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SIE > Ch. 12 > Flashcards

Ch. 12 Flashcards

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1
Q

Buy limit orders are placed ________ the market.

A

Below the market

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2
Q

If a registered representative recommends a trade to a customer, how is the order ticket marked?

A

Solicited

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3
Q

A ________________________ order remains in effect until it’s either executed or cancelled.

A

Good till canceled

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4
Q

If an investor is long stock, a sell stop order can be used to limit ___________ risk.

A

Limit downside

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5
Q

Name 3 factors that may be used when determining the markup of a security under the 5% Policy.

A

1) Type of security, 2) Price of security, 3) Availability of the security in the market

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6
Q

True or False: Charging an unreasonably high commission is acceptable if disclosure is made to the client.

A

False

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7
Q

What factors could justify a larger markup than 5%?

A

The type of security, the availability of the security, or the total transaction amount

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8
Q

True or False: If a stock is shorted and a dividend is declared, the short seller must pay the lender the dividend.

A

True

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9
Q

True or False: Short sales must be executed in a cash account.

A

False. Short sales can only be executed in a margin account.

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10
Q

How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?

A

Agent or broker

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11
Q

A _______ order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.

A

Limit

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12
Q

A markup is generally based on the _______ market, but not the _____________.

A

Inside market, not the dealer’s cost

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13
Q

Orders to sell all exchange-listed and over-the-counter equities must be marked _____ or ______.

A

Long or short

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14
Q

True or False: The 5% Policy is a rule that may not be exceeded.

A

False; it’s a guideline not a rule

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15
Q

If an investor is short stock, a buy stop order can be used to limit _________ risk.

A

Limit upside

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16
Q

What trades would be covered by the 5% policy?

A

Secondary market trades of stocks, corporate bonds, and Treasuries

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17
Q

What is exempt from the 5% policy?

A

Trading of municipal bonds, new issues, registered secondary offerings, and mutual funds

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18
Q

How is a firm acting if it is trading for, or from, its own inventory?

A

Principal/dealer

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19
Q

How long can a short stock position be maintained?

A

Unlimited, provided the account maintains the minimum required equity.

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20
Q

True or False: The 5% Policy is based on the dealer’s inventory cost on a security.

A

False, it is generally based on the inside market price.

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21
Q

True or False: Uncovered option positions have a margin requirement, while covered positions do not.

A

True, however, no calculation of the requirement is tested.

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22
Q

Transactions should be executed at a price that is reasonably related to the ________ _______ price.

A

Current market

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23
Q

True or False: Investors generally place stop orders to limit a loss or protect a profit on a stock position.

A

True

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24
Q

Describe a proceeds transaction.

A

A proceeds transaction is when a customer sells a security and uses the proceeds (cash) to buy another security.

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25
Q

Stop orders become _________ orders once they are triggered/activated.

A

Market

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26
Q

Stop and stop-limit orders are triggered when a round lot trades at, or through, the _____ ______.

A

Stop price

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27
Q

Stop-limit orders become ________ orders once they are triggered/activated.

A

Limit

28
Q

The maximum potential loss when selling short is ____________.

A

Unlimited

29
Q

Order is entered to buy 500 RST at 97 stop-limit. Trades occur at 96.97…96.99… 97…97.02…97.05. Trigger price is:

A

$97 (at the stop price)

30
Q

True or False: Some transactions may justify a markup higher than 5%, while for others, 5% may be too high.

A

True

31
Q

What is a principal trade?

A

A trade involving a firm (BD or IA) buying or selling securities for its own account at its own risk.

32
Q

Can a stop-limit order have a different stop and limit price?

A

Yes, e.g., Sell 500 ABC at 50 stop-49.50 limit triggers at or through 50. Then the investor will sell at 49.50 or above.

33
Q

Order is entered to buy 800 XYZ at $73 stop. Trades occur at 72.95…72.99…73.02…73.08… 73.12. Execution price is:

A

$73.08 (the next trade after the trigger is touched)

34
Q

If a stop order is activated, at what price will the trade be executed?

A

The next trade after activation.

35
Q

How long will a Day Limit order remain on the Display Book?

A

Until executed or the end of the day (if unexecuted)

36
Q

Firms acting in the capacity of a broker will collect a ____________.

A

Commission

37
Q

What is the significance of a narrow spread in a stock quote?

A

Active trading/liquidity

38
Q

A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.

A

Broker-dealer

39
Q

True or False: A 500-share trade of an NYSE stock executed in the OTC market is subject to the 5% Policy.

A

True, third market trades (exchange-listed securities traded OTC) are subject to the 5% Policy.

40
Q

The spread represents the difference between the _____ and _______ price of a stock.

A

Bid and Ask

41
Q

True or False: A 200-share trade of MSFT on Nasdaq is subject to the 5% policy.

A

True, the 5% Policy covers trades executed in the secondary market.

42
Q

What does selling short mean?

A

Selling securities that are not owned, but are borrowed from a BD

43
Q

If a trade is initiated by a customer, how is the order ticket marked?

A

Unsolicited

44
Q

If a client consents to a trade before execution, the order ticket is marked ________________________.

A

Discretion not exercised

45
Q

In a proceeds transaction, on how many trades is the markup based?

A

Only one trade

46
Q

To what is a firm entitled when acting in the capacity of a principal or dealer?

A

Markup when selling to a customer and markdown when buying from a customer

47
Q

According to FINRA, the guideline for determining commission or markup on transactions is ___%.

A

5%

48
Q

What are the two ways order tickets can be marked when selling securities?

A

Long or short

49
Q

Sell order tickets are marked long when clients have unconditional contracts to buy, but the trades have not ________.

A

not settled

50
Q

Order is entered to sell 1,000 ABC at 50 stop. Trades occur at 50.10…50.03…50…49.98…49.90. The trigger price is:

A

$50 (at the stop price)

51
Q

If a stop-limit order is activated, at what price will the trade be executed?

A

The next trade that satisfies the limit price. Not receiving execution is possible.

52
Q

Sales of new issues and mutual funds and trades between members are _______ from the 5% policy.

A

Exempt

53
Q

Order is entered to sell 100 ABC at 50 stop. Trades occur at 50.10…50.03…50…49.98…49.90. The execution price is:

A

$49.98 (the next trade after the trigger is touched)

54
Q

Order is entered to buy 2,000 XYZ at $73 stop. Trades occur at 72.95…72.99…73.02…73.08… 73.12. Trigger price is:

A

$73.02

55
Q

True or False: Proceeds transactions are subject to the 5% Markup Policy.

A

True

56
Q

In what type of account are uncovered option positions created?

A

Margin account

57
Q

How is a firm acting if it is trading on behalf of its client?

A

Agent

58
Q

Which orders may be entered as either good ‘til cancel (GTC) or as day orders?

A

Limit and stop orders

59
Q

The 5% policy is a __________, not a _____ for dealing with commissions and markups.

A

Guideline, not a rule

60
Q

Do stop orders guarantee a specific price when buying or selling?

A

No; stop orders execute at the market price (which is uncertain) once they are activated.

61
Q

A ________ order indicates quantity, security, and whether to buy or sell and is executed at the best price available.

A

Market order

62
Q

Order is entered to buy 5,000 RST at 97 stop-limit. Trades occur at 96.99…97…97.02…97.05. Execution price is:

A

There is no execution, since no trade occurring after the trigger satisfied the buy limit at $97.

63
Q

True or False: A firm may act as both a broker and dealer on the same trade.

A

False

64
Q

Is the 5% policy based upon the current market value of the security or the dealer’s cost?

A

Generally, the current market value

65
Q

Sell limit orders are placed ________ the market.

A

Above the market

66
Q

True or False: Stop-limit orders are guaranteed execution if the trigger is touched.

A

False. Stop-limit orders may not be executed if the limit price cannot be met.

67
Q

What are some of the factors to be considered when determining the markup on a transaction?

A

Type, price, availability

SIE (20 decks)

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