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SIE > Ch. 12 > Flashcards

Ch. 12 Flashcards

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
Stop orders become _________ orders once they are triggered/activated.
Market
26
Stop and stop-limit orders are triggered when a round lot trades at, or through, the _____ ______.
Stop price
27
Stop-limit orders become ________ orders once they are triggered/activated.
Limit
28
The maximum potential loss when selling short is ____________.
Unlimited
29
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:
$97 (at the stop price)
30
True or False: Some transactions may justify a markup higher than 5%, while for others, 5% may be too high.
True
31
What is a principal trade?
A trade involving a firm (BD or IA) buying or selling securities for its own account at its own risk.
32
Can a stop-limit order have a different stop and limit price?
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
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:
$73.08 (the next trade after the trigger is touched)
34
If a stop order is activated, at what price will the trade be executed?
The next trade after activation.
35
How long will a Day Limit order remain on the Display Book?
Until executed or the end of the day (if unexecuted)
36
Firms acting in the capacity of a broker will collect a ____________.
Commission
37
What is the significance of a narrow spread in a stock quote?
Active trading/liquidity
38
A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.
Broker-dealer
39
True or False: A 500-share trade of an NYSE stock executed in the OTC market is subject to the 5% Policy.
True, third market trades (exchange-listed securities traded OTC) are subject to the 5% Policy.
40
The spread represents the difference between the _____ and _______ price of a stock.
Bid and Ask
41
True or False: A 200-share trade of MSFT on Nasdaq is subject to the 5% policy.
True, the 5% Policy covers trades executed in the secondary market.
42
What does selling short mean?
Selling securities that are not owned, but are borrowed from a BD
43
If a trade is initiated by a customer, how is the order ticket marked?
Unsolicited
44
If a client consents to a trade before execution, the order ticket is marked ________________________.
Discretion not exercised
45
In a proceeds transaction, on how many trades is the markup based?
Only one trade
46
To what is a firm entitled when acting in the capacity of a principal or dealer?
Markup when selling to a customer and markdown when buying from a customer
47
According to FINRA, the guideline for determining commission or markup on transactions is ___%.
5%
48
What are the two ways order tickets can be marked when selling securities?
Long or short
49
Sell order tickets are marked long when clients have unconditional contracts to buy, but the trades have not ________.
not settled
50
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:
$50 (at the stop price)
51
If a stop-limit order is activated, at what price will the trade be executed?
The next trade that satisfies the limit price. Not receiving execution is possible.
52
Sales of new issues and mutual funds and trades between members are _______ from the 5% policy.
Exempt
53
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:
$49.98 (the next trade after the trigger is touched)
54
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:
$73.02
55
True or False: Proceeds transactions are subject to the 5% Markup Policy.
True
56
In what type of account are uncovered option positions created?
Margin account
57
How is a firm acting if it is trading on behalf of its client?
Agent
58
Which orders may be entered as either good 'til cancel (GTC) or as day orders?
Limit and stop orders
59
The 5% policy is a __________, not a _____ for dealing with commissions and markups.
Guideline, not a rule
60
Do stop orders guarantee a specific price when buying or selling?
No; stop orders execute at the market price (which is uncertain) once they are activated.
61
A ________ order indicates quantity, security, and whether to buy or sell and is executed at the best price available.
Market order
62
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:
There is no execution, since no trade occurring after the trigger satisfied the buy limit at $97.
63
True or False: A firm may act as both a broker and dealer on the same trade.
False
64
Is the 5% policy based upon the current market value of the security or the dealer's cost?
Generally, the current market value
65
Sell limit orders are placed ________ the market.
Above the market
66
True or False: Stop-limit orders are guaranteed execution if the trigger is touched.
False. Stop-limit orders may not be executed if the limit price cannot be met.
67
What are some of the factors to be considered when determining the markup on a transaction?
Type, price, availability

SIE (20 decks)

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