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Series 7 > Chapter 7 > Flashcards

Chapter 7 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Define an insider.

A

Officers, directors, partners, greater than 10% owners, and immediate family members of all listed

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2
Q

Name two prohibitions related to being an insider.

A
  1. No shorting of the stock and 2. No keeping of short-swing profits
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3
Q

Insiders must return short-swing profits, which are those earned on stock held less than ____ months.

A

six months

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4
Q

Individuals must register with the SEC within __________ of becoming an insider.

A

10 days

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5
Q

When must insiders report their transactions?

A

within 2 business days of the trade

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6
Q

Trading on material, non-public information is considered __________________.

A

insider trading

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7
Q

What are the two ways order tickets can be marked when selling securities?

A

Long (selling shares that are owned) or short (selling stock that is being borrowed)

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8
Q

Define painting the tape.

A

Traders effecting transactions back and forth to create a misleading appearance of activity

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9
Q

__________ is a manipulative activity designed to keep the price of a stock from rising (and is prohibited).

A

Capping

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10
Q

__________ is a manipulative activity designed to keep the price of a stock from falling (and is prohibited).

A

Pegging

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11
Q

A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?

A

yes

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12
Q

The criminal penalties for insider trading by individuals is a maximum of $____________ and/or ____ years in prison.

A

$5 million; 20 years

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13
Q

What are treble damages?

A

The civil penalty for insider trading, which is three times the profit made or loss avoided

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14
Q

What is the criminal penalty for insider trading by corporations?

A

$25 million per violation

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15
Q

_______________ following the trade date is the settlement for trades involving corporate or municipal securities.

A

3 business days (T + 3)

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16
Q

___________ is the settlement for cash transactions (also referred to as cash trades or cash settlement).

A

Same Day

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17
Q

What does selling short mean?

A

Selling securities that are not owned, but are borrowed from a BD

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18
Q

An investor’s strategy is __________ when effecting a short sale.

A

bearish

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19
Q

On the floor of the exchange, who executes orders for the clients of their firm?

A

The Floor Broker

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20
Q

The highest bid and the lowest offer for a security is referred to as the ________________.

A

Inside Market

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21
Q

What orders may be placed in the Designated Market Maker’s (Specialist’s) Book?

A

Stop and limit orders placed away-from-the-market

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22
Q

A ________ order indicates quantity, security, and whether to buy or sell and is executed at the best price available.

A

market

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23
Q

A _______ order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.

A

limit

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24
Q

True or False: Investors generally place stop orders to limit a loss or protect a profit on a stock position.

A

True

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25
Q

Stop and stop-limit orders are triggered when a round lot trades at, or through, the _____________.

A

stop price

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26
Q

If long stock, a sell stop order can be used to limit ___________ risk.

A

downside

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27
Q

If short stock, a buy stop order can be used to limit _________ risk.

A

upside

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28
Q

Stop orders become _________ orders once triggered/activated.

A

market orders

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29
Q

Stop-limit orders become ________ orders once triggered/activated.

A

limit

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30
Q

Order is entered to sell 1,000 ABC at 50 stop. Trades occur at 50.10…50.03…50…49.98…49.90. The trigger price is:

A

$50 (at the stop price)

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31
Q

Order is entered to sell 100 ABC at 50 stop. Trades occur at 50.10…50.03…50…49.98…49.90. The execution price is:

A

$49.98 (the next trade after the trigger is touched)

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32
Q

If a stop order is activated, at what price will the trade be executed?

A

The next trade after activation

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33
Q

If a stop-limit order is activated, at what price will the trade be executed?

A

The next trade that satisfies the limit price. Not receiving execution is possible.

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34
Q

Order is entered to buy 2,000 XYZ at $73 stop. Trades occur at 72.95…72.99…73.02…73.08… 73.12. Trigger price is:

A

73.02

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35
Q

Order is entered to buy 800 XYZ at $73 stop. Trades occur at 72.95…72.99…73.02…73.08… 73.12. Execution price is:

A

73.08

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36
Q

Order is entered to buy 500 RST at 97 stop-limit. Trades occur at 96.97…96.99… 97…97.02…97.05. Trigger price is:

A

97

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37
Q

Order is entered to buy 5,000 RST at 97 stop-limit. Trades occur at 96.99…97…97.02…97.05. Execution price is:

A

There is none

38
Q

Do stop orders guarantee a specific price when buying or selling?

A

No, they become market trades after stop price is hit

39
Q

True or False: Stop-limit orders are guaranteed execution if the trigger is touched.

A

False

40
Q

What type of order gives discretion as to price and time of execution?

A

Not Held

41
Q

May the Designated Market Maker (Specialist) accept a not held order?

A

No

42
Q

If an order has been entered as Immediate-or-Cancel (IOC), is a partial execution acceptable?

A

Yes, must be executed immediately, but not completely

43
Q

What are the three orders that are reduced on the ex-dividend date?

A

Buy Limits, Sell Stops, and Sell Stop Limits (unless marked DNR)

44
Q

Which market is the decentralized, negotiated market?

A

OTC

45
Q

What is the system that provides quotes for the Third Market?

A

Consolidated Quotation System (CQS)

46
Q

True or False: ECNs allow subscribers to post quotes and trade electronically and anonymously.

A

True

47
Q

The ______________ is where trades occur between institutions without the use of BDs.

A

fourth market

48
Q

True or False: Nasdaq is a securities exchange registered with the SEC.

A

True

49
Q

Which level of Nasdaq will only show the inside market for a security?

A

Level 1

50
Q

What can be found on Level II Nasdaq?

A

Current quotes of all market makers for a specific security

51
Q

What does Level III Nasdaq give market makers the ability to do?

A

Change their quotes

52
Q

True or False: Level III Nasdaq is available to the public.

A

False. Only for Market Makers

53
Q

What is the violation for a market maker failing to honor its firm quote?

A

Backing Away

54
Q

How is a firm acting if it is trading for, or from, its own inventory?

A

As a principal / dealer

55
Q

To what is a firm entitled when acting in the capacity of a principal or dealer?

A

Markup when selling to a customer and markdown when buying from a customer

56
Q

How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?

A

Agent or Broker

57
Q

Firms acting in the capacity of a broker will collect a ____________.

A

Commission

58
Q

What is the Nasdaq Market Center Execution System?

A

The automated quotation and execution system for Nasdaq

59
Q

True or False: Stocks found in the Pink Sheets are often thinly traded.

A

True

60
Q

What is the trade reporting system for Nasdaq securities?

A

Trade Reporting Facility (TRF) - formerly the Automated Confirmation Transaction system (ACT)

61
Q

What is the trade reporting system for OTC equities?

A

Over-the-Counter Reporting Facility (ORF)

62
Q

What are the three categories of Nasdaq issues?

A

Nasdaq Global Select, Nasdaq Global Market, and Nasdaq Capital Market securities

63
Q

Transactions effected on an exchange or OTC must be reported within ____ seconds.

A

30 seconds

64
Q

What is interpositioning?

A

The placement of another BD between a customer and the best market

65
Q

Is interpositioning an acceptable practice?

A

No, it is generally prohibited

66
Q

Any quote qualified by the terms “subject,” “workout,” or “nominal” is not considered a ______ quote.

A

firm quote

67
Q

When must dealer-to-dealer confirms be sent?

A

Next business day (T + 1)

68
Q

List some of the information to be included on municipal dealer-to-dealer confirmations.

A

Description, call features, yield/price, final dollar amount, confirming/contra party, trade/settlement dates, CUSIP #

69
Q

“For insider trading violations, the SEC can sue for treble damages.” What does that statement mean?

A

The SEC can sue for three times the damage (profit made or loss avoided).

70
Q

What regulation prohibits a BD from disclosing material non-public information to securities professionals?

A

Regulation FD (Fair Disclosure)

71
Q

Can a stop-limit order have a different stop and limit price?

A

yes

72
Q

What does DNR mean, and when is it used?

A

Do Not Reduce; used when a client does not want their Buy Limit, Sell Stop or Sell Stop-Limit reduced on ex-dividend.

73
Q

The ___________________________ is the primary system for accessing the quotes of Nasdaq market makers.

A

Nasdaq Market Center Execution System

74
Q

Market makers must report trades within _____ seconds.

A

30 seconds

75
Q

Under FINRA rules, market makers are required to report trades in what types of securities?

A

All Nasdaq securities, Nasdaq-listed convertible bonds, CQS securities, OTC equities

76
Q

What is an ECN?

A

Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes

77
Q

On the floor of the exchange, the _____ maintains a fair and orderly market.

A

DMM

78
Q

What are some of the different functions of Designated Market Makers?

A

Maintaining liquidity and buying and selling from their own account

79
Q

How long will a Day Limit order remain on the Display Book?

A

Until executed or the end of the day if unexecuted

80
Q

How long will a GTC Limit order remain on the Display Book?

A

until executed or cancelled

81
Q

_____________________________ routes orders directly to the DMMs on the NYSE floor.

A

The Super Display Book System

82
Q

_________________ means the DMM is guaranteeing a price on a public order for a floor broker.

A

Stopping Stock

83
Q

What rules must DMMs follow when trading for their own account?

A

DMMs may compete as market participants. The specialist, which preceded DMMs, could not compete.

84
Q

A DMM holds two orders: Buy 100 ABC at 55 stop and Buy 500 ABC at 52.50. Which would be reduced on ex-dividend?

A

The buy limit order (Buy 500 ABC at 52.50), since it is the one entered below the market.

85
Q

The ______________ is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.

A

third market

86
Q

Where may quotes for non-Nasdaq (OTC equity) stocks be found?

A

Pink Sheets or OTC Bulletin Board (OTCBB)

87
Q

True or False: Super Display Book accepts market orders, limit orders, and both round-lot and odd-lot orders.

A

True

88
Q

According to NYSE rules, if the S&P 500 falls by 7% from the previous day’s close, trading will halt for ______ minutes.

A

15 minutes

89
Q

According to NYSE rules, if the S&P 500 falls by 13% from the previous day’s close, trading will halt for ____ minutes.

A

15 minutes

90
Q

If the S&P 500 falls by 20% from the previous day’s close, trading halts for ________________________.

A

remainder of the day

Series 7 (25 decks)

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