Dark pools of liquidity
enhance market transparency for public retail customers
diminish market transparency for public retail customers
accommodate small transactions for institutional traders
accommodate large-volume transactions for institutional trade
Answer: D
Dark pools, sometimes referred to as dark pools of liquidity, is trading volume that occurs or liquidity that is not openly available to the public. The bulk of this volume represents large trades engaged in by institutional traders and trading
If an open-end investment company bought preferred stock directly from a bank through an electronic communication network (ECN), this trade took place in which of the following markets?
A) Primary.
B) Secondary.
C) Third.
D) Fourth.
Answer: D
The fourth market is where direct trades between institutions, pension funds, broker/dealers, and other financial entities occur, utilizing electronic communications networks (ECNs). In theory, there are no brokers involved in these transactions
Which of the following securities may be traded over the counter?
Listed registered.
Unlisted nonexempt.
Registered unlisted.
Unregistered exempt.
A) I and II.
B) I and III.
C) II and III.
D) I, II, III and IV.
Answer: D
Registered securities not listed on an exchange constitute the bulk of the volume trading in the OTC market. Municipal bonds and government securities are exempt from SEC registration requirements, so the major market for these securities is the
After the market closed yesterday, ABC announced that it would file for bankruptcy under Chapter 11. The NYSE decides not to open trading in ABC. In response to the NYSE's announcement, which of the following statements regarding the OTC market is TRUE?
A
Answer: D
The over-the-counter market is not bound by actions of the NYSE or other exchanges, and third-market trading may continue in the stock.
Which of the following statements regarding transactions in the different securities markets are TRUE?
Transactions in listed securities occur mainly in the OTC market.
Transactions in unlisted securities occur in the OTC market.
Transactions in listed se
Answer: C
Listed securities traded on exchanges constitute the exchange market. Unlisted securities traded over the counter (OTC) make up the OTC market. Listed securities traded OTC compose the third market. Securities traded directly between institution
Each of the following trades occurs in the secondary market EXCEPT:
A) a corporate bond syndicate selling new issues to the public.
B) a specialist (designated market maker)on the NYSE buying stock as principal.
C) an agent buying unlisted securities for
Answer: A
New issues sell in the primary market. Sales between investors are always in the secondary market.
If ALFA Securities, a broker/dealer, is a position-trading firm, which of the following statements is TRUE?
A) It is violating NYSE rules.
B) It is underwriting securities in the primary market.
C) It is acting as a broker for customers.
D) It is trading
Answer: D
Position trading is simply trading as principal, or dealer, for a firm's own account. The opposite role is that of a broker, or an agent, purchasing or selling securities in the secondary market for customers.
If a municipal firm purchases a block of municipal bonds in
A) short selling.
B) position trading.
C) arbitrage.
D) hedging.
Answer: B
The dealer is buying for its inventory (position trading).
anticipation of a price increase, the firm is engaged in:
Which of the following statements regarding the third market is TRUE?
A) The services of a brokerage firm are not used.
B) It refers to the block trading of unlisted securities.
C) It is composed of listed securities traded OTC.
D) It is composed only of
Answer: C
The third market refers to the trading of listed securities in the over-the-counter market.
A third-market trade involves:
A) the trading of unlisted stocks between institutional investors.
B) the trading of NYSE stocks on regional exchanges.
C) listed or unlisted stocks traded between institutional investors without the services of a brokerage
Answer: D
Third-market trades involve listed securities traded over the counter.
Which of the following describe a securities exchange?
Prices are set by negotiation between interested parties.
The highest bid and the lowest offer prevail.
Only listed securities can be traded.
Minimum prices are established at the beginning of the day
Answer: C
An exchange is not a negotiated market but an auction market in which securities listed on that exchange are traded. No minimum price is set for securities. Rather, the highest bid and the lowest offer prevail.
The over-the-counter market could be characterized as what type of market?
A) Primary.
B) Dealer.
C) Auction.
D) First.
Answer: B
The OTC market is a dealer market.
The secondary trading of securities is comprised of how many markets?
A) 4
B) 2
C) 3
D) 5
Answer: A
The secondary trading of securities takes place in four markets: the first market is listed securities traded on an exchange floor; the second market deals with unlisted securities; the third market is where listed securities trade over the coun
After-hours trading in large blocks of stock by institutional investors can be accomplished through:
A) the intermarket.
B) Nasdaq.
C) electronic communications networks (ECNs).
D) any regional exchange.
Answer: C
Institutional investors can trade stock after hours through ECNs, which are open 24 hours per day.
The KPL Corporation is considering having its stock listed on the New York Stock Exchange. Who will make the final decision as to whether it will be listed?
A) The Board of Directors of KPL.
B) FINRA.
C) The SEC.
D) The New York Stock Exchange.
Answer: D
The New York Stock Exchange has certain requirements that a company must meet before its stock can be considered for listing. Since the Exchange sets the requirements, it must make the final decision.
Which of the following terms are associated with over-the-counter trading?
Market maker.
Specialist.
Auction market.
Negotiated market.
A) II and III.
B) II and IV.
C) I and IV.
D) I and III.
Answer: C
The over-the-counter market is a negotiated market. Within it, market makers are broker/dealer firms that provide a source for stock that customers wish to buy and a repository for stock that customers wish to sell.
A securities firm that holds stock rather than sells the stock is:
A) commingling.
B) churning.
C) pegging.
D) taking a position.
Answer: D
A firm that acts as principal by holding stock is taking a long position. The firm purchases the stock, hoping to sell at a later date at a higher price.
Stocks that are listed on the NYSE can also be listed on
A) Nasdaq.
B) the Chicago Stock Exchange.
C) the OTCBB (over-the-counter bulletin board).
D) the CBOE (Chicago Board Options Exchange).
Answer: B
NYSE-listed securities can be listed on and trade on other U.S. exchanges. Listed securities can also be traded in the OTC market and when they do, are known to be trading in the third market. Nasdaq is for unlisted securities, whereas the CBOE
To narrow the spread between the bid and the asked price of one of his stocks, a specialist enters a bid to buy for his own account, acting in this transaction as a:
A) dealer (or principal).
B) broker/dealer.
C) broker (or agent).
D) floor broker.
Answer: A
A specialist (designated market maker) buying for his own account is operating as a dealer, which means he is acting as a principal in the transaction.
Which of the following market tiers are included in Nasdaq?
Nasdaq Regional exchange-listed securities.
Nasdaq Global Market.
Nasdaq MidCap Market.
Nasdaq Capital Market.
A) I and II.
B) I and III.
C) III and IV.
D) II and IV.
Answer: D
Nasdaq consists of three market tiers: Nasdaq Global Select Market, Global Market, and Capital Market.
Which of the following is a third-market trade?
A) 12,000 shares of XYZ, a stock listed on the New York Stock Exchange, are sold over the counter.
B) 10,000 shares of XYZ, a stock listed on the New York Stock Exchange, are sold on the Chicago Stock Exchan
Answer: A
A third-market trade occurs when exchange-listed securities are traded over the counter.
The Nasdaq market includes securities in the:
Global select market.
Global market.
Bulletin Board listings.
Electronic OTC Pink listings.
A) I and IV.
B) II and III.
C) III and IV.
D) I and II.
Answer: D
The Nasdaq Market includes securities in 3 market tiers; global select, global, and capital markets. Bulletin Board securities (OTCBB) are issues that are not listed on Nasdaq or any U.S. exchange. OTC Pink issues are unlisted and, like Bulletin
For individual public investors, dark pools of liquidity
A) allow them to enter orders that are sent directly to the trading floors of stock exchanges
B) allow them to give an order to their broker/dealer to buy or sell securities while only referencing a
Answer: D
For individual public investors, dark pools of liquidity lessen the transparency of the overall market place. The pools refer to transactions that take place primarily amongst institutional traders or trading desks in large block transactions aw
FINRA's Trade Reporting Facility (TRF) electronically facilitates the reporting of trade data such as price and volume for
A) trades in NYSE-listed securities occurring on the NYSE
B) brokers executing orders as agents in an auction market on any exchange
Answer: D
FINRA's Trade Reporting Facility (TRF) is an automated electronic system that facilitates the reporting of data for transactions that occur in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor. I
Your broker/dealer has just negotiated a trade with another broker/dealer in a Nasdaq-listed stock. The automated system that will facilitate the reporting of the post-execution data electronically, such as price and volume, to FINRA is known as
A) Trade
Answer: A
Broker/dealers acting in a dealer capacity (negotiating transactions with other broker dealers) in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor will have the post-execution data such as pric
ABC corporation trading at $80 per share has just bid $50 per share for XYZ corporation, currently trading at $40 per share in a hostile takeover attempt. The most common risk or takeover arbitrage strategy would be to
A) sell shares of the target company
Answer: C
The most common form of risk or takeover arbitrage is to purchase the shares of the target company and short the shares of the aggressor, believing that the potential acquisition will raise the target company's share price and decrease the share
Which of the following individuals normally trade on the floor of an exchange?
Two-dollar broker.
Registered market maker.
Allied member.
Stock lending representative.
A) I and III.
B) II and IV.
C) III and IV.
D) I and II.
Answer: D
Only bona fide traders such as two-dollar brokers, registered market makers, and specialists (designated market maker) may trade on the floor.
Priority and precedence rules of bids and offers manage trading activity on the:
A) OTC market.
B) NYSE and the OTC.
C) third market.
D) NYSE.
Answer: D
The auction rules of priority, precedence, and parity allow for the efficient execution of orders when several bids or offers are made at the same price at a given time on the NYSE floor.
All of the following may transact business on the trading floor of the NYSE EXCEPT:
A) allied members.
B) two-dollar brokers.
C) designated market maker
D) floor brokers.
Answer: A
Allied members are executive officers, directors, or holders of more than 5% of an NYSE member firm's voting stock. They are not allowed to trade on the exchange floor.
All of the following are minimum requirements for listing on the NYSE EXCEPT:
A) earnings per share.
B) number of publicly held shares.
C) number of shareholders.
D) market value of publicly held shares.
Answer: A
While the numerical values are not tested, it is important to know that there is no minimum earnings per share requirement. However, there is a minimum earnings requirement.
The market wide circuit breaker (MWCB) rule uses which of the following as the pricing reference point to measure a market decline?
A) The DJIA recalculated quarterly
B) The S&P 100 index recalculated monthly
C) The Wilshire index recalculated daily
D) Th
Answer: D
The market wide circuit breakers (MWCBs) use the S&P 500 recalculated daily as the pricing reference point to measure market declines for the purpose of triggering market circuit breakers to halt trading.
On the basis of a major decline occurring within a few minutes of the close, trading is halted on all markets for the remainder of the trading day. Under the market wide circuit breaker (MWCB) rules, market-on-close (MOC) orders pending at the time tradin
Answer: B
During shorter marketwide trading halts that will allow trading to resume on that trading day, pending and new customer orders should be forwarded to the appropriate market for execution upon the resumption of trading. If a halt closes the marke
On the trading floor, the highest bid and offer receive first consideration. When several bids at the same price occur, the trade will be awarded based on:
A) parity, precedence, then priority.
B) priority, precedence, then parity.
C) priority then preced
Answer: B
When there are several bids or offers at the same price, the order in which they are filled is based upon time entered and size of order. This is known as priority, precedence and parity on the NYSE.
A customer enters a day order to sell 300 XYZ stock at 34.60. XYZ continues to trade in a 33 to 33.60 range. An hour before the close, he considers changing the order to a GTC order. You respond that he might consider allowing the order to remain on the b
Answer: D
Time priority (first come, first served) of an order is lost if there are any changes in the terms of an order.
Earlier in the day, you entered a customer order to buy 300 XYZ at 26.45 GTC. By late afternoon, you notice that XYZ is trading at your customer's limit price. At the close of trading, you contact the order desk and get a Nothing Done report because of:
A
Answer: B
All limit orders stand in time priority.
a customer wishes to change a day order to a GTC order in the middle of the day, the registered representative should:
A) enter a change notice immediately.
B) enter the new order as GTC and immediately cancel the day order.
C) enter the new GTC order imm
Answer: D
The GTC order is treated as a new order. The registered representative should wait until the close of trading so as not to lose the time priority of the original order that day.
FINRA can initiate a trading halt for all of the following EXCEPT:
A) listed stocks trading on an exchange.
B) Bulletin Board stocks.
C) NASDAQ.
D) listed stocks trading OTC.
Answer: A
Only the exchange or the SEC can initiate a trading halt for a listed security trading on an exchange floor.
Traders can sell short:
when a stock ticks up.
when a stock ticks down.
unrestrictedly in both exchange and OTC markets.
A) I and II.
B) I and III.
C) II and III.
D) I, II and III.
Answer: D
In both exchange and OTC markets, traders can sell short at any time in the trade sequence.
Under SEC rules, a customer short sale on an exchange floor can be executed on which of the following?
Plus tick.
Zero-plus tick.
Minus tick.
Zero-minus tick.
A) I and II.
B) I and III.
C) II and IV.
D) I, II, III and IV.
Under SEC rules, a customer short sale on an exchange floor can be executed on which of the following?
Plus tick.
Zero-plus tick.
Minus tick.
Zero-minus tick.
A) I and II.
B) I and III.
C) II and IV.
D) I, II, III and IV.
All of the following orders could be placed on the specialist (designated market maker) order display book EXCEPT:
A) stop limit orders.
B) stop orders.
C) market orders.
D) limit orders.
Answer: C
Market orders are executed immediately. The order display book is for orders that are away from the current market, such as stop and limit orders.
All of the following statements regarding the short sale of a listed security are true EXCEPT:
A) short sales may take place at the opening.
B) short sales may take place at the closing.
C) the buyer must be advised that he is purchasing borrowed shares.
Answer: C
On an exchange floor, short sales can be effected at any time in the trade sequence. In addition, short sales may be effected at either the opening or closing. The buyer is never informed that shares being purchased represent borrowed shares.
You receive a not-held order from a customer who wants you to buy 1,000 shares of ABC when the price is right. Under NYSE rules, this order is a:
A) FOK order.
B) day order.
C) limit order.
D) GTC order.
Answer: B
Unless the customer instructs you otherwise, not-held orders must be executed on the day received.
All of the following kinds of orders may be turned over to the specialist (designated market maker) for execution EXCEPT:
A) limit.
B) not-held.
C) market.
D) stop.
Answer: B
A not-held order (NH) is a market order in which the investor has given the authority to choose the price and time to the floor broker to achieve the best possible execution.
On the order book, all of the following orders are reduced on the ex-date for a cash dividend EXCEPT:
A) sell stop.
B) sell stop limit.
C) buy stop.
D) buy limit.
Answer: C
Only orders placed below the market price are reduced for cash dividends on the order book. Buy limits and sell stops are entered below the market price. Buy stops are entered above the market price.
A specialist (designated market maker) must refuse:
not-held orders.
good-for-a-month orders.
stop limit orders.
market orders.
A) I and IV.
B) II and III.
C) III and IV.
D) I and II.
Answer: D
Specialists (designated market makers) cannot accept not-held orders or good-for-a-month orders. Not-held orders are the responsibility of floor brokers (commission brokers); these orders give the floor broker discretion as to time and price. Go
Which of the following orders may be left with a designated market maker on the New York Stock Exchange?
A) Not-held.
B) Good-till-canceled.
C) Good-for-a-week.
D) Good-for-a-month.
Answer: B
The designated market maker on the NYSE will accept GTC (good-till-canceled orders) and hold them on the order display book until they are executed or are canceled.
The opening quote for issues listed on the NYSE is set by the:
A) floor brokers based on the level of opening orders.
B) third-market makers.
C) specialist (designated market maker).
D) exchange.
Answer: C
The specialist (designated market maker) is responsible for setting the opening quote for issues listed on the NYSE. The set quote is based on orders in hand.
A specialist (designated market maker) is permitted to do all of the following EXCEPT:
A) represent a bid and offer simultaneously.
B) accept a stop order.
C) accept a limit order.
D) accept a not-held order.
Answer: D
A specialist (designated market maker) on the floor does not deal directly with the public. Therefore, a DMM can not accept any order that requires the exercise of discretion. A not-held order is one in which the floor broker can choose the pric
Maintaining a fair and orderly market on the NYSE trading floor is the responsibility of:
A) the traders.
B) the floor brokers.
C) the specialist (designated market maker).
D) the order book official.
Answer: C
The specialist (designated market maker) maintains a fair and orderly market on the NYSE exchange floor.
Which of the following orders on the order book will NOT be filled if the stock rises?
A) Sell limit.
B) Buy stop limit.
C) Sell stop.
D) Buy stop.
Answer: C
Those orders on the book which are above the current market will be executed if the stock rises. Those open orders above the current market are buy stops (including buy stop limits) and sell limits.
A New York Stock Exchange specialist (designated market maker) is employed by:
A) a member of the exchange.
B) the NYSE.
C) the SEC.
D) the OCC.
Answer: A
Designated market makers are employed by firms which must be exchange members.
On the morning of the ex-date for a cash dividend which of the following orders on the order book will be reduced?
A) Sell stop limit.
B) All of these.
C) Sell stop.
D) Buy limit.
Answer: B
Those orders entered below the prevailing market (unless marked DNR) are reduced on the morning of the ex-date by the amount of the cash dividend. Those orders are buy limits and sell stops including sell stop limits.
The specialist (designated market maker) has all of the following responsibilities EXCEPT:
A) providing liquidity.
B) acting as broker for orders placed on the book.
C) preventing the stock price from falling.
D) handling odd-lot market orders.
Answer: C
Although designated market makers buy and sell as principals to maintain a fair and orderly market and provide liquidity, they are not obligated nor do they have a responsibility to prevent a decline in price.
All open orders must be confirmed to the order book:
A) April 1 and October 1.
B) the last business days of April and October.
C) once a year on the anniversary of the order.
D) every 6 months after the order has been entered.
Answer: B
All open orders must be confirmed the last business day of April and the last business day of October.
A customer has placed an open order to buy 1,600 shares of GHI at $60. GHI declares a 25% stock dividend. On the ex-date, this order is considered a buy limit order for:
A) 1,600 shares at $45.
B) 1,600 shares at $50.
C) 2,000 shares at $60.
D) 2,000 shar
Answer: D
The order is adjusted on the ex-date. The number of shares increases by the percentage of the stock dividend, and the specified price is reduced to compensate. In this case, the number of shares increased to 2,000 (1,600 + 25%), and the specifie
A customer has his broker enter an order to buy GHI stock at the opening. Though transmitted promptly, the order does not reach GHI's trading post in time to be filled at the opening. How is the order handled?
A) The order is canceled.
B) The order is han
Answer: A
An at-the-open order is to be filled at the opening price or not at all. An at-the-open order arriving later must be canceled.
All of the following are reasons for entering a stop order EXCEPT to:
A) limit losses in a long position.
B) protect profits in a short position.
C) guarantee execution at a specified price.
D) protect unrealized gains on a long position.
Answer: C
A stop (loss) order is entered to protect a profit or to limit a loss. Execution at a specific price can never be guaranteed because a stop order becomes a market order when the stop price is hit.
Last week one of your customers placed a GTC order to sell 200 shares of ABC with an 18 stop when the stock was trading at 18.85. It is now the ex-date for a $.55 dividend and the order has not yet been executed. What has happened to your customer's stop
Answer: A
Unless the customer has given DNR, (do not reduce) instructions, open buy limit orders and open sell stop orders are reduced on the ex-dividend date by the amount of the dividend.
Each of the following types of orders remains open on the NYSE until certain conditions are met EXCEPT:
A) market orders.
B) stop orders.
C) good-till-canceled orders.
D) stop limit orders.
Answer: A
A market order is executed immediately at the prevailing market price. A stop, or stop limit, order is not triggered until a set price is hit or passed through. A good-till-canceled order remains open until executed or canceled.
For a client to get immediate execution on an order, it should be placed as which of the following?
A) Stop.
B) Good-till-canceled.
C) All-or-none.
D) Market.
Answer: D
A market order is executed immediately at the best available market price.
A client buys 100 shares of MCS at 20. If the stock rises to 30 and he wants to protect his gain, which of the following orders should be entered?
A) Sell stop at 30.15.
B) Sell stop at 29.
C) Sell limit at 30.
D) Sell limit at 30.15.
Answer: B
A sell limit order is used to sell out a long position at a higher price (when the market moves up). A sell stop order is used to sell out a long position at a lower price (when the market moves down). To protect the gain, a sell stop order woul
A customer sold 100 shares of QRS short when the stock was trading at 19. If QRS is now trading at 14, and he wants to protect his gain, which of the following orders should he place?
A) Buy stop at 14.25.
B) Sell stop at 13.75.
C) Sell limit at 14.
D) Bu
Answer: A
A buy limit order is used to buy at a lower price (when the market moves down). A buy stop order is used to buy in a short position at a higher price (when the market moves up). To protect the gain, a buy stop order would be placed just above wh
An investor enters a day order to buy 200 shares of GGZ at 63. Three hours later, with GGZ trading above that price, he calls his registered representative wanting to change the order to a good-till-canceled order. The registered representative should:
im
Answer: A
The representative should not cancel the existing order because it would lose priority on the order book. However, the representative should not enter a GTC order that day because it could be filled twice. Instead, the representative should let
If your client has sold 100 shares of GGZ short and places a buy stop order at 80, the order is activated when the price of GGZ:
A) falls below 80.
B) rises above 80.
C) rises to 80 or above.
D) falls to 80 or below.
Answer: C
A buy stop order is always entered at a price above the current offering price. A buy stop order at 80 means that if the market price rises to 80 or above, the order becomes a market order to buy and is filled immediately.
All of the following statements regarding a market not-held order are true EXCEPT:
A) it gives the floor broker discretion over the price or time of execution.
B) the order ticket must be marked not held.
C) it may be filled a small portion at a time.
D)
Answer: D
In a market not-held order, the client agrees not to hold the broker responsible if he cannot fill the complete order. Such an order allows the floor broker to use his judgment on the best execution strategy. Specialists (designated market maker
A customer places an order to buy 300 DWQ at 140 stop, but not over 140.25. This is a:
A) buy limit order.
B) market not held order.
C) buy stop limit order.
D) buy stop order.
Answer: C
The customer has entered a stop limit order. If the stock rises to the stop price of $140, the order is elected then becomes a buy limit order at 140.25, meaning an order to buy at 140.25 or lower.
ALFA Electronics has been trading around 70. A customer tells his registered representative that if 1,000 shares of the stock can be purchased in one attempt, the customer will take it. If not, the customer is not interested. How should the representative
Answer: A
A fill-or-kill (FOK) order designates that the customer wants the order to be filled in its entirety in one attempt or be canceled. With an all-or-none (AON) order, the broker/dealer can make numerous attempts to fill the order in its entirety.
Your client feels that GGZ, currently trading around 39, would be a good buy at 38. Therefore, he places an order to buy 200 GGZ at 38 GTC. On the ex-date, when the stock splits 2-for-1, the order is still on the order book. How is the order adjusted on t
Answer: B
In a stock split, the number of shares is increased and the price is reduced proportionately on the ex-date (200 shares x 2 = 400 shares; the new price is 38 x .5, or 19).
A customer enters an order to buy GGZ at the close. GGZ traded between 70 and 71 all day. Then, after a last-minute rally, it closed up 4 points at 74. The customer pays the:
A) price as near to the close as possible, at the floor broker's discretion.
B)
Answer: B
When an order is placed market at the close, it is executed at the closing price.
An order ticket is marked as follows: Buy 20M GGZ 9% Debentures at 95 AON GTC. All of the following statements regarding this order are true EXCEPT:
A) the order will expire at the end of the day.
B) this is a buy limit order.
C) if executed, the customer
Answer: A
The customer has placed a limit order to buy 9% debentures issued by GGZ. The limit the customer is willing to pay is 95% of $20,000 worth of bonds, or $19,000 or lower. AON means all-or-none (either fill the order in its entirety or do not exec
A customer entered an order to sell short 100 shares of ABC. The stock closed on Friday at 48.00. The stock will trade ex-dividend $.50 on Monday. At what price can the order be executed at the opening?
A) 47.5.
B) 47.49.
C) Any price.
D) 47.51.
Answer: C
The stock's price is adjusted for the dividend at its opening the next morning. The adjustment in the stock does not limit where the short sale can be executed.
An investor believes that ICBS, a Nasdaq security, is overpriced at 40. He can sell ICBS short in the over-the-counter market under which of the following circumstances?
A) Only if he has an outstanding long position.
B) Under no circumstances.
C) With no
Answer: C
As on exchanges, short sales in the OTC market can occur at any time in the trade sequence.
Sell orders sent to an exchange:
A) must be marked only if they are short sales.
B) do not need to be marked, only executed in accordance with the appropriate rules.
C) must be marked long or short.
D) must be marked only if they are long sales.
Answer: C
Every sell order must be marked as either a long sale or a short sale.
In which of the following situations may a broker/dealer enter an order for a customer to sell a stock long?
The broker/dealer has reason to believe that the customer owns the stock and will deliver it promptly.
The security is carried in the customer's a
Answer: C
To note that a sell order is long, a broker/dealer must either have the stock in its possession or have reasonable assurance that the customer owns the stock and will deliver it promptly. Regarding a convertible bond or a call option, to be cons
A customer is long 300 shares of COD and simultaneously short 200 shares of COD. To sell the 300 shares held long, the order ticket must be marked:
A) 200 shares long and 100 shares short.
B) 100 shares long and 200 shares short.
C) long.
D) short.
Answer: B
The customer is long 300 shares and short 200 shares of the same stock. Therefore, the customer's net long position is 100 shares. The order ticket must be marked 100 long, 200 short. In other words, the customer is long only to the extent of hi
Which of the following orders are NOT placed on the order display book?
Buy stop limit.
Buy stop.
Market.
Not held.
A) III and IV.
B) I and II.
C) I and IV.
D) II and III.
Answer: A
Market orders are executed immediately and are not placed on the order book. Not held orders are not presented to the order book.
At 2:15 pm EST, a customer gives his registered representative a market order to buy 100 shares of ABC at the close. What should the registered representative do with the order?
A) Send in the order after the close to ensure receiving the closing price.
B
Answer: C
The registered representative should mark the order ticket at close. His firm's floor broker will take on the responsibility for proper execution.
Which of the following would accelerate a decline in a bear market?
A) Sell stop.
B) Buy stop.
C) Buy limit.
D) Sell limit.
Answer: A
Sell stops, placed below the current market, become market orders to sell when the stock trades at or through (below) the stop price. Market sell orders can accelerate declines in the price of the stock.
Which of the following would be the usual use of a stop order?
To protect the profit on a long position
To prevent loss on a short position
To buy at a specific price only
To guarantee execution at or near the close.
A) II and III.
B) II and IV.
C) I and
Answer: C
A buy stop could be used to protect an investor who is short, and a sell stop could be used to protect an investor who is long. Stop orders never guarantee execution price.
Each of the following statements concerning fill-or-kill orders and all-or-none orders are TRUE except:
A) an FOK order must be filled in its entirety.
B) an FOK order must be canceled if the whole order cannot be executed immediately.
C) an AON order mus
Answer: C
A fill-or-kill (FOK) order must be executed immediately in its entirety or else it is canceled. An all-or-none (AON) order must be executed in its entirety but is not canceled if the whole order cannot be executed immediately.
A client asks his broker to enter a day order to buy 100 shares of COW at 36. Later in the day, he changes the order to a GTC order at the same price and for the same number of shares. What happens to the position of the order on the order book?
A) The en
Answer: C
When an order is changed, it loses its priority standing on the order display book.
Which of the following orders is reduced on the order book on the ex-dividend date for a cash dividend?
A) Limit order to buy.
B) Buy stop order.
C) Sell limit order.
D) Buy stop limit order.
Answer: A
Only orders placed below the market price are reduced for cash dividends on the order book. Buy limits and sell stops are entered below the market price.
An order designated FOK means that the order must be executed:
A) in its entirety but not immediately.
B) immediately but not necessarily entirely.
C) at the opening of trading.
D) immediately and in its entirety .
Answer: D
Fill-or-kill (FOK) orders must be executed immediately in their entirety or they are canceled
A customer enters an order to sell 100 TCB at 49 stop limit. Prior to the order, TCB was trading at 49.25. Subsequent trades are reported on the Tape as follows:
TCB 48.75, 48.85, 49, 49.25
Which trade triggered the order?
A) 49.25.
B) 48.75.
C) 48.85.
D)
Answer: B
This is an order where the stop price and limit price (Stop, Limit) are the same. A sell stop limit order is triggered (elected) by the first trade that is at, or below the stop price. It is subsequently executed at a price at, or better than th
In a buy stop limit order, once the stop price is hit:
A) the order is immediately executed.
B) the order becomes a market order.
C) a purchase can only occur at the limit or above.
D) a purchase can occur only at the limit or below.
Answer: D
A buy stop limit order becomes a limit order when triggered. The execution occurs at a price that is at, or below, the stated limit price.
A customer sells short 100 shares of XYZ Corporation at $78 per share. The support and resistance levels for XYZ are at $70 and $80, respectively. If he wishes to protect his position, which of the following is the best place to put in a buy stop order?
A
Answer: A
The client will want to place a buy stop a little above the resistance level to protect himself against an upside breakout. Entering a buy stop order too close to the purchase price (78.10) would not afford the client an opportunity for gain.
A day order is entered to buy 500 LMN at 24.35. By the close of the trading day the firm has been able to purchase 100 shares at 24.25 and 200 shares at 24.35. If the remainder of the order is unfilled, what is the outcome?
A) The customer must accept the
Answer: A
The customer must accept the order for 300 shares. The representative cannot guarantee that the order will be filled by the end of day.
KLP common stock has been trading at or near to $25 per share all day. Your client would like to buy 500 shares of KLP at 25, but he is willing to accept fewer shares at that price. Which of the following orders fulfills his intentions?
A) Market order to
Answer: D
Partial execution is permissible on an IOC (immediate-or-cancel) order.
Which of the following orders would NOT be reduced on the order book on the ex-dividend date for a cash dividend?
Buy limit order.
Open sell stop order.
Buy stop order.
Sell limit order.
A) II and III.
B) III and IV.
C) I and II.
D) I and IV.
Answer: B
Open sell limit orders and open buy stop orders, which are placed above the current market will not be reduced on the order book when a stock goes exdividend for a cash dividend.
An order to sell at 38.65 stop limit is entered before the opening. The subsequent trades are 38.85, 38.50, and 38.35. The order:
A) was executed at 38.50.
B) was executed at 38.65.
C) was executed at 38.85.
D) has not yet been executed.
Answer: D
A stop limit order is a stop order that becomes a limit order once the stop price has been triggered. When the limit price is the same as the stop price on a stop limit order, the order may be executed only at, or better than, the limit price. I
Each of the following is true about stop orders EXCEPT they:
A) can limit a loss in a declining stock.
B) become market orders when there is a trade at, or the market passes through, a specific price.
C) can accelerate the advance or decline of a stock's
Answer: D
A stop order becomes a market order once the market price reaches or passes through the stop price. An investor in a long position can use the sell stop order for protection against a market decline. When a large number of stop orders are trigge
A customer tells a broker to buy 1,500 shares of ABCD at 33.60 immediately for the full 1,500 shares. This is a(n):
A) good-till-canceled order.
B) immediate-or-cancel order.
C) all-or-none order.
D) fill-or-kill order.
Answer: D
In a fill-or-kill order, the instruction is to fill the entire order immediately at the limit price or better. If this cannot be done, the order will be canceled (killed). An immediate-or-cancel order is similar, except that partial execution is
If a customer with an unrealized gain on a short stock position wishes to protect his profit, he should enter a:
A) sell stop order.
B) buy stop order.
C) sell limit order.
D) buy limit order.
Answer: B
A buy stop order can be placed above the current market to protect the short stock position. If the stock trades at or above the stop price, the order is elected and becomes a market order to buy the stock, which will be used to cover the short
Which of the following orders, if executed, guarantee a specific price or better?
Buy limit.
Buy stop.
Sell stop.
Sell limit.
A) II and III.
B) II and IV.
C) I and IV.
D) I and III.
Answer: C
While limit orders may or may not be filled, they guarantee that if a fill does occur, it will be executed at the stated price or better.
A customer places an order to sell short 100 DEF 52.25 STOP. After placing the order, DEF trades as follows: 53, 52.60, 52.20, 52.10, 52.25. Which trade triggers the order?
A) 52.1.
B) 52.25.
C) 52.6.
D) 52.2.
Answer: D
Sell stop orders are triggered as soon as the stock trades at or through the stop price. The trade at 52.20 represents the first such transaction after the order is placed. Once triggered at 52.20, the stop order becomes a market order and will
A customer places an order to sell short 100 DEF 52.50 STOP. After placing the order, DEF trades as follows: 53, 52.60, 52.20, 53 SLD, 52.10, 52.25. At which trade can the order be executed?
A) 53.
B) 52.1.
C) 52.25.
D) 52.5.
Answer: B
After the sell stop order is triggered (at 52.20), it becomes a market order to sell at the next price in the trade sequence. The trade at 53 is qualified by SLD, which indicates a delayed report of a previous trade and is not part of the tick s
Which of the following orders are reduced on the ex-dividend date for a cash dividend?
Buy 100 XYZ 60 DNR.
Sell 100 XYZ 70.
Sell 100 XYZ 60 STOP.
Buy 100 XYZ 70 STOP.
A) I and II.
B) II and IV.
C) III and IV.
D) III only.
Answer: D
Orders placed below the market (buy limits and sell stops) are automatically reduced on the ex-date. The exception to this rule is for orders marked DNR (do not reduce).
A customer has an order to buy 400 ABC at 60 Stop. ABC declares a 25% stock dividend. On the ex-date, the order on the order book will read:
A) buy 400 shares at 60 stop.
B) buy 425 shares at 50 stop.
C) buy 500 shares at 30 stop.
D) buy 500 shares at 48
Answer: D
For stock dividends, all orders on the book are adjusted and the order value must be the same before and after the adjustment. Before the adjustment 400 ABC at 60 Stop = $24,000 total value. After the adjustment total shares on the buy order wil
A technical analyst has been charting XYZ stock and notes that it fluctuates between $36 and $41. If the analyst expects a breakout through resistance, which of the following orders should be placed?
A) Buy XYZ 42 GTC.
B) Buy XYZ 42 Stop GTC.
C) Buy XYZ 3
Answer: B
A buy stop order is placed above a resistance level. It is triggered if and when the stock trades at or above the stop price. This allows an investor to participate in a bullish breakout through resistance.
A customer enters an order to buy 1,000 ABC at 50, good for the week only. How will this order appear on the order book?
A) Buy 1000 ABC 50 Day.
B) Buy 1000 ABC 50 GTM.
C) Buy 1000 ABC 50 GTC.
D) Buy 1000 ABC 50 GTW.
Answer: C
Limit orders and stop orders are entered on the order book as either GTC or day orders. Orders that are good for only a particular time frame (good for the week) will appear as GTC. It is the responsibility of the broker/dealer that entered the
A technical analyst has been charting ABC stock and notes that the support/resistance levels are $20 and $30 respectively. If the analyst expects ABC to fall through support, which of the following orders should he enter?
A) Buy 100 ABC 30.25 stop.
B) Sel
Answer: B
An analyst who expects a stock to fall through support is anticipating that the stock will decline. He can take advantage of this trend by establishing a short position at the top of the decline. He will enter a sell stop order just below the su
A customer sells short 1,000 XYZ at 60. Three months later, XYZ is at 44. Which of the following strategies might the customer employ to protect his unrealized gain?
Sell 1,000 XYZ 45 stop.
Buy 1,000 XYZ 45 stop.
Buy 10 XYZ Mar 45 calls.
Buy 1,000 XYZ 45
Answer: D
In this short position, the customer currently has an unrealized gain of 16. He stands to see his unrealized gain begin to erode if the stock price rises, so he could enter a buy stop order above 44 to allow him to buy and cover his position if
Stop orders may be used for each of the following EXCEPT:
A) protect profits on short positions.
B) establish positions.
C) lock in a specific price to close out a position.
D) protect profits on long positions.
Answer: C
Stop orders are contingent orders that are triggered when the stock trades at or through a stated price. When triggered, they become market orders to buy or sell. They are used by technical traders to establish positions above or below resistanc
A customer has sold short 100 GM at 70. GM is selling for 81. The customer had previously placed a GTC buy stop order at 83. GM announces a stock split and an increase in the dividend. The stock starts to move up and the customer decides to cover the shor
Answer: C
It is incumbent upon the registered representative to cancel the old order.
A customer enters an order to buy 100 ABC at 47 stop GTC. After the order is elected, the order may be executed at which of the following prices?
46.
47.
48.
49.
A) II only.
B) III and IV.
C) I, II, III and IV.
D) I and II.
Answer: C
Once a stock trades at or through the stop price (the order is elected), a stop order is executed at the first opportunity, which could be any of the prices listed. A stop order becomes a market order once elected; there is no guarantee that the
Which of the following orders are entered above the current market?
Buy stop.
Sell stop.
Buy limit.
Sell limit.
A) II and III.
B) II and IV.
C) I and IV.
D) I and II.
Answer: C
A limit order is used to buy or sell at a specific price or better. Therefore, buy limits are entered below the current market and sell limits are entered above the current market. Stop orders have several uses. The most common of these is to pr
A fill-or-kill order (FOK)
must be executed in its entirety.
may be executed in part or in full.
must be executed in one attempt.
may be executed after several attempts.
A) I and IV.
B) II and III.
C) II and IV.
D) I and III.
Answer: D
A fill-or-kill order is one where the firm handling the order can make one attempt to fill the order in its entirety. If unable to do so, the order is canceled.
An immediate-or-cancel order (IOC):
must be executed in its entirety.
may be executed in part or in full.
must be executed in one attempt.
may be executed after several attempts.
A) II and III.
B) I and III.
C) I and IV.
D) II and IV.
Answer: A
In an immediate-or-cancel order, the firm handling the order has one attempt to fill the order but a partial execution is binding on the customer.
An all-or-none order (AON):
must be executed in its entirety.
may be executed in part or in full.
must be executed in one attempt.
may be executed after several attempts.
A) II and III.
B) II and IV.
C) I and IV.
D) I and III.
Answer: C
In an all-or-none order, the firm handling the order can make multiple attempts to fill the order in its entirety.
A sell limit order is executed when a stock is:
rising.
falling.
at or below the limit price.
at or above the limit price.
A) I and III.
B) II and III.
C) II and IV.
D) I and IV.
Answer: D
A sell limit order is placed above the prevailing market price. Therefore, it may be executed if the market is rising. If executed, limit orders will be filled at the limit price or better, which in the case of a sell limit is the limit price or
A customer, concerned about a possible pull-back in XYZ stock, instructs his broker, to "Sell my XYZ stock if it falls to 40, but I don't want less than 39.75 for my shares." The broker should enter a:
A) sell stop order.
B) sell stop limit order.
C) mark
Answer: B
A sell stop limit order would be appropriate (sell 100 XYZ 40 stop 39.75). Once the price of XYZ trades at or through (below) 40, the order is elected and becomes a limit order to sell at 39.75 or better (higher).
A buy stop order is triggered when the underlying stock trades:
at the stop price.
below the stop price.
above the stop price.
A) I or III.
B) I only.
C) I or II.
D) III only.
Answer: A
A buy stop order is placed above the prevailing market price and is triggered (becomes a market order to buy) when the stock trades at or through (above) the stop price.
If a customer places an order to buy 500 ABC at 62 stop limit, after the order is elected, at which of the following prices may the order be executed?
61.50.
62.
62.50.
63.
A) I and III.
B) II and IV.
C) III and IV.
D) I and II.
Answer: D
This is a stop limit order with both the stop price and limit price at 62. Once the market trades at or through 62, the order is elected and it becomes a limit order to buy at 62 or better (lower).
Which of the following orders would be executed in a rising market?
Buy stops.
Buy limits.
Sell limits.
Sell stops.
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.
Answer: A
Buy limits and sell stops are entered below the current market and would be executed if the market were falling. Sell limits and buy stops are entered above the current market and would be executed if the market were rising.
If a customer places an order to sell 500 ABC at 46 stop limit, which of the following statements are TRUE?
The order will be elected at 46 or lower.
The order will be elected at 46 or higher.
The order can be executed at 46 or higher.
The order can be ex
Answer: B
Sell stop limits are placed below the current market and will be elected when the stock trades at or through (lower than) the stop price. Once elected, the order becomes a limit order to sell at 46 or better (higher).
A significant increase in which of the following types of orders may cause a bull market to accelerate?
A) Buy stops.
B) Buy limits.
C) Sell stops.
D) Short sales.
Answer: A
If the market is rising, only those orders on the order book above the current market will be executed. Buy stops and sell limits are both entered above the prevailing market price. Of these two, only buy orders (in this case buy stops) will acc
Which of the following orders on the order book would be reduced for a cash dividend on the ex-date?
A) Buy 100 XYZ at 50 DNR.
B) Buy 100 XYZ at 60 stop.
C) Sell 100 XYZ at 60.
D) Sell 100 XYZ at 50 stop.
Answer: D
Orders on the book adjusted on the ex-date for a cash dividend are those below the current market: buy limits and sell stops. The buy limit at 50 is marked DNR (do not reduce) so the only order reduced is the sell stop at 50.
A short sale of stock directed to an exchange must observe all of the following EXCEPT:
A) a minimum maintenance requirement of 30%.
B) the symbol "ss" on the consolidated tape.
C) the locate requirement for borrowed shares.
D) a margin requirement of 50%
Answer: B
The symbol "ss" does not designate "short sale." It is used to identify stocks traded in 10-share units.
Which of the following order types is permitted in Nasdaq markets but NOT in NYSE equity markets?
A) Immediate or cancel (IOC).
B) Market.
C) Fill or kill (FOK).
D) Limit.
Answer: C
Fill-or-kill (FOK) and all-or-none (AON) orders may no longer be entered in the NYSE equity market but are still accepted in both the bond market and Nasdaq.
One of your clients enters a sell stop order at $42.40, limit $42.15. Assume that the trades occur in the following sequence: 42.45, 42.40, 42.75, 42.27, and 41.91. At which of the following prices could this order be executed?
$41.91.
$42.27.
$42.40.
$42
Answer: D
As a sell stop order with a limit of $42.15, no order may be executed below the limit price of $42.15. This order will be triggered at the price of $42.40. The only remaining prices that will meet the limit requirement after it is triggered are
Which of the following order types are available to customers for use in NYSE equity markets?
Fill or kill. (FOK)
Immediate or cancel. (IOC)
All or none. (AON)
Order cancels other. (OCO)
A) I and IV.
B) II and III.
C) II and IV.
D) I and III.
Answer: C
IOC and OCO orders are available to customers for use in the NYSE equity markets. FOK and AON orders are no longer permitted in NYSE equity markets.
SEC regulation SHO mandates a locate requirement for short sales that is applicable to
corporate bonds.
NYSE issues.
Nasdaq securities.
Municipal bonds.
A) I and III.
B) I and IV.
C) II and IV.
D) II and III.
Answer: D
This regulation mandates a locate requirement: before the short sale of any equity security, firms must locate the securities for borrowing to ensure that delivery will be made on settlement date.
Under NYSE rules, a not-held order:
A) is good until canceled.
B) requires discretionary authority from the customer.
C) is a limit order.
D) is good for the day only.
Answer: D
Under NYSE rules, a not-held order where a customer gives you authority over the price or timing of the order is good for that day only.
What type of order provides that market activity can cause activation, but it is possible that the trade itself may or may NOT be executed?
A) A stop order.
B) A market order.
C) An open buy order.
D) A stop limit order.
Answer: D
With a stop limit order, if the stock price trades at or through the specified stop price, the order will be triggered or activated and become a limit order. But remember, a limit order may not be executed since the limit price may never be reac
A buy stop order may be used for all of the following EXCEPT:
A) to protect a profit in a long position.
B) to protect a profit in a short position.
C) to acquire a long position as a stock breaks through resistance.
D) to protect against loss in a short
Answer: A
Buying can only protect short positions, not long positions.
A representative enters a customer's immediate or cancel order to sell 1,000 shares at $12. If only 500 shares can be sold at $12, which of the following will occur?
A) Because the entire order cannot be filled, the entire order will be canceled unexecute
Answer: D
An immediately or cancel order will take a partial fill. Time is the limiting factor in an IOC.
Which of the following applies to an open order to buy 600 WXYZ at 44?
The order may be partially filled at the limit price or better.
The order is entered in the order book.
This is considered a market order.
It must be executed at the price specified or
Answer: D
Unless the order is specified as AON or FOK, it may be partially filled. Finally, it is a limit order, which must be executed at the specified price or better.
If a customer gives his broker/dealer an order to sell his stock if it falls to or below 69 and will not accept a price below 69, the order is:
A) a sell limit order.
B) a stop limit order.
C) a buy limit order.
D) a stop order.
Answer: B
When an order is entered this way, the client has specified that it should not be triggered until the stock is at or below 69, a stop order. Because the client will not accept an execution below 69 it is a stop limit order.
Your client has entered a limit order to buy 600 shares of DMF at $50 per share. DMF declares a 10% stock dividend. How would this order be adjusted on the ex-date?
A) 660 shares at $46.37.
B) 660 shares at $46.50.
C) 600 shares at $45.45.
D) 600 shares a
Answer: C
In this example, adjust only the share price: $50 � (1 + .10) = $45.45. The number of shares in the order is not adjusted unless the shares can be increased by a full round lot (100 shares).
Which of the following orders may be used to acquire a security at a specific price or better?
A buy stop limit.
A buy limit.
A sell stop.
A sell limit.
A) II and IV.
B) I and II.
C) I and III.
D) II and III.
Answer: B
Only buy orders can acquire stock. Only buy limit orders can acquire stock at a specific price or better.
An agency cross transaction in the OTC market occurs when a broker/dealer:
A) invests the proceeds of a customer sale in another OTC stock.
B) matches a customer buy order with a customer sell order on the same stock at the same price and charges each sid
Answer: C
When a broker/dealer crosses stock between 2 customers, it does so at the same price. For example, if one customer wants to buy 500 WXYZ at 36 and another customer wants to sell 500 WXYZ at 36, the firm could cross 500 at 36, charging each side
An investor places an order to sell short ABCD at the open. The opening bid of 15.25 is the same as the prior day's close. At what price may the investor sell short at the open?
A) 15.24.
B) 15.26.
C) The investor is prohibited from selling short at the o
Answer: D
Short sales can occur any time during the trading day, including the opening and the close. In this case, the sale would take place at the best bid, which is 15.25.
The locate requirement for short sales applies to:
A) securities traded on the NYSE.
B) Nasdaq global select and global market securities.
C) All of these.
D) over-the-counter securities.
Answer: C
The locate requirement is applicable to all short sales.
Establishing short positions is typical for all of the following EXCEPT:
A) preferred stock.
B) OTC common stock.
C) municipal bonds.
D) listed stock.
Answer: C
Even though there is no regulation that prohibits short sales of municipal bonds, this is rarely done. To short a security, it must be borrowed and later covered. The general illiquidity of the municipal market makes this difficult.
According to the multi-tiered market making system of NYSE Euronext, a Supplemental Liquidity Provider may:
never compete with the specialist.
make markets in NYSE listed securities from an off-floor location.
never receive rebates of transaction fees fro
Answer: D
Under the multi-tiered market maker system employed by NYSE Euronext a Supplemental Liquidity Provider may compete with the on-floor Specialist (Designated Market Maker) and receive rebates of exchange transaction fees. Unlike a Designated Marke
The Sec regulation requiring that firms holding customer limit orders not trade through or ahead of those orders is:
A) the locate requirement of regulation SHO.
B) the Trust Indenture Act.
C) the order protection rule of the national market security syst
Answer: C
The order protection rule, which comes under the broad sweeping regulation NMS (National Market System) mandates that firms holding customer limit orders do not trade through or ahead of those limits with other customer orders or with the firms
Which of the following is applicable to the NASDAQ OMX PHLX?
Regional exchange operated by Nasdaq
Offers trading in equity securities and options contracts
Is a completely electronic exchange with no physical trading floor
Regional exchange operated by FI
Answer: A
The OMX PHLX is a regional exchange operated by Nasdaq where equity securities and options contracts are traded both electronically and on floor.
A customer has entered an option order with your broker/dealer. At which of the following locations could such an order be executed?
NYSE/AMEX
CBOE
Nasdaq OMX PHLX
None of the listed choices
A) I and II
B) I, II and III
C) IV only
D) II and III
Answer: B
Options orders can be executed on the NYSE/AMEX, the CBOE, and the Nasdaq OMX PHLX, which offers a hybrid of electronic and on-floor execution availability.
Super Display Book (SDBK) is the electronic order processing system used by which of the following markets for trading common stocks?
A) OTC market.
B) Chicago Board Options Exchange.
C) Philadelphia Stock Exchange.
D) New York Stock Exchange.
Answer: D
The NYSE uses the Super Display Book system for processing orders.
Transactions involving which of the following would NOT be reported to the Consolidated Tape System (CTS) by an exchange or FINRA?
A) NYSE-listed rights and warrants.
B) Listed options.
C) NYSE-listed securities traded on the Chicago and Philadelphia exch
Answer: B
The Consolidated Tape System (CTS) receives and validates the last sale price and size of listed equity securities transactions on the NYSE and other regional exchanges and FINRA. Options transactions are not reported to the CTS.
Trade reports made to the Consolidated Tape:
include commissions.
do not include commissions.
include markups.
do not include markups.
A) I and IV.
B) II and III.
C) II and IV.
D) I and III.
Answer: C
Trade reports never include commissions, markups, or markdowns.
The following appears on the consolidated tape: T SLD 45. What does the symbol SLD indicate?
A) This is the last transaction for American Telephone to be reported on this day.
B) Shares of American Telephone (T) traded cash settlement.
C) Shares of Americ
Answer: C
"SLD" means that this trade, which occurred sometime earlier, is being reported on the Consolidated Tape System (CTS) out of sequence (late).
Trading is halted on a listed security on the NYSE because a large volume of orders created an order imbalance. A report of a transaction in the stock taking place on another exchange, will appear on the consolidated tape system (CTS):
A) never, because t
Answer: D
A trading halt on one exchange does not mean that trading must halt on other exchanges; therefore, subsequent reporting of such trades to the Consolidated Tape System (CTS) would continue.
The symbol OPD appearing on the Consolidated Tape System indicates:
A) an execution of a block trade.
B) a delayed opening print.
C) short sale.
D) a cross.
Answer: B
The OPD symbol appears on the Consolidated Tape System (CTS) with first transactions of the day for securities that had delayed openings.
A customer enters an order to purchase 1000 shares of XYZ common stock at the market when the quote is 18.22 bid, 18.30 ask. If the transaction is executed at the market and the broker charges a $.10 mark-up how will the price be reported to the consolida
Answer: C
When transaction prices are reported to the consolidated tape system they do not include the amount of any commission, mark-up or mark-down. In this instance 1000 shares were purchased at the market meaning the buyer paid the ask price of 18.30.
When a broker/dealer makes a market, it acts as a(n):
A) principal.
B) agent.
C) broker.
D) underwriter.
Answer: A
Making markets is a principal activity. The broker/dealer stands ready, willing, and able to buy or sell securities for its own account. A dealer acts as a principal when it owns the securities it trades. When the broker/dealer is not acting for
All of the following securities trade in the over-the-counter market EXCEPT:
A) American depositary receipts.
B) Open-end investment companies.
C) Government and agency securities.
D) Nasdaq securities.
Answer: B
Municipal bonds, government and agency securities, and corporate securities (listed and unlisted) all trade in the OTC market. Foreign securities trade in the United States if the companies comply with SEC registration and disclosure requirement
Stock prices in the over-the-counter market are determined by:
A) open outcry for the securities at a central marketplace.
B) buyers and sellers bidding directly against each other in a double auction market.
C) negotiation between buyers and sellers.
D)
Answer: C
The OTC market is a negotiated market (not an auction market as is the case with an exchange) in which dealers negotiate stock trades with each other.
A Nasdaq market maker buys 1,000 shares of stock from a customer at its bid to satisfy a customer order. This is an example of a(n):
A) block trade.
B) principal trade.
C) agency trade.
D) riskless principal trade.
Answer: B
The market maker is acting in a principal (dealer) capacity.
The over-the-counter (OTC) market is:
A) the first market.
B) All of these.
C) a negotiated market.
D) an auction market.
Answer: C
The OTC market is a negotiated market. Registered market makers compete among themselves to post the best bid and ask prices.
OTC trading practices in corporate securities are supervised by
SIA.
the SEC.
FOMC.
FINRA.
A) I and IV.
B) II and III.
C) II and IV.
D) I and III.
Answer: C
The Securities and Exchange Commission (SEC) is responsible for regulating securities trading throughout the United States. FINRA is the authorized SRO for the OTC market. The Securities Industry Association (SIA) is a trade organization that pr
Each of the following statements regarding OTC markets is true EXCEPT:
A) the OTC market is an auction market.
B) securities traded OTC include ADRs and municipal bonds.
C) the OTC market has no exchange trading floor.
D) the bid is the highest price at w
Answer: A
The OTC market is a negotiated market in which market makers may bargain during a trade. Stock exchanges like the NYSE are an auction market.
Which of the following securities are eligible for inclusion on Nasdaq?
Listed common stock.
Unlisted common stock.
Listed convertible bonds.
Unlisted convertible bonds.
A) I and III.
B) III and IV.
C) II and IV.
D) I and II.
Answer: C
Nasdaq includes OTC securities only, which means that unlisted securities including stocks and convertible bonds are eligible.
The Nasdaq stock market permits listing for all of the following EXCEPT:
A) common stock.
B) convertible bonds.
C) warrants.
D) nonconvertible debt securities.
Answer: D
The Nasdaq stock market is an equity and equity equivalent market. Listed are common stock, preferred stock, warrants, limited partnerships, ADRs, and convertible bonds. Straight debt securities are not part of Nasdaq.
All of the following are included in Nasdaq EXCEPT:
A) closed-end investment companies.
B) ADRs.
C) convertible bonds.
D) U.S. government securities.
Answer: D
Nasdaq is an equity market and includes common stock, preferred stock, ADRs, and convertible bonds. Publicly traded funds can be quoted over Nasdaq. U.S. government securities are not part of Nasdaq, although they do trade OTC.
All of the following statements regarding the over-the-counter market are true EXCEPT:
A) it trades unlisted securities.
B) more issues trade OTC than on the exchanges.
C) it trades listed securities.
D) it is an auction market.
Answer: D
The OTC market is a negotiated market. The exchanges are auction markets.
Stock prices in the over-the-counter market are determined by:
A) negotiation.
B) the 5% markup policy.
C) an auction.
D) a competitive bid.
Answer: A
The OTC market is considered to be a negotiated market in contrast to a stock exchange, which is an auction market. The 5% markup policy regulates commissions and markups, not prices and competitive bids are a type of underwriting agreement for
A customer of your broker/dealer is questioning the timeliness in which one of her equity orders for a stock listed on Nasdaq was handled and executed. A source providing the most complete order entry and execution details for the customer's order could b
Answer: B
For an equity stock listed on Nasdaq, the source that would provide the most complete information regarding the handling of the order and its execution, including a timeline of all relevant entry and execution events, would be the Order Audit Tr
To fill a customer buy order for 800 WXYZ shares, your firm requests a quote from a market maker for 800 shares. The response is "bid 15, ask 15.25." If the order is placed, the market maker must sell:
A) 800 shares at $15.25 per share.
B) 100 shares at $
Answer: A
A market maker is responsible for honoring a firm quote. If no size is requested by the inquiring trader, a quote is firm for 100 shares. In this example, the trader requested an 800-share quote, so the market maker is responsible for selling 8
If an OTC market maker provides a firm quote to another broker/dealer then refuses to buy or sell at the price quoted, the market maker is said to be:
A) crossing quotes.
B) interpositioning.
C) backing away.
D) freeriding.
Answer: C
A dealer that does not honor its quote is said to be "backing away".
An OTC quote that must be reconfirmed with the OTC trading room before a broker/dealer takes action is:
A) third party.
B) firm.
C) subject.
D) representative.
Answer: C
Before a trade can take place, a subject quote always must be reconfirmed with the OTC trader or market maker that provided it. Subject quotes are typically used in conjunction with thinly traded securities or before filling large block orders.
An OTC trader's quote of "60 to 63, work out," in response to a broker holding a customer order to sell a block of stock, indicates which of the following?
A) The quote is tentative (nominal) merely suggesting a range in which the order is likely to be fi
Answer: A
The term "work out" means that the quote is approximate, or nominal. As with a subject quote, the OTC trader that supplied the quote will most likely negotiate with a number of market makers to get the customer's securities sold or bought.
Which of the following quotations are expressions of firm quotes?
"It is 30-31."
"Last I saw was 30-31."
"We can trade it 30-31."
"30-31 work out."
A) II and III.
B) II and IV.
C) I and III.
D) I and IV.
Answer: C
Examples of firm quotes include: "It is 30-31," "We can trade it 30-31," "The market is 30-31," and "We will do it 30-31.
Where would an investor look for a quote on a penny stock?
A) Blue List.
B) Nasdaq Capital Market Issues list.
C) Consolidated Quotation System.
D) OTCBB.
Answer: D
A penny stock is a non-Nasdaq (OTCBB or electronic OTC Pink) stock trading at less than $5 per share.
When referring to a stock, the term "spread" refers to the:
A) range between the high and low price for a particular trading day.
B) range between the high and low price for a particular year.
C) dealer's markup.
D) difference between the bid and asked pr
Answer: D
The term "spread" refers to the difference between the bid and asked prices.
If there are no priced quotations on the OTCBB or in the electronic "OTC Pink" for a security and a member receives an order to buy the securities, to determine the prevailing market, the member must contact a minimum of:
A) 3 dealers.
B) 1 dealer.
C) 2 d
Answer: A
A member must contact a minimum of 3 dealers (or all dealers if 3 or less) to determine the prevailing market. If 2 or more priced quotations are available, this requirement is waived.
Last-sale information is always available for all of the following securities EXCEPT
A) NYSE-listed
B) Nasdaq
C) Philadelphia Stock Exchange listed
D) electronic OTC Pink stocks
Answer: D
Last-sale information is available for listed (exchange traded) securities and for all Nasdaq securities. Although electronic OTC Pink securities are traded over the counter, they are not included in Nasdaq. Therefore, last-sale information is n
Which of the following statements regarding quotes and information for stocks on the electronic "OTC Pink" are TRUE?
Quotes are firm.
Quotes are not firm.
Updates are made throughout the trading day and quotes are kept current.
Updates may not be current
Answer: D
With updates made infrequently, quotes found on the electronic OTC Pink are never firm. Quotes on such systems are for informational purposes only; subject to change.
Which of the following events may NOT cause FINRA to terminate quotations in a SmallCap stock?
A) The issuer declares bankruptcy.
B) FINRA deems termination to be in the public interest.
C) The issuer's independent auditor renders a disclaimer opinion.
D)
Answer: D
Although 3 market makers are required initially for an issue to be included on Nasdaq, only 2 market makers are needed to continue being quoted on the system. The other answers are sufficient reason for termination of quotations.
A firm 1-sided quote is permitted for:
A) Nasdaq Capital Market stocks.
B) Over-the-counter Bulletin Board stocks.
C) Nasdaq Global Select stocks.
D) Nasdaq Global Market stocks.
Answer: B
Any quote displayed over the OTCBB is acceptable as long as it is properly identified. For Nasdaq stocks, market makers must maintain firm 2-sided quotes.
Which of the following can be entered on the OTC Bulletin Board?
Firm quotes.
Subject quotes.
Bids wanted.
Offerings wanted.
A) I and II.
B) II and IV.
C) III and IV.
D) I, II, III and IV.
Answer: D
Any quote entered on the OTCBB is acceptable if it is properly identified.
Under FINRA rules, which of the following securities is eligible for listing in the OTC Bulletin Board service (OTCBB)?
A) Nonconvertible bond issued by a U.S. corporation that has two stock issues listed on Nasdaq.
B) Bond issued by a foreign corporation
Answer: C
The OTCBB includes equity issues not listed on Nasdaq or any other U.S. exchange.
The Three Contact Rule does NOT apply to the purchase or sale of a non-Nasdaq security provided there is at least:
A) 2 priced quotations available electronically .
B) 1 priced quotation available electronically.
C) 3 priced quotations available electroni
Answer: A
Provided there are at least 2 priced quotations available electronically, the Three Contact Rule does not apply.
A quote on Nasdaq is as follows:
Bid Ask 10 10.50, 1300 x 1500
The market maker is obligated to execute all of the following customer transactions in their entirety EXCEPT:
A) buy 1,500 shares at 10.50.
B) sell 1,500 shares at 10.
C) sell 1,300 shares at
Answer: B
This market maker has quoted a size of market of 1,300 ? 1,500, which means it stands ready to buy a maximum of 1,300 shares at $10 and sell a maximum of 1,500 shares at 10.50. A sale of 1,500 shares at 10 is outside the size of this quote.
Failure to honor a firm quote is called:
A) interpositioning.
B) front running.
C) trading ahead.
D) backing away.
Answer: D
Failure to honor a stated quote is a rules violation called backing away.
If a Nasdaq market maker is selling stock to a customer from inventory and the firm has held the shares to be sold for several months, what price should the dealer use as a basis for a markup?
A) Price at which it purchased the securities.
B) Offer price
Answer: D
FINRA rules require that a dealer's markup to a customer be based on the current market rather than the dealer's cost in an active, competitive market. The dealer's potential loss on inventory is considered to be a risk of making a market.
The 5% policy applies to:
commissions charged when executing customer agency (broker) transactions.
riskless and simultaneous transactions.
markups on stock sold from inventory.
markdowns on stocks bought for inventory.
A) III and IV.
B) I, II, III and IV
Answer: B
The 5% policy applies to both commission charges on agency transactions and to markups and markdowns on principal transactions, including riskless principal trades.
Which of the following transactions is subject to the 5% markup policy on markups and markdowns?
A) Mutual fund shares sold to the public.
B) Municipal bond transactions.
C) NYSE-listed stock traded in the third market.
D) New issue corporate equity secur
Answer: C
The 5% policy applies to all exchange and OTC transactions in nonexempt securities. It does not apply to prospectus offerings (new issues and mutual funds). It does, however, apply to third-market trades.
The 5% markup policy applies to all of the following EXCEPT:
A) municipal bond transactions.
B) agency transactions on an exchange.
C) principal transactions in the OTC market.
D) agency transactions in non-exempt unlisted securities.
Answer: A
The 5% policy does not apply to exempt securities transactions such as municipal bond trades The policy applies to nonexempt securities and transactions on an exchange and in the OTC market, and it applies to both agency and principal trades.
The 5% markup policy applies to:
A) mutual funds.
B) new issues.
C) All of these.
D) principal OTC trades.
Answer: D
The 5% markup policy applies to agency and principal nonexempt securities and transactions both exchange and OTC traded. It does not apply to prospectus offerings (mutual funds and new issues).
In a proceeds transaction for a customer where the proceeds from the liquidation of one stock are used to purchase another stock, the 5% markup policy is computed on the basis of:
A) the markup on the buy side only.
B) the markdown on the sell side only.
Answer: C
In a proceeds transaction (sell one position; take the proceeds and buy another), the 5% markup is computed by adding the compensation made by the dealer on the sell side to that made by the dealer on the buy side and applying the total to the i
All of the following statements regarding the 5% markup policy are true EXCEPT:
A) the type of security is a factor to consider.
B) a transaction in common stock customarily has a higher percentage markup than a bond transaction of the same size.
C) the m
Answer: D
Riskless transactions are covered by the 5% markup policy.
Riskless and simultaneous transactions by a broker/dealer are:
A) permissible if they comply with the 5% policy.
B) not permissible under any circumstances.
C) permissible only if there's profit for a customer.
D) permissible only in new issue underwritin
Answer: A
The 5% policy applies to all types of nonexempt secondary market transactions, including riskless and simultaneous transactions.
All of the following considerations apply to the 5% markup policy EXCEPT:
A) the customer's ability to pay.
B) the services rendered by the broker/dealer.
C) the cost of executing the transaction.
D) the availability of the security.
Answer: A
The 5% policy is a guideline for markups and commissions for exchange and OTC trades. A firm cannot charge a higher commission or markup to a customer on the basis of the customer's ability to pay. Factors relevant in determining the fairness of
Answer: A
The 5% policy is a guideline for markups and commissions for exchange and OTC trades. A firm cannot charge a higher commission or markup to a customer on the basis of the customer's ability to pay. Factors relevant in determining the fairness of
Answer: C
The 5% markup policy applies to markups, markdowns, and commissions. New offerings sold by prospectus are exempt from this rule.
Under the 5% markup policy, which of the following determines the amount of markup in a principal transaction?
A) Lowest ask.
B) Highest bid.
C) Highest ask.
D) Lowest bid.
Answer: A
Markups are always based on the inside offer which is the lowest ask price in a particular security. Markdowns are based on the inside bid which is the highest bid price for a particular security.
All of the following may be cited to justify a markup on a stock sold from a broker/dealer's inventory EXCEPT:
A) the security's price.
B) overall value of the transaction.
C) availability.
D) dealer's cost.
Answer: D
The dealer's cost is not a legitimate factor in determining the markup on a stock.
Which of the following transactions would NOT be subject to the 5% markup policy?
A) Your client enters trades to purchase 2 different mutual funds in the same fund family. The combined purchases do not qualify for any breakpoints. The client is charged a
Answer: A
Transactions in securities that are sold by a prospectus are not subject to the 5% markup policy. A mutual fund will disclose its cost to the client in the prospectus and is therefore not subject to the rule. Five percent is a guideline, and mar
The 5% markup policy would apply to all of the following equity transactions EXCEPT:
A) primary market transaction.
B) riskless principal transaction.
C) agency trade done on an exchange.
D) proceeds transaction.
The 5% markup policy would apply to all of
Answer: A
The 5% markup policy applies to secondary market transactions in nonexempt securities
The 5% markup policy applies to which of the following?
Exempt transactions.
Agency transactions.
Principal secondary market trade.
New issues.
A) II and III.
B) I and II.
C) III and IV.
D) I and III.
Answer: A
The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.
A customer sells securities and uses the proceeds to buy more securities at the same cost. Under the 5% markup policy, the markup is calculated on:
A) the buy side only.
B) each side separately.
C) the total of both sides.
D) the sell side only.
Answer: C
The firm must consider the entire transaction (a proceeds transaction) when calculating the markup.
NASDAQ market makers are required to report trades
A) no later than the end of the business day in the time zone of the seller
B) within 30 seconds of the transaction
C) within 1 minute of the transaction
D) no later than the end of the business day in th
Answer: B
NASDAQ market makers are required to report trades within 30 seconds of the transaction.
Which of the following describes Nasdaq Level 3 service?
A) Displays the representative bid and ask quotations on a security in which a minimum of 2 market makers exist.
B) Displays the representative bid and ask quotations on a security in which a minimu
Answer: C
Nasdaq Level 3 service allows market makers to enter and update quotations on securities in which the market makers are registered with FINRA.
All of the following statements regarding Nasdaq Level 3 are true EXCEPT that:
A) the system shows the inside quote.
B) actual interdealer quotes are displayed.
C) quotes are entered by market makers.
D) this level is used by registered representatives on
Answer: D
Nasdaq Level 3 is the interactive level of the Nasdaq system through which market makers enter and update their quotes. The best quote available (the inside market) is also shown on the Level 3. Registered representatives use the Nasdaq Level 1,
Which of the following describes a quote on Nasdaq Level I?
A) Nominal.
B) Lowest bid/highest offer.
C) Available to traders only.
D) Inside market.
Answer: D
Nasdaq Level 1 quotes represent the highest bid and lowest asking prices of all dealers. This is known as the inside market.
Which of the following can you find on the Level 1 service of Nasdaq?
A) Firm bids and offers.
B) The names of firms making markets.
C) Markups.
D) Inside bids and offers.
Answer: D
No Nasdaq service displays markups. Levels 2 and 3 display firm bids and offers and the names of the market makers. Level 1 only indicates the highest bid and the lowest offer, known as an inside quote.
Nasdaq Level I service:
A) displays the bid and ask quotes, with size, for each market maker in a particular listed security.
B) enables market makers to update their quotes.
C) displays the inside market; highest bid and lowest ask.
D) displays the bid a
Answer: C
Level I service provides subscribers with the inside market. The inside market is the highest bid price anyone is displaying and the lowest ask price anyone is displaying, via the Nasdaq quotation system.
Level I Nasdaq service provides subscribers with all of the following information EXCEPT:
A) the inside market.
B) last sale information.
C) volume information.
D) bid and ask quotes for each market maker.
Answer: D
Level I Nasdaq service provides subscribers with information on the inside market, last sale, and volume. The bid and ask quotes of each market maker in a particular security are shown over Level II.
Consider the following Nasdaq system quotes:
Bid Offer
Market Maker 1: 14.75 - 15.15
Market Maker 2: 15 - 15.50
Market Maker 3: 14.85 - 15.50
The inside market is:
A) 15 - 15.15.
B) 14.75 - 15.50.
C) 15 - 15.50.
D) 14.85 - 15.15.
Answer: A
The inside market is the highest bid and the lowest offer available.
Which of the following market maker practices is strictly prohibited under FINRA rules?
A) Charging a markup of more than 5%.
B) Failing to display a limit order at the customer's request.
C) Delaying the report of a transaction at the customer's request.
Answer: C
FINRA rules strictly prohibit delaying the reporting of a trade at the customer's request. A customer may make a no-display request, in which case the limit order need not be displayed. A markup of more than 5% is allowed if it can be justified.