Chapter 11 Study Notes Flashcards
Discretionary Order/Discretion Not Exercised
If the client has granted discretionary authority to
the registered representative, this should be indicated for each order. It is important to check off
discretion not exercised if that was the case, since this indicates that the customer consented to that
specific trade. (Note that this is not the same as saying the trade was unsolicited.) If an order was the
client’s idea, the ticket should be marked unsolicited.
Sub Penny Display Rule
Sub-Penny Restrictions – For OTC equity securities, members are prohibited from displaying or
accepting from others a bid, offer, order, or indication of interest in an increment smaller than:
− $0.01 if the bid, offer, order, or indication of interest is priced $1.00 or greater per share,
− $0.0001 if the bid, offer, order, or indication of interest is priced below $1.00 and equal to or
greater than $0.01 per share, and
− $0.000001 if the bid, offer, order or indication of interest is priced less than $0.01 per share
Access Fee Cap
Access Fee Cap – A member firm is prohibited from charging fees exceeding the following maximums
to non-subscribers who are seeking to access its quotes:
− $0.003 per share for stocks quoted at equal to or greater than $1.00
− 0.3% of the published quotation price per shares for stocks quoted at less than $1.00
Nasdaq has the authority to halt trading:
In Nasdaq-listed securities trading on Nasdaq
In other exchange-listed securities (CQS securities) that are traded on Nasdaq when a trading
suspension has been imposed on the security by its primary exchange
In an ADR that is trading on Nasdaq when a trading suspension has been imposed on the underlying
security by its foreign securities exchange
Finra trading halt for OTC securities
If FINRA issues a trading and quotation halt for an OTC security, FINRA member firms may not
trade the halted security or quote it in any quotation medium. This prohibition extends to internal
crosses between customers and/or the firm’s proprietary account(s). The halt will be lifted if FINRA
determines that the basis of the halt no longer exists, or if the halt has been in effect for 10 business
days, whichever occurs first.
LULD Bands
The rule
applies only to NMS securities (which include exchange-traded funds).For stocks greater than $3.00 - For Stocks in the S&P 500 or Russell 1,000: 5%
- For all other NMS stocks: 10%
For stock at or above $.75, up to and including $3.00 20%
For stocks less than $.75 The lesser of $.15 or 75%
LULD
Regular State
When the LULD rule is applicable, trades that occur at prices equal to or greater
than the lower price band, or equal to or less than the higher price band (within the price bands),
will not affect trading.
LULD
Straddle State
When the LULD rule is applicable, and when one side of the market is outside the
price bands, this refers to a situation when the NBB is below the lower price band or the NBO is
above the upper price band. In this situation, only one side is executable.
LULD
LImit State
When the LULD rule is applicable, this situation will occur if the NBB is on or above
the upper price band, or the NBO is on or below the lower price band
LULD
Trading Pause
If the security enters the limit state and fails to move back inside the price bands
within 15 seconds, the primary listing exchange will issue a five-minute trading pause in the
security.
The primary listing exchange is also permitted (but not required) to issue a trading pause if
the security is in a straddle state. No transactions are permitted during a trading pause, but bids and
offers will continue to be displayed. After the five-minute trading pause, the primary listing
exchange will reopen trading using its reopening procedures and that price will be the new
reference price.
Short-Interest Reporting
All short-interest reports must be made as of the close of the designated settlement date,
which is currently the 15th of the month (or the preceding business day if the 15th falls on a holiday
or weekend), and as of the last trading day of the month. The report must be received at FINRA by
the close of the second business day after the calculation.
Electronic Blue Sheets
The SEC and SROs are part of the Intermarket Surveillance Group. This
group may require member firms to submit requested trade information during the course of an
investigation or inquiry. This is accomplished by the member firm through the use of the Electronic
Blue Sheet (EBS). The trade information would include trade data for both a member’s proprietary
account and for any customer’s account.
5% Markup Policy.
(Although stated in terms of markups, the policy
applies to markups, markdowns, and commissions.)
The rule applies to both exchange-listed and
non-exchange-listed securities and would apply whether the broker-dealer is acting in a principal or
agency capacity.
Calculating Markups
the difference between the interdealer ask price
and sales prices to customers, while markdowns are described as the difference between the
interdealer bid price and purchases from customers.
A dealer’s contemporaneous cost
is the price paid to other dealers for the security
at or about the time it made retail sales to customers.)
