CH 09 Equity Trading Flashcards
Does this order require prior discretionary authorization? “Buy some ABC shares today if its price begins to fall.”
Yes. This is NOT a not held order since the client did not specify the quantity of shares to be purchased.
True or False: Executions may occur against a market maker’s displayed and reserve (undisplayed) size.
TRUE
If the difference between the bid and ask widens, is this a sign of a liquid or an illiquid market?
Wide spreads are a sign of an illiquid market.
Characterize the market for OTC equities.
Issues may be thinly-traded and prone to manipulation.
What is the system that provides quotes for the Third Market?
Consolidated Quotation System (CQS)
True or False: If delisted from Nasdaq, issuers must meet the initial listing requirements to requalify.
TRUE
Before initiating quotes for an OTC equity, what is the quoting firm’s responsibility?
To collect, review, and ultimately submit certain information about the issuer to FINRA.
What is an ECN?
Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes.
True or False: A market maker’s quote represents the maximum number of shares it will buy or sell.
False. A market maker may buy or sell more shares than its bid and offer displays.
What are the regular hours for the ADF Trading Center?
9:30 a.m. to 4:00 p.m. ET
If a security is delisted from Nasdaq, when may it begin trading on the Pink Market?
Immediately
In Nasdaq Level II, what does TotalView provide members?
Additional depth and aggregate size at the five best price levels.
Not held orders are considered to be in effect for _____ trading day(s).
Not held orders are considered to be in effect for one trading day.
Beyond bid price and market makers, list some other considerations for a stock to be able to list on a market platform?
Public float, round-lot shareholders, market cap, and revenues, but the NOT offering price.
What is the penalty for a voluntary withdrawal as a Nasdaq market maker?
A 20-business-day suspension from quoting that security.
What exception allows a firm to quote a non-exchange stock without filing Form 211?
The piggyback exception. The exception is based on the stock having been subject to regular and continuous quotes.
True or False: Securities listed on the AMEX and/or regional exchanges may also be quoted on the CQS.
TRUE
What type of orders are accepted by the Nasdaq Market Center Execution System?
The system accepts market and limit orders.
True or False: All NYSE members have the authority to stop stock.
False. Only a Designated Market Maker may stop stock.
True or False: Once a firm files an application for market making, it may immediately begin to quote specific stocks.
False. After filing an application for market making, the firm must be notified by FINRA of its effectiveness.
If a Nasdaq market maker publishes a firm quote, what is it obligated to do?
Buy or sell up to the size quoted at its stated bid or offer (minimum 100 shares).
After the initial requirement is met, what bid price is required to continue to be listed on any level of Nasdaq?
$1.00
Is interpositioning an acceptable practice?
No, it is generally prohibited.
True or False: Market makers and ECNs must display their quotes on the Nasdaq Market Center Execution System.
False. Market participants may display their quotes on the ADF.
Securities quoted through the CQS are _________ securities trading over-the-counter.
Securities reported through the CQS are listed securities trading over-the-counter.
True or False: ECNs allow subscribers to post quotes and trade electronically and anonymously.
TRUE
True or False: Withdrawal as a Nasdaq market maker due to insufficient staff would be a violation.
True. Withdrawal due to insufficient staff, volatility, or increased trading volume would be unexcused.
What is the initial bid price requirement for a stock listed on any level of Nasdaq?
$4.00
How many specific items about an issuer must a member firm collect and submit to FINRA prior to quoting the stock?
16 specific items that are reasonably current.
What are the system hours of operation for the ADF?
8:00 a.m. to 6:30 p.m. ET
What does UTP mean?
Unlisted Trading Privileges, which allows an exchange to trade securities not listed on that exchange.
True or False: A Nasdaq market maker can get an excused withdrawal due to excessive volatility in a stock.
FALSE
List some examples of an Alternative Trading System (ATS).
Electronic Communication Networks (ECNs), trade crossing networks, and a firm’s internal execution system.
What is the CQS?
The Consolidated Quotation System; provides quotes for NYSE and AMEX listed securities, including third-market quotes.
Form 211 must be filed at least ______ business days prior to initiating quotes for an OTC security.
Form 211 must be filed at least three business days prior to initiating quotes for an OTC security.
What does the following quote of a Nasdaq market maker indicate it is willing to do? 15.30 - 15.35, 6 x 10
Buy up to 600 shares at 15.30 or sell up to 1,000 shares at 15.35.
True or False: After completing a 20-business-day suspension as a MM, a firm may immediately begin quoting the stock.
False. The firm must reapply and, once its application is approved, it may begin quoting on the same day.
An MM withdrawing its quote for legal or regulatory reasons will be excused for up to ____ days.
An MM withdrawing its quote for legal or regulatory reasons will be excused for up to 60 days.
For what type of firm would employee vacations qualify as an excused withdrawal for market-making purposes?
A small firm with three or fewer Level III terminals.
The inside market is the _________ bid and the ________ ask.
The inside market is the highest bid and the lowest ask.
True or False: Form 211 must be filed by firms that intend to make markets in Nasdaq securities.
False. Form 211 is required for firms that intend to initiate quotes for non-exchange securities.
Before initiating quotes for a non-exchange stock, where may required information be obtained about the issuer?
The issuer’s current prospectus or offering circular, or its current Form 10-K and all subsequent 10-Q and 8-K Forms.
What is the penalty if a Nasdaq market maker has an unexcused withdrawal from publishing a quote?
20 business days in that stock.
True or False: Although Nasdaq market maker open hours are 9:30 a.m. to 4:00 p.m., extended trading hours are available.
True. However, specific risks are inherent in extended hours trading.
True or False: Nasdaq market makers must provide two-sided quotes.
True, they must provide a bid and ask.
Before initiating quotes for a non-exchange security, a market maker must file __________.
Before initiating quotes for a non-exchange security, a market maker must file Form 211.
What’s the Pink Market?
A real-time electronic quotation system for OTC equities.
True or False: BDs may not enter proprietary orders through the Nasdaq Market Center Execution System.
False. Both agency and proprietary orders may be entered into the system.
True or False: The ADF is an automated execution system.
False, the ADF is the Alternative Display Facility and does not provide an execution system.
Where can quotes be found for stocks that are not listed on an exchange (e.g., the NYSE or Nasdaq)?
The OTCQX, OTCQB, and the Pink Marketplace.
True or False: The Nasdaq Level I display function identifies all market makers at the inside market.
False. The Nasdaq Level I display does not identify the market maker.
What is the Nasdaq Market Center Execution System?
The automated quotation and execution system for Nasdaq.
If an ECN is unable to match a subscriber’s order internally, it will most likely display the order on the ____.
If an ECN is unable to match a subscriber’s order internally, it will most likely display the order on the ADF.
What is an ATS (Alternative Trading System)?
An SEC-approved, non-exchange electronic trading system designed to match the buy and sell orders of its subscribers.
What is the ADF?
The Alternative Display Facility; ECNs use it to display orders rather than the Nasdaq Market Center Execution System.
If the difference between the bid and ask narrows, is this a sign of a liquid or an illiquid market?
Narrow spreads are a sign of a liquid market.
Market participants who publish quotes for ADF-eligible securities would report the trades through what system?
The ADF reporting system.
True or False: Issuers must pay a dividend to be listed on Nasdaq.
FALSE
A market maker’s registration ceases if no quote is made within _____ business days.
A market maker’s registration ceases if no quote is made within five business days.
Before initiating quotes for a non-exchange stock, what is the member firm’s responsibility?
The quoting firm must collect and review certain information about the issuer (i.e. complete Form 211).
When is a market maker’s application considered effective?
When notified by FINRA (NOT Nasdaq).
What is the maximum size order that can be entered into the Nasdaq Market Center Execution System?
999,999 shares.
What does it mean to indicate that Nasdaq Market Center Execution System trades are locked-in?
The terms have been agreed to by the parties, and the transaction is ready for clearance and settlement.
When providing a firm quote for a Nasdaq stock, the minimum size is ______ shares.
When providing a firm quote for a Nasdaq stock, the minimum size is 100 shares.
True or False: The Nasdaq Market Center Execution System allows market makers to post anonymous quotes.
True. These non-attributable quotes will show NSDQ as the market participant identifier (MPID).
Are exchanges considered auction markets or negotiated markets?
Auction markets.
In order to NOT file Form 211, no more than _____ business days may have elapsed without a quote for the stock.
In order to NOT file Form 211, no more than four business days may have elapsed without a quote for the stock.
Nasdaq Level III allows a market maker to ______ and _______ its quote.
Nasdaq Level III allows a market maker to enter and change its quote.
What is the minimum quote size for a Nasdaq market maker?
100 shares or one round lot.
If not a market maker, a Nasdaq member may have access to what level of Nasdaq to view quotes?
Level II.
Define the inside market.
The highest bid and lowest asked/offer price for a security.
Nasdaq market maker normal market hours are _____ a.m. to _____ p.m. ET.
Nasdaq market maker normal market hours are 9:30 a.m. to 4:00 p.m. ET.
True or False: The CQS consolidates quotes for NYSE-listed and Nasdaq equities.
False. The CQS does NOT provide quotes for Nasdaq or OTC equities.
Which level of Nasdaq will only show the inside market for a security?
Level I.
In order to complete Form 211 prior to quoting a stock, where may the issuer information be obtained?
From the issuer’s current prospectus or offering circular, or its most current 10-K and subsequent 10-Q and 8-K Forms.
True or False: The ADF is not an execution system.
True. The ADF is a display system.
A Nasdaq MM withdraws its quote due to becoming a distribution participant. Would this withdrawal be unexcused?
No. This is an excused withdrawal due to Reg. M participation requirements.
Nasdaq system hours are _____ a.m. to _____ p.m. ET.
Nasdaq system hours are 4:00 a.m. to 8:00 p.m. ET.
Explain the role of Nasdaq market makers.
To buy or sell at their publicly quoted prices, to trade from inventory, and to provide liquidity.
Does Nasdaq allow firms to display quotes and report transactions using multiple Market Participant Identifiers (MPIDs)?
Yes, provided the resulting trades use the same MPID that was used to display the quote.
An MM may withdraw its quote for up to _____ business days for issues beyond its control (e.g., a system outage).
An MM may withdraw its quote for up to five business days for issues beyond its control (e.g., a system outage).
What does Level III Nasdaq give market makers the ability to do?
Change their quotes.
True or False: If a security is delisted from Nasdaq, it may no longer trade in any market.
False. A delisted Nasdaq security may begin trading on the OTC markets immediately.
What is the minimum bid price and number of market makers needed to qualify for listing on the Nasdaq Capital Market?
A minimum bid price of $4.00 with at least three market makers.
Before initiating quotes for a stock that’s quoted in the Pink Market, with whom must Form 211 be filed?
FINRA.
A customer market order receives __________ execution.
A customer market order receives immediate execution.
What securities are quoted on the CQS?
Common and preferred stock, convertible bonds, warrants, and rights.
Does this order require prior discretionary authorization? “Buy 500 shares of DMB sometime today.”
No, this is a not held order. The customer specified the action (buy), the amount (500 shares), and the asset (DMB).
True or False: An ATS (Alternative Trading System) is NOT required to register with the SEC.
False. Under Regulation ATS, an ATS is generally required to register as a BD.
The Nasdaq Market Center Execution System is an order display and execution system for what securities?
Nasdaq and CQS (third-market) securities.
Filing Form 211
What is a not held order?
An order giving agents discretion as to execution time/price. Clients must specify buy/sell, security, and quantity.
Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past ____ days.
Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past 30 days.
What does selling short mean?
Selling securities that are not owned, but are borrowed from a BD.
What is the NBBO?
The National Best Bid and Offer, also considered the inside market.
What’s the minimum bid price and number of market makers required to remain listed on Nasdaq Global and Capital Markets?
A minimum bid price of $1.00 with at least two market makers.
True or False: Level III Nasdaq is available to the public.
False. Level III is exclusively for market makers.
What are some valid reasons for a Nasdaq market maker to obtain an excused withdrawal status?
Regulatory issues, religious holidays, vacations, issues beyond control, involuntary termination of clearing arrangement.
What is considered regular and continuous quoting as defined by the Piggyback Exception?
Over the last 30 days, no more than four business days elapsed without a quote.
What is the difference between National Market System (NMS) securities and OTC equities?
NMS securities are those listed on Nasdaq or other national exchanges, while OTC equities are not.
What is the process by which an existing Nasdaq market maker registers to make a market in specific stocks?
The firm registers for specific stocks through its terminal and may begin quoting on the same day.
True or False: Large orders may not be split to enter them into the Nasdaq Market Center Execution System.
False. Large orders may be split to enter them into the system.
Prior to initiating quotes for an OTC equity, how many specific items about the issuer may be required?
16 items that must be reasonably current.
True or False: Form 211 must be filed by all market makers in Nasdaq securities.
False. Form 211 is required for those initiating quotes in non-exchange (OTC) securities.
What is the penalty if a CQS market maker (third market) has an unexcused withdrawal from publishing a quote?
One business day in that stock.
The NBBO or National Best Bid and Offer is also referred to as the _________ market.
The NBBO or National Best Bid and Offer is also referred to as the inside market.
What can be found on Level II Nasdaq?
Current quotes of all market makers for a specific security.
Prior to initiating quotes for an OTC equity, with whom must the information collected about the issuer be filed?
FINRA.
Before initiating quotes for a non-exchange security, a market maker must file _________.
Before initiating quotes for a non-exchange security, a market maker must file Form 211.
If a market maker decides to raise its bid, on what Nasdaq level does this occur?
Level III.
The CQS is the _______________________________.
The CQS is the Consolidated Quotation System.
True or False: The ADF displays quotes for OTC equities.
False. The ADF displays quotes for Nasdaq and CQS securities.
True or False: After an excused withdrawal, an MM must reapply to Nasdaq Market Operations before resuming its quote.
True. A market maker must reapply before resuming its quote after either excused or unexcused (voluntary) withdrawals.
Which orders may be entered as either good ‘til cancel (GTC) or as day orders?
Limit and stop orders.
According to the Piggyback Exception, when is the filing of Form 211 not required?
When the stock has been quoted on a regular and continuous basis for the past 30 days.
True or False: Only companies whose stock is listed as Nasdaq Global Select are subject to corporate governance rules.
False. All companies whose stock is listed in the Nasdaq market are subject to corporate governance rules.
A market maker is quoting a stock at 22.25 - 25.30. If it receives an order to buy 300 shares, what must it sell?
With no size indicated, the quote represents a willingness to buy 100 shares at its bid or sell 100 shares at its offer.
Once notified that its market making application is effective, when may a firm register for, and begin quoting, stocks?
On the same day.
