Chapter 10 Part 4

Question 1

Since a number of orders can arrive at the trading post at approximately the same time, a priority of orders has been established to determine which order will be executed first

Answer 1

The first priority is price. The highest bid and lowest offer (known as the inside market) will always come first. After price, time is the determining factor. If all bidders or offerors are equal in price, then whoever came into the trading crowd first will come before subsequent bidders or offerors. If the orders arc equal in price and time, then the size of the order is the determining factor. Normally, the larger order will receive priority

Question 2

Day Order

Answer 2

Every order is a day order unless otherwise specified. If not executed, it is automatically cancelled at the end of the day

Question 3

Good-Till-Cancelled (GTC) or Open Order

Answer 3

This is an order that remains in effect on the specialist’s book until executed or cancelled. The floor broker should periodically update GTC orders with the specialist

Question 4

At-the-Opening

Answer 4

This is an order to buy or sell at the opening price. If not executed at the opening, the order will be cancelled

Question 5

At-the-Closing

Answer 5

This is an order to buy or sell at the closing price. If not executed at the closing, the order will be cancelled

Question 6

Not-Held (NH)

Answer 6

This qualification gives the floor broker discretion as to time and price on an order. If the floor broker docs not execute or does not obtain the best price, the broker will not be held responsible. A specialist may not accept a not-held order

Question 7

Immediate-or-Cancel (IOC)

Answer 7

This qualifier dictates that as much of the order as possible must be executed immediately. The portion that is not immediately executed is cancelled

Question 8

The trade dale for the purchase or sale of a security is the day that the

Answer 8

transaction is executed. This may or may not be the day the order is placed. Hemember, there are various types of orders and order qualifiers that may delay the execution of an order

Question 9

The settlement date is the day that

Answer 9

the transaction is completed. On this date, the buyer pays for the securities and the seller delivers the securities to the buyer. This is the official date when ownership changes

Question 10

Most securities settle on a regular-way basis. For corporate stocks and bonds and municipal securities, the settlement for a regular-way transaction is

Answer 10

three business days after the trade date(t + 3).

Question 11

For Treasury securities and options, settlement occurs

Answer 11

one business day after the trade date(t + 1)

Question 12

Cash transactions settle on

Answer 12

the same day as the trade

Question 13

An alternate type of settlement is a seller option contract. In this type of settlement, the seller is given the right to deliver the securities in a

Answer 13

specified period other than regular-way (three business days)

Question 14

When, as, and if issued contracts are contracts for securities that are trading but are

Answer 14

“not yet available for delivery. They are also referred to as when-issued (WI) securities. FINRA determines the date of settlement to be when a sufficient percentage of the issue is
outstanding”

Question 15

Corporate Securities in a cash or margin account

Answer 15

settlement: 3 business days T + 3; Payment: 5 BU days - reg. T

Question 16

Municipal Securities

Answer 16

settlement: 3 business days T + 3; Payment: exempt from reg t, payment generally due at settlement

Question 17

US Gov Securities

Answer 17

settlement: next business day T+1; payment: exempt from reg t, payment generally due at settlement

Question 18

options

Answer 18

settlement: next business day T+1; payment: 5 business days

Question 19

The Securities Exchange Act of 1934 regulates short sales of securities. As mentioned earlier, a short sale involves the sale of a security that is

Answer 19

not owned by the seller. The seller borrows the security to sell short in anticipation of a decline in the price of the security. When the security declines in price, the investor purchases the security in order to deliver it to the party it was borrowed from

Question 20

The SEC adopted Regulation SHO in 2005 to modernize and standardize

Answer 20

short selling practices. One of the provisions requires a broker-dealer to be able to locate securities it will be borrowing to effect a short sale. This is designed to protect against uncovered short selling. Firms can use easy to borrow lists to help identify these securities that can be sold short by clients. If an issue is thinly traded, it may be difficult or impossible to borrow the security to effect a short sale