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Series 7 > Ch 17 > Flashcards

Ch 17 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

DRS

A
  • DRS stands for Direct Registration System. It is a program that began in the mid-1990s as an alternative to “street name” registration for customer securities. Like street name, DRS is based on electronic bookkeeping. In direct registration, a stock is registered in an investor’s name, but the company that issued the stock (or its transfer agent) is the one that holds the security in book-entry form, instead of a broker-dealer.
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2
Q

designated market maker

A
  • designated market maker is responsible for setting the opening quote for issues listed on the NYSE. The set quote is based on orders in hand.
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3
Q

stock or bond power

A
  • A stock or bond power is an instrument separate from the certificate by which an owner indicates the intent to transfer ownership or pledge the securities as collateral for a loan.
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4
Q

order memorandum

A
  • order ticket
  • rep prepares the order ticket, it gets sent to the wire room or trading desk when the order is routed to the proper market for execution
  • reg principal must approve the order promptly after execution (no later than the end of the trading day)
    • approval includes looking for errors and checking for suitability
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5
Q

customer order is most susceptible to error

A
  • at communication of the order between the customer and the broker
  • at transmission of the order from the broker to the wire operator
  • inaccurate info on the order ticket
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6
Q

order ticket includes

A
  • customer account number
  • reg rep ID number
  • whether the order is solicited or unsolicited
  • whether the order is subject to discretionary authority
  • description of the security (symbol)
  • number of share or bonds to be traded
  • action (buy, sell long/short)
  • options (buy, write, covered, uncovered, opening, closing)
  • order restrictions and price qualifications (market, GTC, day order)
  • type of account (cash or margin)
  • time the order was received, time of entry, p[rice at which it was executed
  • ACCOUNT NAME OR NUMBER MUST BE ON AN ORDER TICKET BEFORE EXECUTION
  • would NOT be on order ticket: current market price, client’s name/address
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7
Q

unsolicited trade

A
  • a trade that the customer initiated. It is a trade made by the client on their own initiative, without recommendations, suggestions, or prompting from the broker.
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8
Q

mistakes to order tickets

A
  • no change can be made without the approval of a principal or brand manager (including changing an account number)
  • facts/details must be put into writing and retained for 3 years
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9
Q

report of execution

A
  • reg rep gets report after trade is executed
  • checks this against order ticket to make sure everything is right
  • if OK, reports the execution to the customer
  • if there is an error, the rep must report it to manager or principal immediately
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10
Q

incorrect trade report

A
  • if execution takes place outside of a customer’s instructions, the trade is not binding
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11
Q

reporting an error

A
  • FINRA requires record of errors be report ed to designated person
  • all reports should be done in writing immediately and retained for 3 years
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12
Q

error correction

A
  • a supervisor can correct a bona fide error, not the Reg rep
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13
Q

Nasdaq quotation service

A
  • provides a computer link between BDs that trade OTC
  • 3 levels of quotes
    1. Level 1: available to reg rep through public vendors. Inside market quote only (highest bids, lowest asks). other basic info (last sale and volume)
    2. level 2: subscribers only. current quote and quote size available from each market maker. To list a quote on level 2, market maker must guarantee that the quote is firm for at least 100 shares
    3. level 3: subscribers get level 1 and 2 info + allows market makers to input and update their quotes
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14
Q

Nasdaq reporting

A
  • National Assoc of Securities Dealers Automated Quotation service (Nasdaq) is the computerized info system that tracks OTC equities trading
  • not all OTC securities trade on Nasdaq (govt and muni securities)
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15
Q

rule 613 (consolidated audit trail)

A
  • create a comprehensive consolidate audit trail (CAT) that allows regulators to track all activity including options, thru US markets in National market system (NMS)
  • specifies the type of data to be collected and who reported
  • ## SRO and their members must provided detailed data regarding each quote and order in a security, each reportable event (origination, modification, cancellation, routing, execution)
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16
Q

dark pools of liquidity

A
  • trading volume that occurs or liquidity that is not openly available to the public
  • institutional traders and trading desks
  • large volume transactions that occur on crossing networks or alt trading systems (ATS)
  • able to execute large trading blocks without affecting public quotes, revealing their investment strategy
  • anonymously
  • concern that other participants are at a disadvantaged and transparency is darkened
17
Q

trade reporting and compliance engine (TRACE)

A
  • FINRA approved trade reporting system for corp and govt agency bonds trading in the OTC secondary market
  • better transparency as trade details are shared immediately
  • reporting system only
  • both sides of the transaction must report
  • must be reported ASAP (no later than 15 min after execution)
  • execution date, time, quantity, price, yield and commissions are shown
  • exclusions are: debt of foreign govt, money Market instruments, new issues (primary market), debt securities that are not depository trust eligible
  • TRACE is the FINRA-approved trade reporting system for corporate bonds, ABS, collateralized mortgage obligations and Treasury securities trading in the over-the-counter secondary market.
18
Q

trade reporting facilities (TRFs)

A
  • facilities through which members report transactions in stocks listed on the NYSE and the Nasdaq stock market when trades are made off the exchange (OTC)
  • all OTC transactions must be reported to FINRA unless expressly excepted
  • normal market hours are 9:30am ET to 4pm ET
  • supports milliseconds
  • The TRF is the only FINRA system that tracks transactions on the NYSE and Nasdaq, including OTC (over-the-counter) transactions.
19
Q

role of the NYSE DMM

A
  • person who rep a member firm of the NYSE
  • primary roles to facilitate trading in certain stocks
  • display their best bid and ask prices
  • maintain a fair and orderly market
    • step in with their own capital to help reduce market vol when there is an imbalance of buy and sell orders
  • most DMM are responsible for 5-10 stocks
  • secondary function is to min price disparities that may occur at opening of daily trading
    - buy or selling stock from their own inventory when needed
  • DMM must have enough capital to maintain a substantial position in the security
  • are agents and principals
20
Q

agents

A
  • execute all orders brokerage firms leave with them
21
Q

principals/dealers

A
  • they buy and sell in their own accounts to make markets in assigned stocks
22
Q

EMMA

A

EMMA, the electronic municipal market access, carries information about municipal fund securities (Section 529 plans).

23
Q

RTRS

A

Real Time Reporting System and it provides real time trading information.

24
Q

good delivery form

A

To be in good delivery form, a municipal bond must be accompanied by all unpaid coupons: past due, currently due, and subsequently due. Insurance or letters of guarantee do not constitute good delivery.

25
Q

CAT

A

For an equity stock listed on Nasdaq, the source that would provide the most complete information about the handling of the order and its execution, including a timeline of all relevant entry and execution events, is the Consolidated Audit Trail (CAT). The CAT tracks orders throughout their life cycle and identifies the broker-dealers handling them, thus allowing regulators to efficiently track activity in eligible securities throughout the U.S. markets. Please note that the former reporting system (OATS) was replaced by CAT on September 1, 2021

26
Q

Electronic Communications Networks

A

ECNs are electronic trading systems that automatically match buy and sell orders at specified prices; they are not a tracking system.

Series 7 (19 decks)

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