principal transaction is a trade in which a broker-dealer executes a customer's order that it is holding by buying (or selling) a security and then simultaneously selling (or buying) that security for the customer at the same price (plus a mark
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FINRA rules prohibit a member firm from accepting a market order for a new issue prior to the commencement of trading for that stock in the secondary market. An initial public offering (new issue) may experience volatility as it commences (begins) to trad
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TRACS Info
- The functions that a non-reporting member may perform through TRACS include trade accept, trade decline, and trade break. Only a reporting member may use TRACS for a trade cancellation.
-An ADF market participant must report transactions through the Tra
SEC Market Access Rule
The SEC's Market Access Rule requires a broker-dealer to establish and enforce risk-management controls and supervisory procedures to ensure that customer orders are not erroneous and do not violate applicable regulatory requirements, that customer transa
Which of the following would be subject to SEC Rule 15g-9 regarding sales practices for recommending low-priced securities?
A. A recommendation of a $1 stock to a new customer who has made five trades in low-priced stocks this year on five different days
According to SEC Rule 15g-9 (the "Cold Call Rule") covering sales practice requirements for certain low-priced securities, a broker must obtain a written agreement from the customer authorizing a transaction in certain designated securities. The rule does
CQS
A CQS securities transaction (third market) refers to the trading of NYSE-listed or other exchange-listed stocks in the over-the-counter market. Such transactions by FINRA members must be reported within 10 seconds of the trade during Nasdaq system hours
Nasdaq Global Market issuers must meet stricter financial standards than Capital Market issuers to qualify for listing
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Clock synchronization, according to OATS requirements, must be within:
A. 60 seconds of the National Institute of Standards and Technology (NIST) standard
B. 30 seconds of the National Institute of Standards and Technology (NIST) standard
C. 10 seconds of
D. - One second
According to OATS requirements, both a member's computerized clocks and mechanical time stamping devices must be synchronized within one second of the National Institute of Standards and Technology (NIST) standard
Short Position Reports
Members must maintain a record of total short positions in Nasdaq stocks in all customer and proprietary accounts. Currently, reports on this information must be filed twice a month.
n implicit or explicit understanding among market makers to always quote prices that maintain the spread at a certain minimum increment would be called:
A. A markup policy
B. Supply-demand equilibrium
C. Price improvement
D. A pricing convention
Regulatory investigations of the Nasdaq market found the presence of a "pricing convention" whereby stocks with dealer spreads of .75 of a point more were customarily quoted by market makers in "even-eighths" -- when stock prices were traded in fractional
All FINRA member firms may participate in the Nasdaq Market Center Execution System if they:
-Are a member of the National Securities Clearing Corporation (NSCC),
-Have a clearing arrangement with an NSCC member, or
-Clear through a clearing corporation recognized by the NSCC.
A registered market maker's quote in a Nasdaq listed security that is included in the S&P 500 index:
A. May not exceed the National Best Bid or Offer by more than 8%
B. Must be equal the National Best Bid or Offer
C. Must be equal the National Best Bid or
A market maker must use its market participant identification (MPID) and maintain a two-sided quote for one round lot (100 shares). When entering a bid or offer, a market maker must also enter a price that does not exceed a designated percentage away from
Long form vs. Short Form (trade reports)
The long form trade report is used to submit additional information required for trade-reporting or clearing purposes that cannot be submitted using the short form. For example, the short form cannot be used for reporting trades with a .Z modifier, or for
Margin Positions
Since margin positions are often marked to market based on closing prices, an investor might be tempted to mark the close in order to avoid a maintenance margin call.
ADF voluntary withdrawal
An ADF market maker that voluntarily terminates its registration in a security by withdrawing its quotations from the ADF may not reregister as a market maker in that security for 20 business days. This penalty associated with an individual security does
Both Nasdaq Global Market and Nasdaq Capital Market listing standards require 3 market makers as an initial requirement before the stock may be quoted on NASDAQ. A security must have two market makers to continue to be listed.
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Step Out Agreement
A step-out is a method used by broker-dealers that have previously executed a transaction to allocate all or part of the transaction to another broker-dealer for clearing purposes. Broker-Dealer A may step out of 20,000 shares by submitting a clearing-onl
Inadvertent Withdrawals
A market maker that has inadvertently withdrawn from Nasdaq due to keying in the wrong symbol can be immediately reinstated if:
It notifies Nasdaq Market Operations within one hour of the withdrawal and follows up with a written notification,
It is clear
Supplemental MPIDs
A member firm that is registered as a market maker in a specific security must have its own two-sided firm quote. This is known as its Primary MPID. A FINRA member firm may have additional displayable or non-displayable supplemental MPIDs. The non-display
Watch List securities
Although transactions in watch-list securities are not restricted, they are reviewed closely to determine if the firm's Information Barriers have been breached. To prevent signaling the market that the firm has confidential information about the issuer, t
Stopping Stock
When a broker-dealer stops stock, by agreeing to guarantee a specified price or better, a trade that is later executed at the stop price (or better) must include the time of the stop agreement in the trade report. Additionally, a special trade modifier (w
A broker-dealer is required to disclose which TWO of the following business features to clients concerning its order-routing information?
I. Orders that clients specify should be sent to an ECN
II. Orders that are executed in after-hours trading
III. Mark
SEC Rule 606 requires that broker-dealers disclose nondirected customer order-routing information through quarterly reports. For orders that are externally executed, rather than through the broker-dealer, the customer may choose the market center where th
According to clearing and comparison rules, all of the following are acceptable methods for trade report processing and matching, EXCEPT:
A. Declined Trade Entry
B. T+N Trade Processing
C. Trade by Trade Match
D. Aggregate Volume Match
A.
Declined trades are not matched or processed. At the end of each day's matching, all declined trade entries are purged from the system. According to the clearing and comparison rules, the following are acceptable methods for trade reporting and process
According to Regulation SHO, a Qualified Block Positioner is:
a. Exempt from the locate requirement under any circumstances
b. Subject to the locate requirement
c. Exempt from the locate requirement only if it is engaging in bona fide market-making activi
C.
Regulation SHO requires broker-dealers that are accepting short sale orders to first locate the securities to determine if they can be borrowed. This locate requirement has certain exceptions. One is any short sale effected by a market maker in connect
Net Basis Transaction
In a net basis transaction, a dealer holding a customer order to buy, acquires the stock on a principal basis, and executes the customer order at a different price than the dealer's acquisition price. Since both legs of a net basis transaction are at diff
Under Rule 144A of the Securities Act of 1933, the owner of securities obtained through a private placement may resell those securities to a qualified institutional buyer (QIB) without the volume and holding-period restrictions of Rule 144. Qualified inst
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Rule 105 of Regulation M stipulates that it is a violation for any person to sell short the security that is the subject of an offering, and purchase the offered security from the underwriter if the short sale was executed during the period beginning five
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Access Rule
As part of Regulation NMS, the SEC established Rule 610, the Access Rule, to promote fair and equal access to quotations. The rule promotes access to protected quotations in three ways: Market participants are able to access quotes available on Nasdaq, th
.W modifier
Stopped transactions
Under the SEC Display Rule, if a customer's limit order is accepted by a market maker and the price on the order would improve that market maker's quote, the market maker must immediately change its quote to reflect the customer's interest (even if the cu
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A block positioner can qualify as a "market maker" for purposes of Rule 144 if it normally takes block-size positions in the TYPE of security being sold under the rule. For example, if the block positioner never takes positions in mid-cap stocks, it could
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OTC Equity Security Definition
The term "OTC equity security" generally includes any equity security that is neither listed on an exchange nor listed on Nasdaq. It also includes certain exchange-listed securities that do not otherwise qualify for real-time trade reporting. These are us
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According to FINRA, the following risks must be disclosed to customers, prior to engaging in extended hours trading: reduced liquidity, increased volatility, changing prices, unlinked markets, wider spreads and exaggerated effect of news announcements.
MU
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Aggregation under reg SHO
Under Regulation SHO, Rule 200, a broker-dealer must aggregate all of its positions in a security to determine its net position, except in instances where the broker-dealer qualifies for independent trading unit aggregation. Unde
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Rule 144A provides an exemption for the purchase of restricted securities by qualified institutions. Qualified institutional buyers (QIBs) are defined as financial institutions that have at least $100 million invested in securities of issuers not affiliat
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Locked in trades
Trades executed through the Nasdaq Market Center Execution System are locked-in for clearance and settlement at the terms agreed. The trade is automatically reported to Nasdaq and the National Securities Clearing Corporation (NSCC). A locked-in trade is o
A customer may give a broker discretion as to whether to display its orders. However, the firm cannot make a blanket no-display policy part of the condition for opening an account for a customer.
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Form T is filed through FINRA's gateway system
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In order to further reduce the number of fail to deliver positions, the SEC adopted Rule 204 to Regulation SHO. Unless a certain exemption applies, broker-dealers that have a fail (as a result of not being able to deliver the equity security by the settle
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Rule 204
Requires any fail to deliver in any equity security to be bought in:
For SHORT SALES, no later than the day after the settlement (T + 4)
For LONG SALES, no later than 3 business days after settlement (T +6)
Blockbuster Trade
-Blockbuster trades exceed a value of $1 million ($1,000,000)
-the clearing firm of a broker-dealer is given 15 minutes to accept or decline the trade. If the clearing firm takes no action, the trade is accepted for normal processing
Four market makers are displaying the following bids for a Nasdaq stock.
MMA 39 PSMM
MMB 38.90 PSMM
MMC 38.80
MMD 38.70
MMA is about to lower its bid in compliance with Rule 103 of Regulation M. What is the highest price to which MMA may drop its bid?
A.3
B.
MMA must lower its bid to a price no higher than the highest independent bid on Nasdaq for that stock. Since MMB is also a passive market maker, its bid is not "independent." MMC's bid is the highest independent bid.
Order Tickets
-Buy or Sell (sell tickets must be marked long or short)
-Account Number/Name
-Terms and Conditions (e.g., price, stop, not-held, etc.)
-Entry/Execution Information
-Discretionary Order/Discretion Not Exercised
There is NO requirement to put the account t
Times an order must be protected
Most firms limit the life of a customer's order to normal market hours (9:30 a.m. ET to 4:00 p.m. ET), but if the firm remains open until 8:00 p.m.ET, the protections are in place until 8:00 p.m. ET.
Trades executed in Nasdaq securities during extended hours trading (between 4:00 p.m. and 8:00 p.m.) are required to be reported to the TRF within 10 seconds of execution.
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The SEC has created Rule 10b-18 to control how an issuer, or an affiliate, may buy its own stock in the secondary market. When an issuer buys back shares under SEC Rule 10b-18, purchases may not exceed the higher of the independent bid ($22.05) or last in
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Large orders, including those from retail customers
These are defined as orders for 10,000 shares or more, unless such orders are less than $100,000 in value.
When, as and if issued (WI) securities
When, as and if issued (WI) securities are securities that are trading but are not yet available for delivery. On a new issue of stock, the stock will trade in the secondary market before the stock is available from the issuer. On when, as and if issued t
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Large orders, including those from retail customers
-These are defined as orders for 10,000 shares or more, unless such orders are less than $100,000 in value
10,000 shares OR have a value of at least $200,000 Block sized