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Series 24 > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

If a BD is a member of an UW synd & they want to begin making a mkt in the sec they are underwriting, what must happen so they can begin market making?

A

A broker-dealer that is participating as a syndicate member cannot become a market maker in the security that is the subject of the offering until the syndicate is terminated.

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2
Q

Reasons for an excused withdrawal as a NASDAQ Mkt Maker?

A

Excused withdrawal status may be granted for the following reasons: religious holidays, sudden illness, vacation, jury duty, equipment malfunction, the requirements of Rule 103 of Regulation M, and failure to maintain a clearing agreement.

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3
Q

Who typically uses a VWAP transaction

A

Volume Weighted Average Price transactions are used by pension plans and institutional traders. The theory states that if the price of a buy trade is lower than the VWAP for a trading day, then it was a good trade

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4
Q

What is the initial listing criteria for a company to list on the NASDAQ Global Market?

A

bid price. number of market makers. number of shareholders.

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5
Q

Reasons for a NASDAQ trading halt?

A
  • order imbalance
  • pending news of a press release on a material event by the issuer
  • pending release by the issuer of a material news event
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6
Q

What is Stopping Stock?

A

Stopping stock means guaranteeing an execution price without completing the execution immediately. The floor broker will try to improve the price but if unsuccessful will execute the order with the designated market maker at the guaranteed price.

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7
Q

Securities eligible for NASDAQ trading?

A
  • OTC common stock
  • ADRs
  • Close-end investment security
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8
Q

Criteria for continued listing requirements on the NASDAQ Capital Mkt?

A
  • min mkt bal of publicly held shs of $1 mil
  • min bid price of $1
  • Total assets of $2 mil
  • at least 2 active mkt makers
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9
Q

What is a Market Maker & examples of a Mkt Maker?

A

A Mkt maker is a firm that is ready to buy/sell a particular stock on a regular and continuous basis at publicly quoted prices. Acting in a dealer capacity & trading from their own inventory

Examples: NYSE specialist allowed to act as a dealer, a dealer that regularly buys/sells for his own acct, a block positioner

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10
Q

What is Trade or Tape Shredding?

A

the practice of splitting large trades into multiple 100-share trades as a means to maximize payments or rebates to the member.
No member shall split any order into multiple smaller orders for execution for the purpose of maximizing a monetary amount (e.g. commissions) to be received as a result of the execution of such orders.

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11
Q

What is needed for a company to voluntarily delist its shs from the NYSE?

A
  • approval from the Board of directors
  • the company must furnish the exchange w/ a copy of the Board resolution authorizing the delisting that has been certified by the secretary of the issuer
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12
Q

If a Mkt Mkr executes a trade w/ another BD what must be reported to ACT?

A
  • execution price
  • type of transaction (buy,sell,cross)
  • the NASDAQ symbol
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13
Q

What are mkt mkrs prohibited from communicating w/ each other?

A

Market makers cannot demand, ask or coerce another market maker to change his or her quote, nor can they alert each other of upcoming trade reports.

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14
Q

What does the NASDAQ Mkt Center Execution System (aka Single Book) do?

A
  • eliminates locked/crossed mkts
  • time stamps individual orders
  • order protection
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15
Q

When using the Risk Mgmt Functions of ACT, how long does a clearing broker have to accept or decline a single trade that equals or exceeds the single trade limit?

A

15 minutes

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16
Q

What is the exemption to Rule 5320 that would allow a Member Firm to trade along with a customer order?

A

Trading along is only permitted if the customer was provided with clear and comprehensive written disclosure at the account opening and annually thereafter

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17
Q

What would a mkt maker be doing if they are “backing away” from an order?

A

if a mkt maker fails to execute an order in a fast mkt, or fails to execute an order with a firm quote, or fails to execute an order when they accidentally did not update their quote

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18
Q

What is required to list a sec. on the NASDAQ Global Market Index?

A
  • 400 shareholders
  • $4 bid price
  • 3 or 4 mkt makers
  • 1.1 mil publicly held shares
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19
Q

What securities transactions are reported through ACT?

A
  • OTC Bulletin Board Sec
  • NASDAQ National Mkt Sec
  • NASDAQ Small cap stock
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20
Q

What is ACT?

A

ACT - The Automated Confirmation Transaction system - facilitates the reporting and clearing of trades. ACT handles the reporting and dissemination of last sale information on the three tiers of the NASDAQ market, OTC Bulletin Board stock and Consolidated Quotation Service stock which includes listed stock traded OTC.

21
Q

What services does ACT provide?

A
  • disseminates last sales in designated securities
  • confirms transactions between broker dealers and institutions
  • confirms transactions between dealers and reports to NSCC
22
Q

When would a BD that is not a Mkt Maker in a security have to disclose their markup?

A

If the BD is not a market maker, he would not buy for his position or inventory, but he would have to disclose the markup for a riskless transaction, in which he did not act as a market maker.

23
Q

What are the reasons a suspension/termination of a sec listed on the NASDAQ could be initiated?

A
  • issuer has been found guilty of fraud
  • the accountant refuses to certify the issuers financial stmts
  • issuer files for bankruptcy
24
Q

Per FINRA rule 5320 when can a member firm trade along with a customer?

A

FINRA Rule 5320 allows member firms to trade along side an institutional customer if the institutional customer provides express permission for the member to do so on an order by order basis.

25
Q

Under FINRA rule 5320, what are the exceptions that do not require a Member Firm to receive permission from an institutional customer to trade along with the customer?

A
  • to offset an odd lot order (less than 100 shs)

- a bona fide error

26
Q

Who can a designated Mkt Maker on the NYSE floor stop stock for?

A
  • for a retail customer
  • an institutional customer such as an investment acct
  • an institutional customer such as an insurance company
27
Q

Under the Limit Order Protection Rules when would a mkt maker NOT have to display an order they received?

A
  • when the customer’s order is less than 10% of the mkt makers displayed size
  • for Block Orders
  • Orders for other broker dealers’ inventory (i.e an order from another BD for one of their customers)
28
Q

When a market maker is acting as a dealer (from their own inventory) the markup or markdown is calculated from?

A 
markup = dealer's ask
markdown = dealer's bid
29
Q

True or False - It is unethical for a mkt maker to the request or demand that another mkt maker move away from their bid or offer

A

True

30
Q

What are mkt makers required to do when maintaining quotes in the NASDAQ mkt>

A
  • maintain quotes that are reasonably related to the mkt
  • quotes must include price & size
  • must execute orders for at least the normal unit or trading
31
Q

What is required of an issuer to re-list a security that has been delisted from the NASDAQ system?

A

-the issuer would be required to meet the initial requirements

32
Q

What securities are eligible to trade on the NASDAQ stock mkt?

A
  • ADR’s
  • Closed end inv Co.
  • REITs
33
Q

What is a market maker that is holding a customers limit order required to do?

A

the mkt maker that is holding a customers limit order cannot execute an order for the firm and not also execute the customers order. The mkt makers is required to execute the customers order at the same price or better than the firms price

34
Q

True or False: A market maker that is selling to a non-member firm would charge a markup?

A

True

Since the market maker is selling stock from their own inventory they would charge a markup

35
Q

What securities are quoted on the CQS?

A

-securities listed on an exchange

ie -sec listed on a natl stock exchange or sec listed on a regional stock exchange

36
Q

If a customer places a trade with a member firms for a stock that the mkt maker acts as a principal, what must be disclosed to the customer?

A

If an employee of the member firm is on the Board of Directors for the stock

37
Q

What is true of a NASDAQ mkt maker that voluntarily withdraws it’s quote on a NASDAQ security?

A
  • mkt makers withdrawing NASDAQ quotes cant re-register as mkt maker for 20 days
  • reinstatement after an accidental withdrawal is sometimes permitted
  • withdrawing a quote displayed on the SuperMontage is considered termination of registration as mkt maker in that security
38
Q

What are the listing requirements for continued listing on the NASDAQ Capital Market?

A
  • publicly held shs of at least $1 mill
  • min bid of $1
  • total assets of $2 mil
  • at least 2 active mkt makers
39
Q

Can a BD coordiante prices for a security with another Member Firm?

A

No. It is illegal for a broker/dealer to coordinate prices for a security. Prices must be determined by demand and supply forces in the marketplace.

40
Q

Under the Securities Exchange Act of 1934 what is true regarding the manipulations provisions?

A
  • Establishes credit regulation for securities transactions
  • Failure of a seller to disclose that the seller is a controlling person over the issuer may be a violation
  • Quotations displayed on NASDAQ are normally sufficient evidence to determine the fair market price of an OTC security
41
Q

What must be disclosed on the customers confirm if the mkt maker buys shs from another mkt maker and then sellse them to the customer to fill the order?

A
  • the net price to the customer
  • whether the member firm makes a market in the security
  • if the market maker acted as principal in the transaction
42
Q

When must a Market on Close or Limit on Close Order be entered by?

A

by 3:45

43
Q

When must any cancellation or change to a Market on Close or Limit on Close Order be entered?

A

Cancellation or changes can take place any time after the order has been entered and up to 3:45.

Between 3:45-3:58 changes can be made if an error occurred but after 3:58 nothing can be changed or cancelled

44
Q

When must TRACE eligible securities transactions be reported?

A

within 15 minutes of the execution

45
Q

What is true of a VWAP order?

A
  • The firm may not engage in proprietary trading in the security if such trading comprises the customer’s interest.
  • The firm must disclose in writing to the customer if the firm may engage in hedging activities that could affect the market for the security
  • Execution of buy orders below the VWAP price would be viewed as well executed by the customer
  • all sell orders must be identified as long or short and the compensation for the trade must be disclosed in writing (usually on the confirm)
46
Q

NASDAQ Level 2 provides subscribers with?

A

quotations (Bid & Ask) of all registered market makers entering quotes into the System

47
Q

Per SEC Rule 15c2-11 what are market makers required to do?

A

The broker/dealer must retain the issuer’s most recently filed annual report and subsequent period reports

SEC Rules 15c2-11 requires market makers in OTC Bulletin Board stocks to have knowledge about the company by retaining the most recently filed annual report and periodic reports.

48
Q

What securities does OATS report order & trade info for?

A
  • NASDAQ/NMS stock
  • NASDAQ small cap stock
  • Convertible Bonds
49
Q

Per FINRA Rule 6450 the minimum size quotation for OTCBB stocks is based on?

A

the price level of the bid or offer.

Series 24 (3 decks)

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