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STC Cards > Chapter 7 - Equity Trading Markets > Flashcards

Chapter 7 - Equity Trading Markets Flashcards

1
Q

Define an insider.

A

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

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2
Q

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

A

Individuals must register with the SEC within 10 days of becoming an insider.

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3
Q

When must insiders report their transactions?

A

Within 2 business days of the trade

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4
Q

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

A
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5
Q

Define painting the tape.

A

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

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6
Q

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

A

Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.

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7
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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8
Q

What is the criminal penalty for insider trading by corporations?

A

$25 million per violation

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9
Q

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

A

3 business days (T+3) following the trade date is the settlement for trades involving corporate or municipal securities.

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10
Q

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

A

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

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11
Q

What does selling short mean?

A

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

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12
Q

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

A

An investor’s strategy is bearish when effecting a short sale (If stock falls, investors may buy back at a lower price).

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13
Q

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

A

The Floor Broker (also called the Commission House Broker)

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14
Q

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

A

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

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15
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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16
Q

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

A

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

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17
Q

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

A

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

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18
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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19
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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20
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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21
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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22
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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23
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 (through the stop price)

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24
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 (the next trade after the trigger is touched)

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25
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 (at the stop price)

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26
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 no execution, since no trade occurring after the trigger satisfied the buy limit at $97.

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27
Q

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

A

No, stop orders execute at the market price (which is uncertain) once they are activated.

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28
Q

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

A

False.

Stop-limit orders may not be executed if the limit price cannot be met.

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29
Q

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

A

Not Held

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30
Q

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

A

No

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31
Q

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

A

Yes.

The order must be executed immediately, but not completely.

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32
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)

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33
Q

Which market is the decentralized, negotiated market?

A

The over-the-counter market (OTC)

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34
Q

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

A

Consolidated Quotation System (CQS)

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35
Q

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

A

True

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36
Q

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

A

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

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37
Q

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

A

True

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38
Q

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

A

Level I

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39
Q

What can be found on Level II Nasdaq?

A

Current quotes of all market makers for a specific security

40
Q

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

A

Change their quotes

41
Q

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

A

False.

Level III is exclusively for market makers.

42
Q

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

A

Backing away

43
Q

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

A

As a principal / dealer

44
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

45
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

46
Q

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

A

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

47
Q

What is the Nasdaq Market Center Execution System?

A

The automated quotation and execution system for Nasdaq

48
Q

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

A

True

49
Q

What is the trade reporting system for Nasdaq securities?

A

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

50
Q

What is the trade reporting system for OTC equities?

A

Over-the-Counter Reporting Facility (ORF)

51
Q

What are the three categories of Nasdaq issues?

A
  • Nasdaq Global Select
  • Nasdaq Global Market
  • Nasdaq Capital Market securities
52
Q

What is interpositioning?

A

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

53
Q

Is interpositioning an acceptable practice?

A

No, it is generally prohibited.

54
Q

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

A

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

55
Q

When must dealer-to-dealer confirms be sent?

A

Next business day (T + 1)

56
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 #
57
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).

58
Q

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

A

Yes, e.g., Sell 500 ABC at 50 stop-49.50 limit triggers at or through 50. Then the investor will sell at 49.50 or above.

59
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.

60
Q

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

A

The Nasdaq Market Center Execution System is the primary system for accessing the quotes of Nasdaq market makers.

61
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
62
Q

What is an ECN?

A

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

63
Q

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

A

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

64
Q

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

A

Maintaining liquidity and buying and selling from their own account

65
Q

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

A

Until executed or the end of the day (if unexecuted)

66
Q

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

A

Until executed or cancelled by the customer

67
Q

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

A

The Super Display Book System routes orders directly to the DMMs on the NYSE floor.

68
Q

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

A

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

69
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.

70
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.

71
Q

What will a firm establish between departments to restrict the flow of potential insider information?

A

Information barriers

72
Q

What must be implemented to limit the flow of communication between research and investment banking departments?

A

Information barriers

73
Q

A BD is ready to issue a favorable research report. What must exist for the BD to continue regular trading operations?

A

Effective information barriers must be in place.

74
Q

A BD is ready to issue a favorable research report. Information barriers must exist between what two departments?

A

Trading and research

75
Q

What is the purpose of an information barrier between trading and research departments?

A

To prevent the trading department from learning of an impending report about a stock in which the firm has a position

76
Q

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

A

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

77
Q

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

A

Pink Sheets or the OTC Bulletin Board

78
Q

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

A

True

79
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

According to NYSE Rules, if the S&P 500 falls by 7% from the previous day’s close, trading will halt for 15 minutes.

80
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

According to NYSE rules, if the S&P 500 falls by 13% from the previous day’s close, trading will halt for 15 minutes.

81
Q

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

A

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

82
Q

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

A

Transactions effected on an exchange or OTC must be reported within 10 seconds.

83
Q

Market makers must report trades within _____ seconds.

A

Market makers must report trades within 10 seconds.

84
Q

Name two prohibitions that relate to being an insider.

A
  1. No shorting of the stock
  2. No keeping of short-swing profits
85
Q

Insiders must return short-swing profits, which are profits earned on stock that has been held for less than ___ months.

A

Insiders must return short-swing profits, which are profits earned on stock that has been held for less than six months.

86
Q

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

A

Trading on material, non-public information is considered insider trading.

87
Q

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

A

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

88
Q

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

A

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

89
Q

The criminal penalty for insider trading by an individual is a maximum of $______ and/or ___ years in prison.

A

The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.

90
Q

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

A

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

91
Q

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

A

If an investor is long stock, a sell stop order can be used to limit downside risk.

92
Q

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

A

If an investor is short stock, a buy stop order can be used to limit upside risk.

93
Q

Stop orders become _________ orders once they are triggered/activated.

A

Stop orders become market orders once they are triggered/activated.

94
Q

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

A

Stop-limit orders become limit orders once they are triggered/activated.

95
Q

What regulation prohibits an issuer from disclosing material non-public information to securities professionals?

A

Regulation FD (Fair Disclosure)

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