Ch. 1: Overview of Market Participants and Market Structure

Question 1

A _____ is any person that executes _____ transactions in securities for its own account.

Answer 1

Dealer; principal

Question 2

Is NASDAQ a securities exchange registered with the SEC?

Answer 2

Yes

Question 3

Which department of a broker dealer executes securities transactions?

Answer 3

Trading

Question 4

Where can you find quotes for stocks not listed on an exchange or NASDAQ?

Answer 4

OTCBB / Pink Sheets

Question 5

Explain the concept of holding securities in street name.

Answer 5

Client securities are held by and registered in the name of the broker dealer

Question 6

Explain a prime brokerage arrangement.

Answer 6

A situation in which multiple broker dealers execute a client’s trade and report them to one broker dealer for settlement

Question 7

List the two main types of secondary markets.

Answer 7

Exchange markets (NASDAQ, NYSE); electronic, non-exchange markets (Pink Sheets or OTCBB)

Question 8

Define a prime broker.

Answer 8

A broker dealer that clears and settles trades effected by one or more executing brokers at the direction of the customer

Question 9

A registered representative’s (RR) employer is referred

to as a _____

Answer 9

Broker Dealer

Question 10

What is a dark pool?

Answer 10

A place for large institutional investors and high frequency traders to trade with one another

Question 11

What are the two types of arrangements that an introducing firm can have with a carrying firm?

Answer 11

Fully disclosed and omnibus

Question 12

In an _____ arrangement, a clearing firm doesn’t have information on each individual customer of an introducing firm.

Answer 12

Omnibus

Question 13

What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?

Answer 13

Clearing, settlement and information services

Question 14

Define an introducing broker-dealer.

Answer 14

A broker dealer using another broker dealer to handle cash and securities, trade execution, reporting, clearing and confirmation

Question 15

T/F: An individual with $100m in assets is a Qualified Institutional Buyer (QIB).

Answer 15

False (individuals are not considered QIBs)

Question 16

What is a clearing firm?

Answer 16

A firm that is responsible for the confirmation, settlement and delivery of securities transactions

Question 17

What does it mean to clear a trade?

Answer 17

It is the end-of-day process of matching trades executed by a BD to determine what is owed

Question 18

The new issue market is also known as the _____ market.

Answer 18

Primary

Question 19

Explain the primary market.

Answer 19

The market in which NEW securities are offered

Question 20

What is the role of a BD’s operations department?

Answer 20

Process paperwork, handle funds and securities transfers and settle/confirm trades

Question 21

The third market is the term used to describe _____ and ____ listed securities trading _____

Answer 21

NYSE and AMEX listed securities trading over-the-counter

Question 22

The ______ is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market

Answer 22

Third Market

Question 23

Who can charge a client for buying and selling securities?

Answer 23

Only registered BD’s; investment advisors can’t (only can charge fees for advice)

Question 24

T/F: Unlike equities, bonds do not have organized exchanges

Answer 24

True, bonds do NOT have organized exchanges

Question 25

T/F: Both stocks and bonds represent ownership in a corporation.

Answer 25

False, only stocks represent ownership

Question 26

Define the term broker.

Answer 26

Effecting securities transactions for the accounts of others

Question 27

What is the federal law that governs investment advisors?

Answer 27

Investment Advisors Act of 1940

Question 28

A NASDAQ listed stock trades on the _____ market.

Answer 28

Secondary

Question 29

Who guarantees and issues all exchange-listed options contracts?

Answer 29

Options Clearing Corporation

Question 30

Which department of a BD handles the underwriting and issuance of securities for clients?

Answer 30

Investment Banking

Question 31

In general, what are the two types of securities markets?

Answer 31

Primary and secondary

Question 32

What are the Pink Sheets?

Answer 32

Real-time electronic quotation system for OTC equities

Question 33

A _____ _____ is a type of advisor that provides advice to either a state, county or city.

Answer 33

Municipal advisor

Question 34

What is the general definition of a Qualified Institutional Buyer (QIB)?

Answer 34

Entity that owns and invests on a discretionary basis at least $100m of securities of unaffiliated issuers

Question 35

Who can charge a client for securities related advice?

Answer 35

Investment Advisors

Question 36

Identify the acronym RR.

Answer 36

Registered Representative

Question 37

List some responsibilities of a transfer agent.

Answer 37

Issue and cancel securities; pay dividends and interest; mail shareholder reports;

Question 38

T/F: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.

Answer 38

True

Question 39

A BD that does not hold a customer's cash or securities is known as a _____.

Answer 39

Non-Carrying Firm

Question 40

To be considered an investment advisor, that are the 3 parts of the ABC test?

Answer 40

A: Provide ADVICE B: As a BUSINESS C: Must be COMPENSATED for advice

Question 41

What is the price at which a dealer is will to sell?

Answer 41

Ask / Offer price

Question 42

What is an ECN?

Answer 42

Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes

Question 43

In a ____ _____ account, information about each customer of the introducing firm is sent to the clearing firm

Answer 43

Fully disclosed

Question 44

Where may quotes for non-NASDAQ (OTC equity) stocks be found?

Answer 44

Pink Sheets or OTCBB

Question 45

Identify the acronym OTC

Answer 45

Over-the-Counter

Question 46

Define the term dealer.

Answer 46

A person engaged in the business of buying for or selling from securities in his own account

Question 47

QIB stands for:

Answer 47

Qualified Institutional Buyer

Question 48

For what types of securities is a trustee required?

Answer 48

Bonds

Question 49

The _____ market refers to direct institution-to-institution trading and doesn't involve public exchanges.

Answer 49

Fourth Market

Question 50

Which market is the decentralized, negotiated market?

Answer 50

Over-the-counter market

Question 51

What is a market maker?

Answer 51

A person who enters quotes and stands ready to buy and sell securities for his own account on a regular basis

Question 52

What is the OTCBB?

Answer 52

Over-The-Counter Bulletin Board that is an exchange where OTC equities are traded

Question 53

Which department of a BD write reports about markets and securities for investors?

Answer 53

Research Department

Question 54

T/F: A market maker publishing a firm quote is obligated to honor the price and the number of shares quoted.

Answer 54

True- obligated to honor both price and size displayed

Question 55

What is the price at which a dealer is willing to buy?

Answer 55

Bid

Question 56

List of examples of issuers:

Answer 56

Corporations, US Treasury, Municipalities

Question 57

What does it mean for a client to use a prime brokerage account?

Answer 57

The client trade through multiple BDs but has its trade(s) settled by one BD

Question 58

BD employees who are involved in the investment banking and securities business are called _____

Answer 58

Registered Representatives

Question 59

T/F: The offer (ask) is the price at which a broker-dealer is willing to buy shares from a customer

Answer 59

False- bid price is price at which a BD is willing to buy from a customer; ask/offer is what they're willing to sell at

Question 60

A _____ is any person that executes _____ transactions in securities for the account of others

Answer 60

Broker; agency

Question 61

Explain the secondary market.

Answer 61

Market on which existing securities are traded