Chapter 14: Orders and Trades

Question 1

What does BLiSS stand for?

Answer 1

-Buy Limit or Sell Stop -Entered at or below market price

Question 2

What does SLoBS stand for?

Answer 2

-Sell Limit or Buy Stop Entered at or above the market price

Question 3

What does “Don’t Eat Rubber Pickles” mean?

Answer 3

1. 1. Declaration
2. Ex-Dividend Rate (2 business days)
3. Record Date
4. Payment date

Question 4

Do SLoBS orders remain the same on the ex-dividend date?

Answer 4

Yes

Question 5

Do BLiSS orders remain the same on the ex-dividend date?

Answer 5

No, they are reduced

Question 6

What is shorting against the box?

Answer 6

Selling short a security that you already own

Question 7

Designated market maker executes orders by?

Answer 7

1. Priority: the highest bid and lowest ask prices executed first 2. Parity: if multiple orders are at highest bid/ask, the first order is executed first 3. Precedence: lastly, larger orders are first

Question 8

What does Capacity refer to?

Answer 8

Whether a firm is acting as a broker or dealer, must always be disclosed on confirmation

Question 9

Market order (Buy order or Sell order)

Answer 9

Immediate execution at best price available -Would not be placed on DMM’s order display book

Question 10

Stop order (Buy stop order or Sell stop order)

Answer 10

Used for protection

Question 11

Buy stop order

Answer 11

Protects a short position Buys security if market price touches a particular price or higher

Question 12

Sell stop order

Answer 12

Protects a long position Sells security if market price touches a particular price or lower

Question 13

Limit order (Buy limit order or Sell limit order)

Answer 13

Specific price

Question 14

Buy limit order

Answer 14

Buys security at the limit price or lower

Question 15

Sell limit order

Answer 15

Sells security at the limit price or higher

Question 16

Stop-limit order

Answer 16

-Combination of stop and limit -Its a Buy stop or Sell stop that becomes a limit order after the stop price is reached -“Sell 1 ABC at 41 Stop, 40.75 limit” means that the customer is interested in selling the stock if it drops to 41 but wants to receive at least 40.75 per share

Question 17

Auctioning vs. Negotiating securities

Answer 17

Auctioning = primary market (NYSE) Negotiating = secondary market (NASDAQ)

Question 18

Commission

Answer 18

Charged by broker when firm doesn’t use own inventory

Question 19

Markdown

Answer 19

Charged by a dealer when using own inventory

Question 20

Inside market

Answer 20

The highest bid price and the lowest ask price (after ignoring stop orders)

Question 21

OATS

Answer 21

-Order audit trail system -Tracks the life of an OTC order from entry to execution or cancellation -Tracks orders of all listed and unlisted securities traded without use of an exchange

Question 22

Who is a Designated Market Maker?

Answer 22

-A member of a stock exchange who’s responsible for maintaining a fair and orderly market on a particular security

Question 23

An investor enters an order to sell ABC at 34 stop. The ticker following entry of the order is as follows: 34.75, 34.60, 34.45, 34.20, 34.10, 33.95, 34.25, 34.30, 34, 33.80 At which prices was the order triggered and executed? A. triggered at 33.95 and executed at 33.80 B. triggered at 34.10 and executed at 33.95 C. triggered at 33.95 and executed at 34.25 D. triggered at 34.25 and executed at 33.80

Answer 23

C. triggered at 33.95 and executed at 34.25 The investor wants to limit losses, so he enters an order to sell if the price dips too low. The order was triggered at 33.95 and executed at 34.95. This is a sell stop order, which is a BLiSS order. BLiSS orders are triggered at or below the order price. In this case, the first transaction that was at or below 34 was 33.95, which is the trigger price. Because this is a stop order, it became a market order for immediate execution and was completed on the next trade (34.25).

Question 24

A client purchased 1,000 shares of ABC at $45 per share. To limit her losses, a couple of weeks later, he places an order to sell 1,000 shares of ABC at 43 stop 42.90 limit. The ticker following entry of the order is as follows:

• 43.64, 43.27, 43.30, 43.09, 42.95, 42.87, 42.85, 42.90, 42.94, 43
• The order was triggered at
  
  • A. 42.95 and executed at 42.87
  • B. 42.95 and executed at 42.90
  • C. 42.87 and executed at 42.90
  • D. 42.87 and executed at 42.85

Answer 24

B. 42.95 and executed at 42.90

• The client placed this sell stop limit order to sell the stock if it drops to 43 but not sell it at less than 42.90 per share.
• Take care of the stop portion first, so look for where sell stop order is triggered.
• Sell stop orders are BLiSS orders that are triggered at or below the stop price.
• The first trade that is at or below 43 is 42.95.
• Now that the order is triggered, it becomes a sell limit order at 42.90.
• Sell limit orders are SLoBS orders that are executed at or below the market price.
• When you move ahead from the point where it was triggered, the first trade that is at or above 42.90 is 42.90.

Question 25

All of the following are exchange markets EXCEPT

• A. NYSE Arca Equities
• B. NYSE Amex Options
• C. NASDAQ Global Market
• D. NASDAQ OMX PHLX

Answer 25

C. NASDAQ Global Market

• It is a listing of the largest and most actively traded stocks trading OTC
• The OTC market is a negotiated market, not an exchange market

Question 26

All of the following need approval from a brokerage firm’s principal EXCEPT

• A. new accounts
• B. recommendations
• C. handling of complaints
• D. trades in all accounts

Answer 26

B. recommendations

Question 27

All of the following are true of a letter of intent EXCEPT

• A. it may be backdated up to 90 days
• B. the investor has 13 months from the intial transaction under of the letter of intent to deposit enough money to receive the breakpoint
• C. the fund may hold funds in escrow
• D. investors may purchase shares of the fund on margin while under the letter of intent

Answer 27

D. investors may purchase shares of the fund on margin while under the letter of intent

Question 28

Which of the following items should be on a trade confirmation?

1. the trade date and settlement date
2. whether the brokerage acted as an agent or principal
3. the name of the security and how many shares were traded
4. the amount of commission paid if the broker acted as an agent

A. I and III

B. I, II, and III

C. I, III, and IV

D. I, II, III, and IV

Answer 28

D. I, II, III, and IV

Question 29

A ________ order instructs the floor broker either to immediately execute an entire order at the limit price or better, or to cancel it

Answer 29

Fill or kill (FOK)

Question 30

_________ orders are similar to FOK orders except that the order may be partially filled. Any portion of the order that is not completed is cancelled.

Answer 30

Immediate or cancel (IOC)

Question 31

________ are limit orders that have to be executed in their entirety or not at all. They do not have to be filled immediately (several attempts to fill the order completely are allowed) and may be day orders or good til cancelled orders. As of 2005, the NYSE does not accept these orders.

Answer 31

All or none (AON)

Question 32

________ orders say not to reduce the price of a stop or limit order in response to a dividend.

Answer 32

Do not reduce

Question 33

A _______ order gives the broker discretion about when to execute the trade. Typically investors use these orders when the broker believes he can get the customer a better price later in the day.

Answer 33

Not held (NH)

• They only deal with timing. For registered reps to choose the security, number of shares, and or whether to buy or sell, the customer needs to open a discretionary account, which requries a written power of attorneysa

Question 34

A ________ order tells you to buy a security if the market price touches a particular price or higher. For example, an investor who’s short ABC stock currently trading at $25 could enter this type of order on ABC at $30. If ABC stock reaches $30 or more, the order is triggered and the order becomes a market order for immediate execution at the next price.

Answer 34

Buy stop order

Question 35

A ________ order tells you to sell a security if the market price touches a particular price or lower. For example, say an investor who is long ABC stock currently trading at $50 enters this type or order on ABC at $45. If ABC reaches $45 or below, the order is triggered and the order becomes a market order for immediate execution at the next price, whether higher or lower than $45.

Answer 35

Stop sell order

Question 36

A ________ order is a directive to buy a particular security at the limit price or lower. For example, say ABC stock is trading at $35 per share but one of your customers doesn’t want to pay more than $30 per share. You could place this type of order at $30. If the price of ABC ever reaches 30 or less, chances are good your customer will end up with the stock.

Answer 36

Buy limit order

Question 37

A _________ order is a directive to sell a particular security at the limit price or higher. For example, suppose one of your clients owns ABC stock, which is currently trading at $62 per share but he wants to recieve at least $70 per share. If ABC touches or goes above $70 per share, chances are good that the stock will be sold.

Answer 37

Sell limit order

Question 38

A _________ is a combination of a stop and limit order. It is a buy stop or sell stop order that becomes a limit order after the stop price is reached. For example, an order that reads “sell 1,000 ABC at 41 stop, 40.75 limit” means the the sell stop order will be triggered as soon as ABC reaches 41 or below. If this were just a stop order, the stock would be sold on the next trade (no matter what the price). Here, though, it becomes a limit order to buy at 40.75 or above (the limit price)

Answer 38

Stop limit order

Question 39

______ refers to whether a firm is acting as a broker or dealer, and it must always be disclosed on the _______ (receipt of trade).

Answer 39

• Capacity
• Confirmation