Which of the following statements is TRUE concerning electronic communication networks (ECNs)
a.They can be used only by retail investors
b.They can be used to obtain automatic execution
c.They can be used only by institutional investors
d.They can be use
b Electronic communication networks (ECNs) are trading systems designed to match buyers with sellers of securities. They can be used by both institutional and retail investors. One of the benefits of their use is immediate automatic execution if a matchin
A transaction occurs between two dealers for a Nasdaq stock. The trade must be reported by:
a.The buyer within 10 seconds
b.The seller within 10 seconds
c.Both within 10 seconds
d.Both by the end of the day
b Transactions in Nasdaq stocks must be reported to FINRA by the seller within 10 seconds of the trade.
A client owns shares of stock purchased at $46 a share. If the current market price is now $70 and the client wants to protect her profit if the price should fall 10%, the RR should recommend which of the following orders?
a. A market order
b. Sell stop $
b This client only wants to sell her position if the stock declines by 10% or $7.00. The RR should recommend a sell stop at $63. A market order is not suitable since the client does not want to sell unless the price declines. A market order will not allow
Charlene contacts her registered representative to buy an OTC stock. Rather than buying it directly from a market maker, Charlene's broker-dealer contacts another broker-dealer, who buys it from a market maker creating two levels of transaction fees. This
b Interpositioning occurs when a broker-dealer, executing an order for a customer, places another broker-dealer between itself and the market. This is generally prohibited.
Which of the following short positions violates SEC rules?
a. A customer short stock that he borrowed from the brokerage firm
b. A customer short and long the same stock at the same time
c. A customer borrowing stock in order to profit from a tender offer
c A tender offer takes place when an entity offers to buy a corporation's shares at a premium to the current market price. It is normally done for the purpose of acquiring control of the company. According to SEC rules, a customer may not tender short (bo
A mutual fund buys stock from the portfolio of an insurance company. This is a trade executed in the:
a. Over-the-counter market
b. Exchange market
c. Third market
d. Fourth market
d When an institutional investor such as a mutual fund buys stock from the portfolio of an insurance company (another institution), it is considered a trade executed in the fourth market. This is the name given to the so-called market where institutions t
A customer purchases 1,000 shares of an OTC equity in a cash account through an online brokerage firm on Wednesday, March 11th. The transaction will settle:
a.By the close of business on March 11th
b.On March 14th
c.On March 18th
d.On March 16th
d Regular way settlement of corporate securities is three business days. The transaction would settle on Monday, March 16thd
A type of order that becomes a market order when a round-lot trades at or through a particular price is called a:
a. Market order
b. Limit order
c. Stop order
d. Stop-limit order
c A type of order that becomes a market order when a round-lot trades at or through a particular price is called a stop order. A variation of a stop order is a stop-limit order, which is activated when a round-lot trades at or through a particular price,
As it relates to a Nasdaq market maker, the term spread is BEST defined as which of the following?
a.The difference between the price that an issuer will receive for its securities and the price that the public will pay for the securities
b.The difference
b When used in reference to a Nasdaq market maker, the spread represents the difference between the price at which the firm is willing to buy (bid) and the price at which the firm is willing to sell (ask or offer) a security. For example, if the bid price
An investor purchases stock on Monday, September 15. The settlement date on the purchase is:
a. Monday, September 15
b. Thursday, September 18
c. Monday, September 22
d. Wednesday, September 24
b The settlement date on a transaction is three business days following the trade date. Regulation T requires payment by customers for purchases in two business days following the settlement date, while the rules of the SRO require settlement between the
Regulation NMS modernized the U.S. markets for trading equity securities and prohibited:
a. Trading exchange-listed securities over-the-counter
b. A broker-dealer from selling a security to a customer from its own inventory
c. The execution of a buy order
c Regulation NMS modernized the U.S. markets for trading equity securities. Among other rules, Regulation NMS prohibits a trade-through of a protected quote. A protected quote is the highest bid and lowest offer (the inside market) in a market center that
A designated market maker places a GTC order in his book to buy 1,000 shares of XYZ at $30. XYZ declares a 50% stock dividend. The designated market maker should adjust the order when the stock sells ex-dividend to:
a. 1,000 shares at $20
b. 1,000 shares
c The order must be adjusted to reflect the change in XYZ stock. The number of shares will be increased to reflect the dividend and will now be 1,500 shares (1,000 shares plus 50% of 1,000). The price of ABC will be adjusted downward to $20. The total val
A transaction for a stock that is not DTCC eligible, settles on a regular-way basis. This means that settlement occurs:
I.In three business days
II.In five business days
III.At the buyer's premises
IV.At the seller's premises
a. I and III only
b. I and IV
a Regular-way settlement for stock transactions is in three business days. In most cases, settlement occurs electronically through DTCC. In this case, since the seller must make physical delivery of the securities, settlement takes place at the buyer's pr
A customer entered a GTC sell stop order for GM at $35. GM was selling at $38 when the order was entered. GM sells ex-dividend by the amount of the dividend which is $1.60. The customer's order will appear on the designated market maker's book after the s
a All GTC orders that are entered below the current market on the designated market maker's (DMM) book (buy limit, sell stop, and sell stop-limit orders) will be reduced by the amount of the dividend when the stock sells ex-dividend. The stock will always
A designated market maker (DMM) may not accept which of the following orders?
a. Not-held order
b. Market order
c. Good-'til-cancelled (open) order
d. Day order
a A designated market maker (formerly known as a specialist) may accept all of the orders listed except a not-held order, which allows a floor broker to use discretion in executing an order. If the question asked which orders may be accepted and placed on
Who may not trade on the floor of the NYSE?
a. An independent broker
b. A designated market maker
c. An institutional block trader
d. A floor trader
c An institutional block trader may forward orders to the NYSE trading floor from the brokerage firm's trading desk but is not physically located and trading on the floor of the NYSE. The designated market maker, an independent broker, and floor traders a
Which TWO of the following statements are TRUE concerning a company that becomes delisted from the NYSE or Nasdaq?
I.It may be quoted on the OTC Bulletin Board
II.It may only be quoted in the OTC Pink market
III.Firm quotes would no longer be available
IV
b A company that fails to meet the maintenance requirements of securities listed on the NYSE or Nasdaq will become delisted. When this occurs, the company may be quoted (but not listed) on the OTC Bulletin Board or in the OTC Pink Market (also called the
Which of the following choices is NOT permitted to write call options on XYZ Corporation?
a. An individual who owns XYZ Corporation stock
b. XYZ Corporation
c. An individual who owns more than 5% of XYZ Corporation stock
d. All of the above
b Any entity is permitted to write call options except the corporation itself.
A market maker has displayed a firm quote of 15 - 15.50, 5 x 8 for a stock. If a broker-dealer contacts the market maker and wants to purchase 1,000 shares, how many shares is the market maker obligated to sell at 15.50? a.800 shares
b.500 shares
c.1,000
a When a market maker gives a firm quote, the market maker is obligated to buy or sell up to the number of shares at the price quoted. The number of shares that are firm is based on round lots of 100 shares, first the number for the bid and then the numbe
On May 25, the president of MaxCo bought 3,000 shares of MaxCo stock in the open market at $33. Two months later, the stock has increased to $40. If the president now wants to sell the shares:
a.Permission must be granted by the MaxCo board of directors
b
b The Securities Exchange Act of 1934 prohibits insiders from making short-swing profits. A short-swing profit is a profit made on stock held by insiders for less than six months. If the president of MaxCo sold stock two months after it was purchased, Max
A client is notified by his broker-dealer that certain trades may be executed by an Electronic Communication Network (ECN). Which TWO of the following choices are risks of using this type of system?I.Trades are not subject to SRO regulations
II.There may
d Some broker-dealers use ECNs to execute customer orders. ECNs act as matching systems to execute orders from subscribers. Some broker-dealers will use a market maker during normal business hours and an ECN to execute trades after normal business hours (
A customer is short 100 ABC at $120. The market is moving up sharply and the customer decides to cover her short position. The customer instructs her registered representative to cover the short position at the market on the close. The order:
a.Will be ex
b A market-on-close (MOC) order will be executed as close as possible to the closing price of the day
When trading equity securities, the term dark pool is BEST defined as trading:
a. Prior to an exchange's normal market hours
b. After an exchange ends its normal market hours
c. Between investors, allowing them to buy and sell securities anonymously witho
c A dark pool is a source of liquidity for large institutional investors and high-frequency traders, and this system would not disseminate quotes. The system can be operated by broker-dealers or exchanges, and allows these investors to buy and sell large
A customer is willing to accept a partial execution on an order to buy up to 800 shares of XYZ stock at 30. If the client does not want the unexecuted portion to be left open, this order should be entered as:
a. Buy 800 XYZ NH
b. Buy 800 XYZ at 30 IOC
c.
b An immediate-or-cancel (IOC) order must be executed immediately but does not need to be executed in its entirety. Part of the order may be executed. The unexecuted portion of a day order or a GTC order is placed on the designated market maker's book. A
On Tuesday, the S&P 500 Index closed at 1,600. At 11:30 the next morning, the S&P 500 Index is at 1,488. All NMS stocks will:
a. Stop trading for 15 minutes
b. Stop trading for 30 minutes
c. Stop trading for the remainder of the day
d. Continue to trade
a If the S&P 500 Index falls by 7% from the previous trading day's closing price, it is defined as a Level 1 Market Decline and triggers a 15-minute trading halt. In this question, the drop from the closing price of 1,600 to 1,488 the next day (112 points
The Barge Towing Corporation has announced in a tombstone ad that it will issue $500,000,000 of 6 1/2/% convertible subordinated debenture bonds convertible into common stock at $10.50. The bonds will mature in November 2040 and are being issued at a $1,0
d The tombstone ad states the bonds to be issued are subordinated debenture bonds, which are unsecured bonds. The bonds are secured by the full faith and credit and no specific collateral of the Barge Towing Corporation
Which of the following securities is LEAST suitable for an investor seeking income as a primary investment objective?
a.A convertible bond
b.A high-yield bond fund
c.An exchange-traded note (ETN)
d.A corporate bond with an adjustable-rate coupon
c Exchange-traded notes (ETNs) are a type of unsecured debt security. ETNs carry issuer risk that is tied to the creditworthiness of the financial institution backing the note. These securities are not like traditional fixed-income securities since they t
Which of the following factors is LEAST important when recommending a long-term brokered CD to a client?
a. The CD was issued by a bank located in a different state from where the client lives
b. The CD has a feature in which the interest rate is based on
a The state in which the client or issuing bank is located is not an important factor when recommending a long-term brokered CD. The features that establish the interest rate of the security, such as an index of fixed-income or equity securities, is relev
Which of the following choices BEST describes Eurodollars?
a. U.S. dollars on deposit in U.S. banks
b. U.S. dollars on deposit in European banks
c. U.S. dollars on deposit in foreign banks
d. European currency on deposit in U.S. banks
c Eurodollars are defined as U.S. dollars on deposit in foreign banks, not just in Europe.
A secondary market exists for:
a. Dealer-placed commercial paper
b. Federal funds
c. Repurchase agreements
d. U.S. savings bonds
a A secondary market exists for owners of commercial paper to sell their investments to dealers or other investors. There is no secondary market for federal funds, repos, or U.S. savings bonds.
ABC Corporation bonds are convertible at $50. If the bonds are selling in the market for 90 ($900) and the common stock is selling for $43, which TWO of the following statements are TRUE?
I.The stock is selling at a discount to parity with the bond
II.The
b The conversion ratio, which is not given, is found by dividing the par value of the bond ($1,000) by the conversion price ($50). This equals 20 to 1 ($1,000 divided by $50 equals 20). The market price of the common stock is $43 per share. The stock is s
Which TWO of the following statements concerning convertible bonds are TRUE?
I.Coupon rates are usually higher than nonconvertible bonds of the same issuer
II.Convertible bondholders are considered creditors of the corporation
III.Convertible bonds are us
d Convertible bondholders are considered creditors of a corporation and provide investors with the ability to convert their bonds into shares of common stock of the same issuer at a set price (conversion price). This feature links these types of bonds to
An XYZ Corporation convertible bond is selling in the market at $1,248.75. It is convertible at $30. XYZ common stock's market price is 37.50. The bond has been called at 103. Which of the following activities is the LEAST attractive alternative for a hol
c The holder could sell the bond and receive $1,248.75. If he converted, he would receive 33 1/3 shares ($1,000 par divided by $30 per share conversion feature) with a total value of $1,249.88 (33 1/3 x $37.50). The least attractive alternative is to allo
The Barge Towing Corporation has announced in a tombstone ad that it will issue $500,000,000 of 6 1/2% convertible subordinated debenture bonds convertible into common stock at $10.50. The bonds will mature in November 2040 and are being issued at a $1,00
c The conversion price is given as $10.50. To find the conversion ratio, divide the par value ($1,000) of the bond by the conversion price of $10.50. This equals a conversion ratio of 95 to 1 ($1,000 divided by $10.50 equals 95).
If an issue of commercial paper is rated P-1 by Moody's, it is considered:
a. Speculative
b. Highest quality
c. Intermediate quality
d. On credit watch
b P-1 (also called Prime 1) is the highest rating that Moody's will assign to commercial paper. Intermediate ratings are P-2 and P-3. Speculative commercial paper would receive a rating of NP (not prime