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 b
B. they can be used to obtain automatic execution
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 u
The record date of a company's cash dividend is Thursday,
October 7. Before what date must a customer purchase this company's stock to be entitled to receive the dividend?
a. Thursday, October 7
b. Tuesday, October 5
c. Friday, October 8
d. Wednesday, Oct
B. Tuesday, October 5
The ex-dividend date (the ex-date) is the first day on which a stock begins to trade without its dividend. It is typically two business days prior to the record date, which in this question, would be Tuesday, October 5. For a buyer t
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. sell stop $63
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
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
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 customer borrowing stock in order to profit from a tender offer
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 c
The record date for a company's cash dividend is Thursday, October 7. What is the latest date a customer may purchase the stock in order to receive this dividend?
a. Thursday, October 7
b. Wednesday, October 6
c. Tuesday, October 5
d. Monday, October 4
D. Monday, October 4
The ex-dividend date is the first day on which a stock begins to trade without its dividend. It is typically two business days prior to the record date, which in this question, would be Tuesday, October 5. For a buyer to receive the d
On Wednesday, March 11, a customer purchases 1,000 shares of an OTC equity security in a cash account through an online brokerage firm. The transaction will settle:
a. By the close of business on March 11
b. On March 14
c. On March 18
d. On March 16
D. on March 16
For corporate securities, regular way settlement is three business days following the trade date. In this question, the settlement occurs on Monday, March 16. The key to this question is understanding that any corporate transactions which a
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. stop order
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 partic
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 differen
B. the difference between the price at which the firm will buy a security and the price at which it will sell a security
When used in reference to a Nasdaq market maker, the spread represents the difference between the price at which the firm is willing t
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. Thursday, September 18
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
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. the execution of a buy order at one market center at a price above the lowest ask price in another market center
Regulation NMS modernized the U.S. markets for trading equity securities. Among other rules, Regulation NMS prohibits a trade-through of a
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. 1500 shares at $20
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 t
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
I and III
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 bu
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. 33.4
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
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. not-held order
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 accept
If a customer leaves a message on an RR's voicemail which provides details of a securities order, the firm:
a. Is permitted to accept the order only if the voicemail message was left during normal trading hours
b. Is permitted to accept the order only if
C. is permitted, but not required to accept the order
A broker-dealer may accept an order that is left over voicemail, but is not required to do so. A member firm's actual policy is disclosed in its account opening documentation as well as on its voicemai
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
I and IV
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 call
If a customer bought stock in a margin account on July 3, what will the settlement date be in a regular-way transaction?
a. July 4
b. July 8
c. July 9
d. July 11
C. July 9
July 9 is the settlement date. July 4 is a legal holiday and should not be counted. Therefore, three business days after July 3 is July 9. The fact that it is a margin account and not a cash account, as in the previous example, does not change t
After buying a large block of stock for her own account, an RR recommends the same stock to many of her clients who also purchase it. After completing the clients' orders, the RR then sells her shares for a large profit. The RR's prohibited action is refe
C. front-running
When a broker-dealer or RR buys or sells stock or options before the public release of proprietary information concerning a large block order, it is considered a prohibited practice that is referred to as front-running. As shown in this q
Which of the following is NOT considered a don't know (DK) trade?
a. There is a disagreement on the price of the trade
b. There is a mismatch on the size of the trade
c. There is no record of the trade at one of the firms
d. The buyer is suspicious of ins
D. the buyer is suspicious of insider trading
Don't know (DK) trades occur when the contrabrokers disagree or have conflicting details of a trade. While insider trading is illegal, suspicion of insider trading would not cause a DK notice to be sent.
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. XYZ corporation
Any entity is permitted to write call options except the corporation itself
A brokerage firm erroneously confirms to a customer a purchase of 100 shares of XYZ Corporation at 28.25. The firm later finds that the purchase was actually made at 28.75. The customer:
a. Must pay 28.25
b. Must pay 28.75
c. Can accept the 28.75 or cance
B. Must pay 28.75
The customer must pay 28.75 which was the actual purchase price, even though the brokerage firm confirmed (erroneously) to the customer that the purchase was made at 28.25.
If an at-the-opening order is not executed:
a. It will be put in the designated market maker's book for later execution
b. It will be cancelled
c. It will be executed off the floor
d. It is handled as a market order
B. It will be cancelled
An at-the-opening order is an order placed for execution at the opening price of the day. If it is not executed, it will be cancelled. Do not confuse this type of order with an opening transaction, which is a trade to establish or
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. 1,0
A. 800 shares
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 th
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. the profit from the trade must be forfeited according to the short-swing profit rule
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 s
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 m
II and IV
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
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 e
B. will be executed as close as possible to the closing price
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. between investors, allowing them to buy and sell securities anonymously without quotes being displayed
A dark pool is a source of liquidity for large institutional investors and high-frequency traders, and this system would not disseminate quotes. The
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. Buy 800 XYZ at 30 IOC
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
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. stop trading for 15 minutes
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
A FINRA member subscribing to CQS, calls a market maker displaying a quote on the system and executes a trade. This transaction is considered to have occurred in the:
a. Primary market
b. Private market
c. Third market
d. Fourth market
C. third market
CQS displays quotations by members for NYSE and NYSE MKT (formerly NYSE Amex) listed securities. Transactions in listed securities between FINRA members in the over-the-counter market are considered third-market transactions. Although exec
A client owns 2,000 shares of TBDR. She expects a decline in the market and instructs her broker to sell 1,500 shares of the stock. The order ticket will be marked:
a. Sell short
b. Sell short against the box
c. Sell long
d. This transaction cannot be exe
C. sell long
Since the client owns shares equal to or greater than the amount she plans to sell, the order ticket will be marked sell long. Sell short is used if the client does not own the security and will deliver borrowed securities. Selling short agai
A customer entered an order with her broker-dealer to buy 1,000 shares of GM at the market. If the execution report from the floor of the exchange states that 1,200 shares were purchased at $78, the:
a. Customer must accept the execution despite the fact
B. customer is obligated to accept only the amount ordered, not the amount executed
Although the customer is not required to accept more than her original order for 1,000 shares, the order should not be cancelled. Since an error was made, the registered r
A registered representative is aware of a large order sitting on the firm's institutional trading desk. He decides to execute an order for his own account before the institutional order is entered. This practice is known as:
a. Insider trading
b. Interpos
D. frontrunning
Each of these practices are considered prohibited. Although knowledge of this order may not be public, the execution of an order ahead of a customer order in an effort to make a profit or protect against a loss is known as frontrunning�not
Which TWO of the following orders will be reduced when XYZ Corporation sells ex-dividend?
I. A GTC order to sell 100 XYZ at $50 stop
II. A GTC order to sell 100 XYZ at $50 stop-limit
III. A GTC order to buy 100 XYZ at $50 stop
IV. A GTC order to buy 100 X
I and II
Open or good-until-cancelled (GTC) orders that are entered below the market are automatically reduced when a stock sells ex-dividend unless they are marked Do Not Reduce (DNR). Orders that are entered below the current market at the time they are
What adjustments are made to open orders in the event of a reverse stock split?
a. Orders above the market are increased
b. Orders above and below the market are increased
c. All orders are cancelled
d. Orders below the market are reduced
C. all orders are cancelled
In the event of a reverse stock split all open orders are cancelled. This FINRA rule is specific to reverse stock splits.
AQL stock is currently quoted at 48.50 bid, offered at 48.70. A client purchasing this security will pay:
a. 48.50 plus a commission
b. 48.50 minus a commission
c. 48.70 plus a commission
d. 48.70 minus a commission
C. 48.70 plus a commission
A client purchasing a security pays the offer (ask) price plus a commission and, when selling a security, receives the bid price minus a commission.
Mr. Mulligan hears sensitive news on Culligan Corporation before it is disseminated to the public. He conveys this information to Smithers, who purchases Culligan Corporation for his own account. According to federal securities law, Mr. Mulligan will be c
B. a tipper
Mr. Mulligan is considered a tipper under the insider trading laws -- one who is liable under federal securities law for trading based on insider information or communicating such information to others who use the information.
A designated market maker/specialist has an order on its book from a public customer to buy stock at $34.70 and another order from a public customer to sell stock at $34.95. The DMM may:
a. Buy stock for its own account at $34.71
b. Buy stock for its own
A. Buy stock for its own account at $34.71
The specialist on an exchange is also referred to as a designated market maker (DMM). A DMM is not permitted to compete with public orders when trading for its own account. The DMM may buy stock at a higher price
What information can be found on the Consolidated Quotation System?
a. Bid/asked quotations for OTC stocks not listed on Nasdaq
b. Bid/asked quotations for listed stocks reported by national exchanges and OTC third market makers
c. Indications of interest
B. bid/asked quotations for listed stocks reported by national exchanges and OTC third market makers
The Consolidated Quotation System (CQS) provides subscribers with bid/asked quotations for securities listed on national exchanges, including quotes from
A customer enters a stop order to sell 1,000 shares of ATT at 35. The order will be executed at:
a. 35
b. 34.99 or below
c. The next trade after 35 is touched
d. 35.01 or above
C. the next trade after 35 is touched
Stop orders become market orders once they are activated. After the order is activated at or below 35, the next trade will be the execution price.
Company R has announced a tender offer for Company T. A shareholder of Company T is long 1,000 shares of stock and has written 5 covered calls against the stock. For the purpose of tendering shares, the shareholder may tender:
a. 1,000 shares
b. 800 share
C. 500 shares
An investor who holds stock in a company that is the subject of a tender offer may tender only stock that he holds long. If a shareholder has written call option positions against the long stock, the options positions will reduce his net lon
An RR has received an order to purchase a block of securities for an institutional client. Prior to executing the client's trade, the RR purchased call options on the same security. This activity is referred to as:
a. Front-running
b. Churning
c. A wash s
A. front-running
Placing proprietary orders (orders for the account of the RR or broker-dealer) ahead of customer orders is a prohibited practice that is referred to as front-running. An institutional buy order has the potential of moving the market price
A customer enters a sell stop-limit order for 100 XYZ at 25.50. XYZ trades occur as follows: 25.50, 25.25, 25.13, 25.45. The customer's order was:
a. Executed at the market price after the order was entered
b. Executed at 25.25
c. Executed at 25.45
d. Not
D. not executed
The first trade listed at 25.50 touched the stop price of 25.50 and, therefore, the order became an active (triggered) order to sell 100 shares of XYZ at a limit price of 25.50 or better. For the order to be executed, the stock must be tra
Public orders on a designated market maker's book show an inside market comprised of Broker A bidding for 100 shares of ABC Corporation at 42.25. Broker B is offering to sell 300 shares of ABC at 42.63. If the designated market maker wanted to bid for his
D. 42.26
The designated market maker must buy and sell for his own account (acting as a dealer) to make the market fair and orderly. He must be a buyer when there are no buyers and be a seller when there are no sellers. By so doing, he narrows the spread
A shareholder is long 5,000 shares of XAM stock and has written 20 XAM call options. If XAM makes a tender offer to purchase shares of its stock, the shareholder may tender:
a. 5,000 shares
b. 3,000 shares
c. 2,000 shares
d. 200 shares
B. 3,000 shares
An investor who holds stock in a company that is the subject of a tender offer may tender only stock that he holds long. If a shareholder has written call options positions against the long stock, the options positions will reduce his net
Level I of Nasdaq indicates the:
a. Cumulative trading volume of the security listed
b. Inside market for the security listed
c. Price of transactions as they occur
d. Market makers for the security listed
B. inside market for the security listed
Nasdaq Level I provides subscribers with the highest bid and the lowest offer (i.e., the inside market) for a security that has at least two market makers; however, the actual market makers are not listed. Level I
Which of the following is NOT TRUE about stopping stock on the NYSE?
a. It is permitted only for public orders
b. It requires the permission of an exchange official
c. It is done by the designated market maker
d. It involves guaranteeing a price for the o
B. it requires the permission of an exchange official
Stopping stock is done by the designated market maker (specialist) and involves guaranteeing a price for a public order. The designated market maker is permitted to stop stock without the permission of
On the NYSE, an investor enters an order to buy 400 shares of HRJ at $56 per share. Which of the following statements is TRUE regarding this order?
a. The order may be partially filled
b. The order must be executed in its entirety or not at all
c. The ord
A. the order may be partially filled
Since the order specifies a price, it is a limit order. A limit order may be executed at the limit price or better. In this question, the investor is wants to buy HRJ at $56 or lower (i.e., the order is not required to
Ms. Thomas calls her registered representative with an order to buy up to 2,000 shares of XYZ at $35 per share right now and do not leave the unexecuted portion as a day or open order. Ms. Thomas has entered a(n):
a. Order that may not be accepted
b. Imme
B. immediate-or-cancel order
An order that dictates to fill as much of the order as you can right now and cancel the rest is called an immediate-or-cancel order. Limit orders are placed as either day or GTC orders and the unexecuted portions are placed on
All of the following choices are requirements for a stock to be listed on the NYSE, EXCEPT:
a. A minimum 25% dividend payout ratio
b. An agreement to solicit proxies
c. A national interest in the company
d. A minimum number of round-lot shareholders
A. a minimum 25% dividend payout ratio
To be listed on the NYSE, a corporation must have a minimum number of round-lot shareholders, a minimum number of publicly held shares, a minimum aggregate market value of publicly held shares, a positive earnings hi
A customer is currently short 100 shares of ABC common stock at 57.50 and, for protection, has entered a buy stop order at 60. Round lot trades that took place after these orders were entered were: 58, 59.50, 60.10, 60.50, 60, 59.85 The round-lot trade th
C. 60.10
By entering the buy stop order, the client is attempting to limit any loss to about $250 (2 1/2 points on 100 shares). The buy stop is entered above the current market price. The stop will activate on the first round-lot trade, which occurs at or
A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. T
C. 18.50
After the order was activated by the round-lot sale of 18.25 (which is at or lower than 18.50), the order became a limit order to sell 100 shares at 18.50 or better. 18.50 is the first price that meets this requirement and is the execution price.
The provisions of Regulation FD apply to the disclosures of information that are made by:
a. Retail customers
b. Senior officials of the issuers of securities
c. Institutional investors
d. Broker-dealers
B. senior officials of the issuers of securities
The provisions of Regulation FD apply to the senior officials of the issuers of securities. Regulation FD requires that if any material, non-public information is being disclosed to analysts or other invest
Which of the following statements is TRUE regarding TRACE?
a. It is a reporting system for corporate bonds
b. It is a reporting system for U.S. government bonds
c. It is a reporting system for stocks listed on Nasdaq
d. It is a reporting system for munici
A. it is a reporting system for corporate bonds
TRACE is a reporting system that was created to provide greater transparency in the corporate bond market. RTRS is the reporting system for municipal bonds and the TRF is the reporting system for stocks list
Which of the following choices is a violation of federal laws with regard to tender offers?
a. The tender of stock from a cash account
b. The tender of stock from a long margin account
c. The tender of a minor's stock from a custodian account
d. The tende
D. the tender of stock in a short margin account that has been borrowed by a customer
It is a violation of federal law for anyone to tender the stock that a customer borrowed in a short margin account. The stock has been temporarily borrowed and does not
A broker-dealer is acting as a principal in which of the following scenarios?
I. Selling bonds from inventory to an individual
II. Selling bonds from inventory to another broker-dealer
III. Buying bonds from another broker-dealer for inventory
IV. Buying
I, II, III and IV
A broker-dealer is acting as a principal when buying for or selling from inventory. In choice (IV), the broker-dealer is buying 500 bonds to fill an order for 250 bonds. The remaining 250 bonds will be for inventory.
Which of the following choices may write calls covered by XYZ stock?
I. The president of XYZ Corporation
II. The trustee of XYZ Corporation's pension fund
III. XYZ Corporation
IV. ABC Corporation
I, II and IV only
Individual stockholders may write calls on stock they own, regardless of their position as an insider. Trustees of pension funds are permitted by ERISA to write covered calls provided the strategy meets the objectives of the fund. Corpor
A securities market is considered efficient if which TWO of the following conditions are present?
I. Large differences between the bid and offer prices
II. Small differences between the bid and offer prices
III. A large number of transactions
IV. A small
II and III
An efficient secondary market for securities will exist if a large number of buyers and sellers are willing to pay similar prices. This will help to keep the difference between the quoted prices (the spread) small and will attract a large numbe
A floor broker goes to a trading post to execute an order. When told of the floor broker's order, the designated market maker replies, "you're stopped at 21." This means:
a. The floor broker cannot trade the stock until it hits 21
b. The floor broker is g
B. the floor broker is guaranteed a price of 21
When a designated market maker stops stock, the price is guaranteed. Stopping stock may be done only for a public order.
When a stock sells ex-rights, which of the following orders on a designated market maker's book will be reduced?
I. Buy limit order
II. Sell stop order
III. Buy stop order
IV. Sell limit order
I and II only
When a stock sells ex-rights (similar to ex-dividend), the designated market maker will reduce those orders on his book that were entered below the market. A buy limit order and a sell stop order will be reduced by the amount the stock sells
If an investor bought a stock in a cash account on July 2, when will the settlement date be in a regular-way transaction?
a. July 5
b. July 8
c. July 9
d. July 12
B. July 8
July 8 is the settlement date. This is three business days after the trade date in a regular-way transaction in a cash or margin account. Thursday, July 4 is not a business day. It is a legal holiday and is not counted. The third business day af
Use the following quote to answer this question.
ABC 25.13 + .25 B 25 A 25.25
Excluding any markups, what price will a customer pay to purchase the security?
a. 25
b. 25.13
c. 25.25
d. 25.38
C. 25.25
When purchasing stock, a customer will pay the ask (offer) price. A customer selling stock will receive the bid price.
A stop order will NOT be used to:
a. Protect a gain when a long stock position appreciates
b. Limit a loss if the market price of a short position increases
c. Receive a specific price when buying or selling
d. Limit a loss if the market price of a long s
C. receive a specific price when buying or selling
A knowledgeable investor will use a sell stop order to protect a profit (or limit a loss) in a long position and a buy stop order to limit a loss in a short position. A sell stop order is entered below th
Public orders on a designated market maker's book show an inside market comprised of Broker A bidding for 100 shares of ABC Corporation at 42.25. Broker B is offering to sell 300 shares of ABC at 42.63. If the designated market maker wanted to offer stock
A. 42.62
On the offer side, the DMM must be willing to sell for at least one cent lower than the offer on his book. There is an offer of 42.63 on his book. He must offer at least one cent lower, which is 42.62.
Rosewood Securities LLC has been accused of buying and selling securities for the purpose of creating artificial trading activity. Which of the following choices BEST describes this activity?
a. Churning
b. Matched orders
c. Capping
d. Stabilization
B. matched orders
A matched order is also known as painting the Tape. It is an illegal activity based on a group of market manipulators buying and/or selling a security among themselves to create artificial trading activity. The intention of this activity
Which of the following situations requires a DK (don't know) notice?
a. The firms do not have a clearing agreement
b. The firms disagree on the amount of shares in the trade
c. One of the firms is not a market maker
d. The trade is executed on an ECN
B. the firms disagree on the amount of shares in the trade
A DK notice is used for a don't know trade. This occurs when one side does not recognize the trade or the firms disagree on the details. Choice (b) is the only situation that would require a DK no
A customer entered a market order to purchase 100 shares of XYZ Corporation. The brokerage firm confirms to the customer the purchase of 100 shares of XYZ Corporation at 28.25. The firm later finds that the purchase was actually executed at 28.75. The cus
B. Must pay 28.75
The customer must pay 28.75, which was the actual purchase price, even though the brokerage firm confirmed (erroneously) to the customer that the purchase was made at 28.25.
Prior to being listed on an exchange, which of the following factors must be evaluated?
I. The number of shareholders
II. The dividend payout
III. The earnings record
IV. The current market price
I, III and IV
Listing requirements include: a minimum number of round-lot shareholders, a minimum number of shares publicly held, minimum market values, a positive earnings history, and national interest in the stock. The amount of dividends paid or the d
Which of the following items is NOT found on a sell ticket?
a. The customer's account number
b. The customer's original purchase price of the stock
c. The location of the securities
d. Solicited or unsolicited
B. the customer's original purchase price of the stock
All order tickets must contain the customer's account number and whether the registered representative solicited the order or it was unsolicited. A sell ticket must indicate if it is a short sale or a
The Securities Exchange Act of 1934:
I. Created the SEC
II. Provided for the regulation of credit
III. Provided for the regulation of exchanges
IV. Provided for the regulation of new issues
I, II and III only
The Securities Exchange Act of 1934 created the SEC and provided for the regulation of credit and exchanges. The Securities Act of 1933 provided for the regulation of new issues
ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:
a. Dealer
b. Designated market maker
c. Agent
d. Underwriter
C. Agent
When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it is acting as a broker (agent).The client is charged a commission on the transaction. If the firm bought the security for its own account, or sold the
In a municipal bond transaction, T + 3 means:
a. The bond trades with a 3-point premium
b. The bond trades with an additional takedown of 3 points
c. The transaction will settle regular-way in 3 business days from the trade date
d. Three bonds will be del
C. the transaction will settle regular-way in 3 business days from the trade date
T + 3 in a municipal bond transaction means the bonds will settle regular-way in 3 business days from the trade date.
A designated market maker has an order on its book from a public customer to buy stock at $34.70 and another order from a public customer to sell stock at $34.90. The designated market maker may:
a. Buy stock for its own account at $34.65
b. Buy stock for
B. buy stock for its own account at $34.75
A designated market maker is not permitted to compete with public orders when trading for its own account. The DMM may buy stock at a higher price or sell stock at a lower price. In doing so, the DMM has narrowed
A customer has sold stock, but he has failed to complete the transaction by delivering the securities. The latest date on which the broker-dealer may buy in the securities is:
a. One business day from the trade date
b. Three business days from the trade d
D. ten business days from the settlement date
SEC Rule 15c3-3 (the Customer Protection Rule) sets forth rules for broker-dealer reserve requirements and for maintaining custody of securities. Under the custody of securities section, a brokerage firm must
Which of the following individuals are NOT permitted to trade on the floor of the NYSE?
a. Independent brokers
b. Registered representatives
c. Floor brokers
d. Designated market makers
B. registered representatives
Registered representatives of a broker-dealer are not permitted to trade on the floor of the NYSE
Which of the following securities would NOT be found on the Consolidated Quotation System (CQS)?
a. An NYSE MKT stock
b. An NYSE MKT warrant
c. An NYSE-listed bond
d. A non-Nasdaq stock
D. a non-Nasdaq stock
The Consolidated Quotation System (CQS) displays quotations on all common stock, preferred stock, warrants, and rights that are listed on the New York Stock Exchange (NYSE) or the NYSE MKT (formerly NYSE Amex), and trading in the OTC
A broker-dealer receives a confirmation for a trade that does not appear on its records. The broker-dealer should send a DK notice to:
a. The SEC
b. FINRA
c. The contrabroker
d. The customer represented in the transaction
C. the contrabroker
A DK notice is sent to the contrabroker upon receipt of the confirmation for an uncompared trade. The broker-dealer sending the DK notice states that the trade does not appear on its records and, therefore, denies any responsibility fo
How long after a new issue is registered for sale will it be shown on the Nasdaq system?
a. On the effective date
b. 10 days after the effective date
c. 30 days after the effective date
d. 45 days after the effective date
A. on the effective date
A new issue will appear on the Nasdaq system on the effective date of the issue. The effective date, which is determined by the SEC upon completion of the registration process, is the first date that the securities may be sold to
A broker-dealer appears on the Nasdaq system as a market maker for DCIR common stock. An employee of the firm who is responsible for maintaining the firm's inventory in DCIR is referred to as a:
a. Risk arbitrage trader
b. Floor broker
c. Compliance direc
D. position trader
A position trader is a person who is employed by a broker-dealer and is responsible for maintaining the firm's inventory as well as trading the firm's account.
The Order Audit Trail System tracks the:
a. Execution of an order only
b. Cancellation of an order only
c. Time an attempt was made to place an order
d. Entire life of an order that is accepted by a member firm
D. entire life of an order that is accepted by a member firm
The Order Audit Trail System (OATS) enables FINRA to effectively review market activity in regard to customer orders within a member firm, to conduct surveillance, and to enforce rules. OATS rec
Public orders on a designated market maker's book show an inside market comprised of Broker A bidding for 100 shares of ABC Corporation at 42.25. Broker B is offering to sell 300 shares of ABC at 42.63. The size of the market would be:
a. 100 by 300
b. 30
A. 100 by 300
The amount of shares at the highest bid and the lowest offer on the designated market maker's book is called the size of the market. The size of the market is 100 shares bid for at 42.25 and 300 shares offered at 42.63 or 100 by 300.
All of the following statements are TRUE concerning marketwide circuit breakers, EXCEPT:
a. They are based on the S&P 500 Index
b. The levels are calculated on a monthly basis
c. A trading halt on one exchange applies to all exchanges
d. A 7% decline will
B. the levels are calculated on a monthly basis
Marketwide trading halts are based on the S&P 500 Index and are calculated daily (not monthly). A trading halt on one exchange applies to all exchanges that trade the same security. A Level 1 Market Decline
Dynasty Corporation is planning to acquire Regal Corporation. If a trader purchased 12,000 shares of Regal Corporation and sold short 4,000 shares of Dynasty Corporation, the trader is:
a. Creating an optional hedge
b. Engaging in a risk arbitrage
c. Crea
B. engaging in a risk arbitrage
When there is an acquisition or merger taking place, traders will try to take advantage of the activity between the common stocks of the two companies. The trader or risk arbitrageur will go long the company being acquired
When a stock sells ex-dividend, which TWO of the following orders on a designated market maker's (DMM's or specialist's) book will be reduced?
I. Buy-limit order
II. Sell-limit order
III. Buy-stop order
IV. Sell-stop order
I and IV
When a stock sells ex-dividend, the DMM (specialist) will reduce those orders on his book that were entered below the market. A buy-limit order and a sell-stop order will be reduced by the amount the stock sells ex-dividend since these orders are
Regulation NMS applies to which TWO of the following choices?
I. Listed equity trades
II. Listed debt trades
III. Quotes available for manual execution
IV. Quotes available for electronic execution
I and IV
One of the provisions of Regulation NMS (National Market System) requires a broker-dealer to provide its clients with the best price available for listed equity trades available for electronic execution. The best price is defined as the highest b
When a broker-dealer sells a security to a client and charges a commission on the transaction, it is acting as the client's:
a. Market maker
b. Principal
c. Designated market maker
d. Agent
D. agent
A broker-dealer that buys securities from or sells securities to a client without owning the securities is acting as the client's agent or broker. The broker-dealer does not have any risk and the client pays a commission on this type of transacti
FINRA disseminates bond transaction information for all these securities, EXCEPT:
a. Non-investment-grade corporate bonds
b. Rule 144A securities
c. Investment-grade corporate bonds
d. GSE bonds
B. Rule 144A securities
TRACE is a reporting system that was created to provide greater transparency in the corporate bond market. It is not a quotation system or an execution system. Broker-dealers provide quotes and will execute transactions in corporat
If a customer enters an order that is good for one month only, who is responsible for cancelling the order at the end of the month if the order is not executed?
a. The designated market maker
b. The customer
c. The NYSE
d. The brokerage firm that entered
D. the brokerage firm that entered the order
A customer can enter an order good for a week, a month, or any specified time. If the order is not executed by the end of the specified time, the brokerage firm is responsible for cancelling the order.
Which of the following statements is NOT a characteristic of an electronic communication network (ECN)?
a. ECNs act as market makers
b. ECNs permit trading electronically
c. ECNs permit trading anonymously
d. ECNs permit trading after-hours`
A. ECNs act as market makers
Electronic communication networks allow market participants to display quotes and execute transactions. These participants are referred to as subscribers and pay a fee to the ECN to trade electronically through the system. ECN
A broker-dealer sending details of a trade to another broker-dealer would expect to receive either one of which TWO of the following in return?
I. A confirmation
II. A Regulation T margin call
III. A DK notice
IV. A loan consent agreement
I and III
A broker-dealer sending details of a trade (confirmation) to another broker-dealer would expect to receive either a confirmation or a signed don't know (DK) notice. In other words, either confirm the trade or send a notice regarding why the brok
The tendering of equity securities is permitted if an investor is:
I. Long investment-grade, non-convertible securities
II. Long call options that have been exercised
III. Long a convertible security that has not been tendered for conversion
IV. In posses
II and III only
Equity securities may be tendered only if the investor is either long the stock or long an equivalent security. Equivalent securities include rights, warrants, and convertible securities which are issued by the company that is the subject
A person who is employed by a brokerage firm and responsible for maintaining an inventory of stock to buy from and sell to the firm's customers, is a(n):
a. Registered representative
b. Trader
c. Market maker
d. Institutional salesperson
C. market maker
A person who is employed by a brokerage firm and responsible for maintaining an inventory of stock to buy from and sell to the firm's customers is typically defined as a market maker. The term trader is a broad term with multiple definitio
Buy-stop orders or sell-stop orders can provide all the following features, EXCEPT:
a. Provide price protection for a short position
b. Provide price protection for a long position
c. Give a broker discretion when the order is activated
d. Possibly cause
C. give a broker discretion when the order is activated
Buy-stop or sell-stop orders do not give a broker discretion when the order is activated. When activated, the order becomes a market order and should be executed immediately. All of the other choices
If a customer bought stock for cash (on a cash contract basis) on Friday, July 5, when will the trade settle?
a. July 5
b. July 6
c. July 8
d. July 11
A. July 5
Securities bought or sold for cash or a cash trade have a same-day settlement for payment and delivery. The settlement date is July 5, which is the same day the trade was made.
Which of the following securities can be traded in the over-the-counter market?
I. Municipal bonds
II. Treasury bonds
III. Treasury bills
IV. Corporate bonds
I, II, III and IV
All of the securities listed can be traded in the over-the-counter market
According to the Securities Exchange Act of 1934, a person who is on the board of directors of a public corporation and owns 3% of the company stock is:
a. Required to sell shares of the company stock currently owned every three months
b. Not permitted to
C. required to register as an insider of the corporation
An insider, as defined by the Securities Exchange Act of 1934, is a director, officer, or owner of more than 10% of the voting stock of a corporation and his immediate family members. Individuals wh
When the underlying common stock sells ex-dividend, a GTC buy limit order will:
a. Remain unchanged
b. Be reduced
c. Be increased
d. Change at the discretion of the specialist
B. be reduced
All GTC (good-until-cancelled) orders entered below the current market are automatically reduced by the amount of the dividend on the ex-dividend date (unless they are market DNR -- Do Not Reduce). A buy limit order is entered below the curr
Kyle, a client at TLC brokerage firm, anticipates a decline in the earnings of LPOP. LPOP is a thinly traded issue. Which of the following statements BEST describes what the RR should disclose to Kyle?
a. The stock may be difficult to sell short because t
A. the stock may be difficult to sell short because the shares may not be available to borrow
A client may sell short or buy a put to profit from a decline if the value of a security is anticipated. In order to sell short, the broker-dealer is required to
Which of the following BEST describes the term, payment for order flow?
a. The concession paid to a member of a selling group
b. The prohibited practice of mutual fund distributors paying kickbacks to registered representatives
c. The portion of a mutual
D. the payments to a broker-dealer by a market maker in return for routing orders to that market
It is permissible for broker-dealers to receive payments from a market maker in return for executing orders through that market maker. Any payments for order
When selling a security for a customer, all of the following items MUST be included on the sell ticket, EXCEPT:
a. The number of shares or par value
b. The location of the security
c. The customer's Social Security number
d. The customer's account number
C. the customer's social security number
An order ticket must include the customer's account number, number of shares or par value (for a bond), name of the security, limitations (limit, stop, etc.), and whether it is buy or sell. If it is a sell order, t
A registered representative is discussing the investment merits of ABC stock with a customer. The registered representative may say:
a. "Let's buy ABC stock because we expect it to go up 4 points in the next two weeks."
b. "Our mergers department is worki
C. "One of our analysts just issued a favorable research report for public use on ABC stock, which estimates a 10% growth in earnings over the next three years and it appears to be a good situation for you"
This is the only statement that would not be a v
Company AZX has announced a partial tender offer for Company BHQ. A shareholder of Company BHQ is long 1,000 shares of stock and long 2 BHQ puts. For the purpose of tendering shares, the stockholder may tender:
a. 1,000 shares
b. 800 shares
c. 500 shares
A. 1000 shares
An investor who holds stock in a company that is the subject of a tender offer may tender only stock that he holds long. Short tendering is not permitted. The long puts do not affect the client's net long position. If a shareholder had writ
The CEO of a publicly traded company has inadvertently disclosed material, nonpublic information in a conference call with securities analysts. According to Reg FD, which of the following statements is TRUE?
a. The CEO is guilty of insider trading
b. The
C. the company must make a public disclosure of this information within 24 hours
Reg FD requires that material, nonpublic information disclosed to analysts or other investors must be made public. If the disclosure was intentional, the information must be
An RR receives unsubstantiated information that a biotech company trading on Nasdaq has been approached by a large pharmaceutical company as a possible acquisition. The news seems to indicate that the price of the biotech company will increase greatly in
B. contact clients and indicate that this biotech company is heading upward and that they should place a buy order
If an RR receives unsubstantiated news (possibly a rumor), he should take no action until the information becomes public. At that time, the