What are the four conditions an issue must use when using the Rule 10b-18 when buys back securities in the open market?
1) One BD to make purchases at a time (one during normal trading and another after-hours market)
2) The time the purchases take place
3) The price at which the trade takes place
4) The volume of shares being purchased every day which is 25% of the ADTV (a
What is a block trade and how many can an issue do in a week?
A block trade is a trade valued at $200,000 or more OR a trade of 5,000 shares or more with a value of at least $50,000
One per week
What form is filled when an insider buys or sells shares of his or her company?
Form 4 (filed no later than the 2nd business day following the transaction)
What form is filled when a person initially becomes an insider?
Form 3
What form is filled annually by insiders?
Form 5
What is filed when a person acquires more than 5% equity of a company?
Schedule 13D
What are the four requirement of the Sarbanes-Oxley annual reports?
1) Management's assessment of the effectiveness of the company's internal controls over financial reporting as the end of the company's most recent year
2) A statement identifying the foundation used by management to evaluate the effectiveness of the comp
What is the maximum civil penalty for insider trading violations?
Disgorgement and up to 3x the amount gained or loss avoided
What is the maximum criminal penalty for insider trading violations?
A fine if $5,000,000 and/or 20 years in prison
What is the penalty for insider trading violations for corporations?
$25,000,000 per violation
What regulation relaxes communication restrictions between BDs and investors prior to the filing of statements in the case of cross-border mergers, tender offers, rights offerings and other similar transactions?
Regulation M-A
Anyone who acquired more than 5% equity of a company must notify which three people?
1) The issuer
2) Each exchange on which those securities are traded
3) The SEC
What is a fairness opinion used for?
The fairness opinion is rendered to determine whether the proposed transaction price is fair (within a reasonable range of prices)
What is stapled financing?
When an investment bank advising the seller in an M&A transaction has agreed to provide financing to the firm that wins the bid
What is painting the tape?
When a small group of investors (or market makers) trade heavily and repeatedly with each other to give the misleading appearance of activity in the stock
What is stabilization?
Trading activity intended to prevent or retard a decline in a stock's price (legal when done with a new issue and in accordance to Regulation M)
What is the term for excessive trading in a customer's account to primarily generate commissions?
Churning
What is a cross trade?
What a BD acts as agent for both the buyer and seller (must be disclosed on the confirmation)
Which two corporate executive are required to sign the issuer's 10-Qs and 10-Ks to certify that they have established effective controls and procedures relating to the disclosure of all material information?
1) Principal executive officer
2) Principal financial officer (AKA chief executive officer of chief financial officer)
What rule prohibits a person from buying or selling a security based on material, nonpublic information?
Rule 10b5-1
What does Rule 10b5-1 require for insider purchases?
1) A written plan that is binding and entered into, in order to purchase or sell the security
2) The plan instructs another person to purchase or sell the security for this person
3) The plan must specified the amount of servitude to be purchased or sold,
When may a corporate officer sell short shares in her own company?
If delivery can be made within 20 days in a short-against-the-box transaction
What transactions are permitted while a tender officer is open?
1) Purchases by the dealer-manager or its affiliates on a agency basis
2) Purchases on a principal basis, provided the dealer-manager and its affiliates are not market makers
3) Purchases by an affiliate of the dealer-manager, if the affiliate maintains a
When must an issuer file Form 8-K if they have changed the accounting firm that certifies its financial statements?
Within four business days
When must an issuer file Form 8-K if they have inadvertently leaked material information?
Within 24 hours
What is a riskless principal transaction?
A riskless principal transaction is defined as after receiving an order from an issuer to buy its security, the BD buys the security at the same price to effect the issuer's order
(The BD may charge a commission, markup, or son is in equivalent)
What is filed when a security is going private, a transaction by issuers of publicly traded securities?
Schedule 13E-3
Any person who acquires more than 5% of any equity security must file with the SEC within how many days?
10 business days
Which of the following departments would bring criminal action in an insider trading case?
The Department of Justice
When must a Form 8-K be filled?
1) Any material event that would affect its financial condition or the value of its shares and that would be deemed of significant interest to the public
2) Involved in bankruptcy
3) If the firm acquired it disposed of a significant amount of assets not d
What does the proxy information on Schedule 14A inform?
Item 14 on the proxy concerns mergers, consolidations and acquisitions; it is provided to shareholders if their vote is required
According to the Securities Exchange Act of 1934, an institutional investment manager who trades with discretionary authority is required to file a form with the SEC if the holding are at what value?
Equity securities valued at $100,000,000 or more (Rule 13f-1)
When must trades by corporate insiders be reported?
By the end of the 2nd business day following the transaction
Which of the following regulatory bodies conducts a review of Schedule TO?
The SEC's Staff Office of M&A
What must be disclose in a fairness opinion?
1) Current or prior relationship between the author of the opinion and any party to the transaction
2) Compensation due to the BD that prepares the report, if the compensation is contingent on the deal closing
What is a definitive proxy?
A proxy given to shareholders to provide them with the information that will allow them to make an informed decision on the matter being voted on
How often do 10-Qs have to be filed?
Three times and dates as of the fiscal year
Participants in large transactions, whether involving US or non-US companies, must notify which two offices of the US government?
The Federal Trade Commission and the Department of Justice
How long can the SEC suspend trading?
The SEC can suspend trading in any stock for up to 10 business days and to close an exchange for up to 90 calendar days
Why is a TO Schedule filed?
It is filled by the acquirer to provide both the terms of the transaction as well as other required information to shareholders of the target company
What are 425 fillings?
Any communications in which comments on mergers are being made by executives of either companies that is filled with the SEC
When can a company extend the length of the tender offer?
If a press release is issued no later than the morning of the day following the scheduled expiration date of the offering
When do shareholders have to be notified when a company is subject to a tender offer?
Within 10 business days from the date the tender officer is made
What three things need to be included in a notice of a tender offer?
1) A recommendation that the shareholders accept or decline the tender
2) Express that it has no opinion and remains neutral
3) State that is unable to take a position on the tender offer
How often must companies that are subject to reporting requirements of the Securities Exchange Act of 1934 file reports detailing the company's internal controls over financial reporting?
Annually
What is the reward of a person who reports an insider trading violation?
A maximum of 30% bounty
If a person making a tender off let increases or decreases the percentage of the class of securities being sought, the consideration being offered or the dealer's soliciting fee the offer must remain open of how many days?
10 business days
What is the minimum time that a tender offer must remain open?
20 business days
What two people must verify the truthfulness of its quarterly and annual reports?
CEO and CFO
What is the maximum order size for the Nasdaq Market Center Execution System?
999,999 shares
When can a member firm enter a quote the OTCBB without filing a Form 211 with FINRA?
If the security satisfies the piggyback exemption under SEC Rule 15c2-11, then the OTCBB will identify the security as active (actively traded)
-The market maker is also required to give a phone number of the firm's trading desk with each quotation
How could a BD prevent its orders and quotes from being executed against its own MPID?
By using the Anti-Internalization feature which stops the system from executing any quotes or orders entered under the same MPID
According to SEC rules, a penny stock is any equity security, EXCEPT:
1) Exchange-traded stocks
2) Investment company securities
3) OCC-listed puts and calls
4) Securities with a market value of at least $5 per share
4) Securities whose issue has i) net tangible assets exceeding $1 million (three years operations), ii) net
What time does the Nasdaq system operate?
4:00 AM to 8:00 PM EST
Does a market maker have to maintain a two-sided nonattributable quote? Yes or No?
No, they must have a two-sided attributable quote
What is the difference between a attributable and nonattributable quote?
An attributable quote/order shows the market participant identifier while the nonattributable quote/order does not
What regulation requires the registration of any system that matches buyers and sellers?
Regulation ATS
Are priced quotes for direct participation programs (DPP) firm? Yes or No?
No
Does the OTCBB provide execution services? Yes or No?
No
What are the Nasdaq Global Select initial listing requirements?
1) A minimum market capitalization
2) A minimum cash flow requirement
3) A minimum bid price
What quotations are on the Consolidated Quotation System (CQS)?
The CQS provides quotations for listed securities that are traded in markets outside of the primary marketplace where the security is listed
What are the four conditions of a qualified third-market maker?
1) A registered BD and subject to SEC's minimum net capital rule
2) It has and maintains net capital of $500,000
3) It has a reasonable average inventory turnover in such security
4) It is ready to effect transactions for it own account at quoted prices w
What is the ADF Trading Center open?
8:00 AM to 6:30 PM EST
A MOC or LOC order on the NYSE may be cancelled up to what time?
3:50 PM or if there is a legitimate error 3:58 PM
What is the third market?
Trading of listed stocks in the OTC market
What is the general rule for using multiple MPIDs?
FINRA allows for the use of multiple MPIDs for both displaying quotes and reporting transactions
What does Nasdaq level 1 provide subscribers?
The inside market on a security for which there is a minimum of two market makers
When is the OTCBB open?
8:00 AM to 8:00 PM EST
When can nonfirm quotes for DPPs (direct participation programs) be updated on the OTCBB?
Twice per day, once between 8:30 AM to 9:30 AM and once between 12:00 PM to 12:30 PM
What are the three standards when applying for Nasdaq Global Select listing?
1) A $4 minimum bid price
2) 3 or 4 market makers
3) Subject to corporate governance
What are the other four requirement that could be used for applying for Nasdaq Global Select listing?
1) Pretax earnings
2) Cash flow
3) Market capitalization
4) Revenue
For an issuer's corporate action (dividends and stock splits) what will be adjusted?
1) All bid and offer quotes will be purged from the system
2) All orders shall be cancelled in the event of a reverse stock split
3) Sell orders will NOT be adjusted automatically by the system and should be modified by the market participant that entered
What is the inside market?
The highest bid and the lowest offer of any market makers
The Nasdaq Market Center TotalView order display and execution system shows the aggregate size attached to how many of the best bids and asks?
5
Can you use supplemental MPIDs for passive market making? Yes or No?
No
What is the Single Book?
The Nasdaq Market Center Execution System
What does the Consolidated Tape report?
Transactions for securities that are listed on the NYSE except for private placements, tender offers, option exercises and registered distributions
What is the minimum quote size permitted for a BD in OTC equity securities?
It depends on the price of the quote
What are the requirements for the piggyback exemption?
1) The security has to be the subject of regular and continuous quotes in the past 30 days
2) The quotes must have appeared on at least 12 days of those 30 days with no more than four business days in succession without a quote
Can a stop order be placed by a floor broker? Yes or No?
No
When can a BD enter a quote on the OTCBB without filling Form 211?
If the security satisfies the piggyback exemption and is identified as active
What is internalization?
A process in which the execution system will execute order internally instead of with another market participant
How can a BD who is participating in the Nasdaq Market Center Execution prevent its orders and quotes from being executed against its own MPID?
By using the Anti-Internalization feature
When does the Nasdaq system operate?
4:00 AM to 8:00 PM EST
Does a market maker have to maintain a two-sided nonattributable quote? Yes or No?
No, they must have a two sided attributable quote and must permit automatic execution against its positions
What does an Alternative Trading System (ATS) do?
An ATS provides an alternative method to trading on an exchange and enhances the liquidity of securities in the marketplace
Does the OTCBB (OTC Bulletin Board) provide execution? Yes or No?
No
Name at least 3 requirements to be listed on the Nasdaq Global Select market?
The public float, stockholder's equity, bid price, revenue, number of market makers, number of shareholders and cash flow from operations
What are the qualifications of being a third-market maker?
1) It is a registered BD and is subject to and is in compliance with the SEC's minimum net capital rule
2) It has and maintains net capital of $500,000
3) It has a reasonable average inventory turnover in such security
4) It is ready to effect transaction
When is the ADF Trading open?
8:00 AM to 6:30 PM EST
What are the FINRA rules regarding using multiple MPIDs for reporting transactions?
FINRA allows for the use of multiple MPIDs for both displaying quotes and reporting transactions
What does Nasdaq Level 1 provide?
Level 1 provides member firms with bids and offers for OTC securities
When is the OTCBB open?
8:00 AM to 8:00 PM EST
A member firm that accounts for 1% or more of the volume of a listed security is required to publish quotes through what system?
The CQS
Can a supplemental MPIDs be used for passive market making? Yes or No?
No
What does the CQS quote?
The Consolidated Quotation System (CQS) provides quotations on all common stock, preferred stock, warrants, and rights which are registered on the American Stock Exchange, the NYSE and certain regional exchanges
Which market has the least and most stringent listing requirements?
Nasdaq Capital Market and Nasdaq Global Select Market
What are the five sources of information the SEC can require for a BD wishing to initiate or resume quotations for a non-exchange-listed security?
1) A prospectus filed with the SEC which has been in effect for less than 90 days
2) A Regulation A offering circular, effective within the preceding 40 days
3) The issuer's latest Form 10-K and all subsequent Form 10-Qs and Form 8-Ks
4) For foreign secur
When may the name of the customer be allocated on a business day other than the trade date?
If the order is from an outside investment adviser (like a person employed by the member firm providing investment advisory services who is acting as an investment adviser)
The minimum quote size permitted for a BD in OTC equity securities is
Based on the price of the quote of the quote
When a BD is charging a commission is it acting as a agent or dealer?
Agent
FINRA has the authority to halt trading in all of the following securities pending release of material information EXCEPT:
OTC equity securities underlying an ADR
In what timeframe does a FINRA member have to file a clearly erroneous transaction request?
Within 30 minutes
When does a market maker have to enter a quote until their registration is terminated?
They have to make a quote within 5 business days after the market maker's registration becomes effective
What is a crossed market?
When a bid is higher than an offer already displayed, or when an offer is lower than a bid already displayed
What is a locked market?
When a bid entered is equal to a displayed offer, or an order entered is equal to a displayed bid
What is the NYSE Rule 127?
This concerns crossing a block trade outside the prevailing NYSE quotation
What are the conditions that must be met for NYSE Rule 147 to be permitted?
1) The member is required to inform the DMM of it's intentions to cross a block at a specific price
2) The member may, but is not required to, check with the DMM to determine if there is any interest in participating in this transaction
3) In order to eff
When can a BD execute a debt transaction with a customer and use prices other than its contemporaneous cost?
1) Interest rates have changed after the dealer's contemporaneous transaction to a degree that such a change would reasonable change the price of the debt security
2) The credit quality of the debt security changed significantly OR
3) News was issued or o
When a dealer charged a markup in a debt securities transaction, what is the prevailing market price?
A transaction in the same security that has occurred at a time close to the dealer's transaction
Is a BD executing a net transaction required to disclose the compensation on the confirmation? Yes or No?
No
What information can be found on an order ticket?
RR identifiers
Client identifiers
Solicited or unsolicited
Do-not-reduce instructions
Trade date
Type of account (cash, margin, DVP, etc.)
If sale whether long or short
Discretionary or discretion was not exercised
Originating office identifier
What information can be found on a confirmation?
Whether firm acted as principal or agent
Trade date
Settlement date
CUSIP
How can a risk less principal transaction vs a bet basis transaction get reported?
A risk less principal transaction may be reported to FINRA as one transaction, but net basis transitions require two separate reports
The 5% Mark-Up Policy applies to which type of transaction?
A meme we form purchased a security from a market maker and sells it to a customer in a riskless principal transaction
What is the penalty if a market participant fails to make timely quotes to the Consolidated Quotation System?
A one-business day suspension from market making in the security
Can a large block order be executed before the market opens?
Yes, market makers may agree to execute a black before the open at a negotiated price
Can BD maintain a relationship with a market maker for order execution purposes?
Yes, these does NOT count as collusive behavior
What is maintaining a spread?
Discouraging another firm from narrowing its quote
This a not allowed as it is collusive behavior
How often are marketwide trading halts based on the S&P 500 Index calculated?
Daily
What percentage is Level 1 Market Decline and how long will trading be halted?
7% and trading will be halted for 15 minutes
What percentage is Level 2 Market Decline and how long will trading be halted?
13% and trading will be halted for 15 minutes
What percentage is Level 3 Market Decline and how long will trading be halted?
20% and trading will be halted for the remainder of the day
If a security enter the limit state and fails to mace back inside the price bans, after what timeframe will the exchange issue a trading pause in the security?
15 seconds
If a security enter the limit state and fails to mace back inside the price bans within 15 seconds, how long will the exchange issue a trading pause?
5 minutes
When does a security enter a limit state for the Limit Up/Limit Down Rule?
A limit state will occur if the National Best Bid (NBB) is on of above the upper price band, or the National Best Offer (NBO) is on OT below the lower price band
What is the reference price?
For LULD the reference price for each security is based on the opening price or quote on the primary listing exchange, and hereafter, on the trading that occurred over the preceding five minutes of trading
What are the four circumstances where a market maker can apply to FINRA for an excused withdrawal status?
1) An excused withdrawal for up to five business days for circumstances beyond the market maker's control (storm or illness)
2) Withdrawals up to 60 days may be granted for legal or regulatory reasons
3) For religious holidays or vacations me be granted a
When does a member firm have to report when a transaction is erroneous and wished to have it reviewed?
Within 30 minutes of the transaction
When do firms have to file a record of their short interest?
It must be filed with FINRA twice each month and would be reported by the close of business day on the 2nd day after the calculation
What is front running?
When a member firm executes an order for its own account when it has material, nonpublic information about an imminent block transaction in the underlying security
What is the term for when firms break up orders for the primary purpose of maximizing rebates to the member?
Trade shredding
What is the term for an insertion of a third party between the customer and the best market, to the detriment of the customer?
Interpositioning
What is a proceeds transaction? How is the markup calculated?
When the proceeds of the sale of one stock are used to purchase another stock from the same broker-dealer, the transaction is called a proceeds transaction.
In determining the markup the broker-dealer will charge, industry rules state that the firm should
What orders are members firm not required to accept?
Stop orders and stop limit orders
For which type of transaction must a BD obtain written consent for noninstitutional (retail) customers on an order-by-order basis?
A net basis trade
For institutional customers can the consent for net basis trade be oral or written? Yes or No?
Yes or depend on the negative consent letter
How long is a BD given to accept or decline a blockbuster trade?
15 minutes
When must a List or Fixed Offering Price Transaction in a TRACE-eligible security that is executed during market hours be reported?
T + 1
When is a BD required to transmit transactions to OATS (Order Audit Trail System)?
It must be submitted by 8:00 AM on the calendar day following the OATS business day (after the trade)
When must transactions in a TRACE-eligible executed between 8:00 AM and 6:29 PM be reported?
Within 15 minutes
When must transactions in a TRACE-eligible executed between 12:00 AM and 7:59 AM be reported?
Within 15 minutes after the TRACE system opens at 8:00 AM
A corporate bond trade the occurs within 15 minutes of TRACE closing must be reported when?
The following business day within 15 minutes the s of the opening of the system
What information needs to be included when entering information into OATS?
The time the order was received from the customer
Order identifier
Agent or principal status
Execution time and price
The time limit the order is in force
Who has a trade reporting requirement for equity securities?
The executing firm
What is a business day for the OATS?
It begins at 4:00 PM on one market day and ends at 4:00 PM on the next market day
Who has a trade reporting requirement for TRACE-eligible securities?
Both the buyer and seller
What is a risk management alert?
It warns a clearing firm that one of its executing brokers is near or above its clearing threshold
The system would indicate the order is "held" and the clearing firm needs to allow or inhibit the trade as a blockbuster or sizable transaction
When must transactions in equity securities be reported?
Within 10 seconds anytime the reporting systems are ooen
When do equity transactions for the TRF or ORF executed between 8:00 PM and midnight gets reported?
They must be reported by 8:15 AM the following business day
What does Network A report?
NYSE securities
What does Network B report?
American Stock Exchange and other national securities exchanges (ex: CBOE) securities
What does Network C report?
Nasdaq securities
In a transaction in a security quoted on the OTCBB which party will report the transaction to the ORF?
To avoid double counting, the transaction is reported to the TRF or ORF by one side of the trade:
1) In a transaction between two member firms, the exciting party is required to report
2) In a transaction between a member firm and a nonmember firm or cust
When is the ADF open?
8:00 AM to 6:30 PM
What is the term when securities are given an investment-grade rating from one NRSRO and a non-investment-grade rating from another NRSRO?
Split-rated
Under the TRF reporting rules, when must an order-entry firm report its version of the trade?
Within 20 minutes
What is term for an executing BD submitting trades on behalf of another participant BD?
Give-up relationship
Where are reports of secondary market transactions in direct participation programs reported?
ORF (OTC Reporting Facility)
When can a transaction in a security that is reported to TRACE be seen by the public?
Immediately
In what capacity does a member firm report after conducting a net basis transaction?
Principal
What type of trade is when a transaction in the Nasdaq Market Center Execution System is automatically send to a clearing corporation for clearance and settlement according to the terms at which it was executed?
A locked-in trade
Which fixed-income securities are NOT considered TRACE-eligible?
Corporate money-market securities (with maturities of les than one year)
Municipal securities
Securities issued by foreign governments
When must transactions in restricted equity securities that are executed between midnight and 8:00 AM be reported?
At any time on the same business day
What is a step-out?
A step-out is a method used by BDs that have previously executed a transaction to allocate all or part of the transaction to another BD for clearing purposes
At 3:05 AM a transaction involving a restricted equity security is executed under Rule 144A. When must this trade be reported?
At any time on the same business day
Can a member firm front-run a block transaction?
No, not until the information is considered to be made public after the entire block transaction has been executed and reported
When must a company notify shareholders if it is subject to a tender offer?
No later than 10 business days from the date the tender offer is made