Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
49 Cards in this Set
- Front
- Back
Dark pools of liquidity:
1. enhance market transparency for public retail customers. 2. diminish market transparency for public retail customers. 3. accommodate small transactions for institutional traders. 4. accommodate large-volume transactions for institutional traders. |
Answer: 2 & 4
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 desks away from the exchange markets and is not visible to the public. This diminishes market transparency for public retail customers. |
|
If an open-end investment co. bought preferred stock directly from a bank through an electronic communication network (ECN), this trade took place in which of the following markets?
A) Fourth
|
Answer: A
The fourth market is where direct trades between institutions, pension funds, broker/dealers and other financial entities occur, utilizing ECNs. In theory, there are no brokers involved in these transactions. |
|
Which of the following securities may be traded OTC?
1. Listed registered 2. Unlisted nonexempt 3. Registered unlisted 4. Unregistered exempt |
Answer: B
Registered securities not listed on an exchange constitute the bulk of the volume trading in the OTC market. Muni bonds and government securities are exempt from SEC registration requirements, so the major market for these securities is the OTC market. The 3rd market is the OTC trading market for exchange-listed securities. |
|
After the market closed yesterday, ABC announced that it would file for bankruptcy. 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) It applies to the SEC for a decision within 30 minutes of the opening.
|
Answer: B
The OTC market is not bound by the 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 markets are TRUE?
1. Transactions in listed securities occur mainly in the OTC market. 2. Transactions in unlisted securities occur in the OTC market. 3. Transactions in listed securities that occur in the OTC market are said to take place in the fourth market. 4. Transactions in listed securities that occur directly between institutions without the use of broker/dealers are said to take place in the fourth market. |
Answer: 2 & 4
Listed securities traded on exchanges constitute the exchange market. Unlisted securities traded OTC make up the OTC market. Listed securities traded OTC compose the third market. Securities traded directly between institutions constitute the fourth market. |
|
Each of the following trades occurs in the secondary market EXCEPT:
A) an agent buying unlisted securities for a client.
|
Answer: C
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 trading for its own account.
|
Answer: A
Position trading is simply trading as principal, or dealer, for a firm's own account. The opposite role is that of a broker or agent, purchasing or selling securities in the secondary market for customers. |
|
If a municipal firm purchases a block of municipal bonds in anticipation of a price increase, the firm is engaged in:
A) arbitrage
|
Answer: D
The dealer is buying for its inventory (position trading). |
|
Which of the following statements regarding the third market is TRUE?
A) It is composed of listed securities trading OTC.
|
Answer: A
The third market refers to the trading of listed securities in the OTC market. |
|
The KPL Corp. is considering having its stock listed on the NYSE. Who will make the final decision as to whether it will be listed?
A) The NYSE
|
Answer: A
The NYSE 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 OTC trading?
1. Market Maker 2. Specialist 3. Auction Market 4. Negotiated Market |
Answer: 1 & 4
The OTC 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 selling the stock is:
A) churning
|
Answer: C
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. |
|
Which of the following market tiers are included in NASDAQ?
1. NASDAQ Regional exchange-listed securities 2. NASDAQ Global Market 3. NASDAQ MidCap Market 4. NASDAQ Capital Market |
Answer: 2 & 4
NASDAQ consists of 3 markets:
Global Select Market, Global Market & Capital Market |
|
FINRA's Trade Reporting Facility (TRF) electronically facilitates the reporting of trade data such as price and volume for:
A) brokers acting as agents in all order execution scenarios.
|
Answer: B
FINRA's 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 the Exchange trading floor. It is used for transactions that are negotiated between brokers, therefore acting as a dealer, rather than as an agent. |
|
ABC Corp. trading at $80/sh has just bid $50/sh for XYZ Corp, currently trading at $40/sh in a hostile takeover attempt. The most common risk or takeover arbitrage strategy would be to:
A) buy shares of the aggressor co (ABC).
|
Answer: D
The most common form of risk or takeover arbitrage is to purchase the shares of the target co. and short the shares of the aggressor, believing that the potential acquisition will raise the target co.'s share price and decrease the share price of the aggressor. |
|
Priority and precedence rules of bids and offers manage trading activity on the:
A) third market
|
Answer: B
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 are minimum requirements for listing on the NYSE EXCEPT:
A) number of shareholders
|
Answer: C
While the numerical values are not tested, it is important to know 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) S&P 100 index, recalculated monthly
|
Answer: C
The MWCBs use the S&P 5OO, 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 MWCB rules, market-on-close (MOC) orders pending at the time trading is halted:
A) must be canceled.
|
Answer: A
If trading resumes on the same trading day, pending and new customer orders should be forwarded to the appropriate market for execution upon resumtion of trading. If a halt closes the market for the remainder of the day, pending and new orders received during the halt should be treated as good-til-canceled and held for execution at reopening the following day. MOC orders received after trading is halted should be declined. |
|
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) priority, precedence, then parity
|
Answer: A
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. |
|
FINRA can initiate a trading halt for all of the following EXCEPT:
A) listed stocks trading OTC
|
Answer: B
Only the Exchange or SEC can initiate a trading halt for a listed security trading on an Exchange floor. |
|
Traders can sell short:
1. when a stock ticks up. 2. when a stock ticks down. 3. unrestrictedly in both exchange and OTC markets. |
Answer: 1, 2 & 3
In both exchange and OTC markets, traders can sell short anytime in the trade sequence. |
|
Under SEC rules, a customer short sale on an exchange floor can be executed on which of the following?
1. Plus tick 2. Zero-plus tick 3. Minus tick 4. Zero-minus tick |
Answer: 1, 2, 3 & 4
On an exchange floor, a customer short sale can be executed at any time in the trade sequence. |
|
All of the following orders could be placed on the specialist's (designated market maker's) order display book EXCEPT:
A) limit orders
|
Answer: D
Market orders are executed immediately. The order display book is for orders that are away from the current market, such as stop & limit orders. |
|
All of the following statements regarding the short sale of a listed security are true EXCEPT:
A) A short sale can be effected anytime during the trade sequence.
|
Answer: D
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) day order
|
Answer: A
Unless the customer instructs you otherwise, not-held orders must be executed on the day received. |
|
On the order book, all of the following orders are reduced on the ex-date for a cash dividend EXCEPT:
A) sell stop
|
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. |
|
The opening quote for issues listed on the NYSE is set by the:
A) specialist (designated market maker)
|
Answer: A
The specialist is responsible for setting the opening quote for issues listed on the NYSE. The set quote is based on orders in hand. |
|
Which of the following orders on the order book will NOT be filled if the stock rises?
A) Sell stop
|
Answer: A
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 stop limits) and sell limits. |
|
All open orders must be confirmed to the order book:
A) April 1 and October 1.
|
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 (not cash) dividend. On the ex-date, this order is considered a buy limit order for:
A) 2,000 shares at $60
|
Answer: B
The order is adjusted on the ex-date. The number of shares increases by the % of the declared dividend and the specified price is reduced to compensate. 1,600 + 25% = 2,000 To get the adjusted price, divide the total value of the original market order (1,600 x $60 = $96,000) by the new number of shares ($96K/2K = $48). The order's total market value remains the same. |
|
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) As a market order
|
Answer: D
An at-the-open order is to be filled at the opening price or not at all. |
|
All of the following are reasons for entering a stop order EXCEPT to:
A) guarantee execution at a specified price
|
Answer: A
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 $0.55 dividend and the order has not yet been executed. What has happened to your customer's stop order?
A) It is increased to $18.55
|
Answer: C
Unless the customer has given a DNR (do not reduce) instructions, open buy limit orders and open sell stop orders are reduced on the ex-date by the amount of the dividend. |
|
A customer sold 100 shares of ABC short when the stock was trading at 19. If ABC 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
|
Answer: A
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 where the stock is currently trading. |
|
ALFA Electronics has been trading around 70. A customer tells his RR that if 1000 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 RR enter this order?
A) 1000 ALFA AON @ 70
|
Answer: C
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 order, the broker/dealer can make numerous attempts to fill the order in its entirety. |
|
Sell orders sent to an exchange:
A) must be marked long or short.
|
Answer: A
Every sell order must be marked as either long or short sale. |
|
Which of the following would accelerate a decline in a bear market?
A) Sell limit
|
Answer: B
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 orderes can accelerate declines in the price of the stock. |
|
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 B) 49.25
|
Answer: C
This is an order where the stop price & limit price are the same. A sell stop limit order is triggered by the first trade that is at or below the stop price. It is subsequently executed at a price at, or better than the limit price. |
|
Which of the following is applicable to the NASDAQ OMX PHLX?
1. Regional exchange operated by NASDAQ. 2. Offers trading in equity securities and options contracts. 3. Is a completely electronic exchange with no physical trading floor. 4. Regional exchange operated by FINRA for the execution of OTC stocks only. |
Answer: 1 & 2
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?
1. NYSE/AMEX 2. CBOE 3. NASDAQ OMX PHLX 4. None of the choices listed |
Answer: 1, 2 & 3
Options orders can be executed on any of the choices. |
|
Super Display Book (SDBK) is the electronic order processing system used by which of the following markets for trading common stocks?
A) Philadelphia Stock Exchange
|
Answer: B
The NYSE uses the SDBK 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) Listed securities traded through an electronic communication network (ECN).
|
Answer: C
The 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:
1. include commissions. 2. do not include commissions. 3. include markups. 4. do not include markups. |
Answer: 2 & 4
Trade reports never include commissions, markups or markdowns. |
|
The symbol OPD appearing on the CTS indicates:
A) short sale
|
Answer: D
The OPD symbol appears on the CTS with first transactions of the day for securities that had delayed openings. |
|
Stock prices in the OTC market are determined by:
A) Open outcry for the securities at a central marketplace.
|
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. |
|
Which of the following securities are eligible for inclusion on NASDAQ?
1. Listed common stock 2. Unlisted common stock 3. Listed convertible bonds 4. Unlisted convertible bonds |
Answer: 2 & 4
NASDAQ includes OTC securities only, which means that unlisted securities including stocks and convertible bonds are eligible. |
|
The NASDAQ permits listing for all of the following EXCEPT:
A) warrants
|
Answer: B
NASDAQ 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. |
|
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 & executed. A source providing the most complete order entry and execution details for the customer's order could be found:
A) on FINRA's website
|
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 Trail System (OATS). |