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Series 7 > Chapter 7 - Securities markets > Flashcards

Chapter 7 - Securities markets Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Different Types of Orders can be used on…

A

Common stock, preferred stock, bonds, and options

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2
Q

Market Order

A

Buy or sell a security at the best price that is available when the order reaches the market place

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3
Q

Market orders at the opening…

A

Always have priority over limit orders

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4
Q

Limit order

A

Order to buy or sell a security at a set, specific, price or better

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5
Q

Limit order are good till

A

Either good for the day (Day Order), can be partially executed and if so the rest of the order will be canceled at the end of the day
or
Good till canceled - (GTC or open orders)- Renewed twice a year, in April and October.
Some firms allow GTC orders that are good for a week only or a month only
Permitted for round lot (100 shares) or odd lot

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6
Q

Stop Order

A

Memo for an order when a trade is placed at or through a specified price.
the order then becomes a market order an a sale price can not be guaranteed

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7
Q

Stop order protects long position by

A

using a sell stop order

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8
Q

Stop order protects short position by

A

using a buy stop order

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9
Q

NYSE and Nasdaq no longer accept

A

GTC or stop orders

Brokers can continue to offer these order types to their customers for execution in other markets

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10
Q

Adjustment to orders

A

If an adjustment is required for cash dividend or distribution, unless marked “do not reduce”, buy limit and sell stop order prices will be reduced by the full dollar amount of the dividend or distribution

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11
Q

Reverse splits and open orders

A

All open orders must be cancelled

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12
Q

How are limit orders reduced

A

On the Ex-date the market maker, before the markets open, will automatically make reduction
It will be reduced by the actual amount of the dividend

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13
Q

Stop orders impact on the market

A

Buy stops - speed up the rise in a bull market

Sell stops will speed up a decline in a bear market

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14
Q

Stop Order and broker discretion

A

Stop orders do not give the broker discretion over the time and number of shares since once the stop order is activated it becomes a market order

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15
Q

Buy stop orders and resistance levels

A

A buy stop order can be used to take advantage of a break in a the resistance level for a security

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16
Q

Cancel Former Order (CFO)

A

this is an order that cancels the buy stop order and purchases stock at the current market value. Must go down on the same ticket

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17
Q

A stop limit order is entered..

A

Is first always a stop order. But instead of the stop order turning into a market order it then becomes a limit order

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18
Q

American Stock Exchange (Amex and Curb) accepting stop orders

A

They will only accept stop orders if they are stop limit orders

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19
Q

Fill or Kill Order (FOK)

A

Must be executed at once in its entirety or it will be cancelled.

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20
Q

Immediate or Cancel (IOC) order

A

Must be executed at once in its entirety or partially. If it is partial the remaining balance is canceled

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21
Q

All or None (AON)

A

Must be executed in its entirety but not immediately

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22
Q

At the opening orders

A

If they are not received on the trading floor before opening, it will be canceled

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23
Q

At the close orders

A

They will be executed at or near the near of the trading day but no guarantee that it will be the last trade of the day

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24
Q

Odd lot ticket order

A

Are now filled on a single order ticket

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25
Q

Alternative orders

A

Two order to buy at either a low price or a high price. The execution of either will cancel the other

If the order is only partially filled the amount of stock filled will be reduced from both orders

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26
Q

Sell order indications

A

All sell orders must indicate whether they are selling a “long” or “short” position

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27
Q

Order Flow through a Brokerage Firm

A
  1. Wire Room
  2. Purchase and sale Department
  3. Margin Department
  4. Cashier’s Department
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28
Q

Cashier’s Department in a Brokerage firm is responsible for

A

Broker and bank deliveries
customer account transfers
Bank Loan

NOT responsible for transmittal of orders for execution

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29
Q

Reorganization Department is responsible for

A

The exchange of one security for another

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30
Q

Mark-Market

A

The adjusting of the price of a security or portfolio to reflect current market value.
Most important in a Margin account
Used to ensure compliance with margin maintenance requirements

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31
Q

Regulation NMS (national Market System)

A

SEC regulation to help modernize NMS for equities securities. Ensures investors receive best price execution for their order

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32
Q

Regulation NMS (national Market System) Requirements

A

Access to quotes must be immediate and automatic

and

The execution of trades place at a price that is at or better than the national best bid or offer (BBO)

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33
Q

Brokers

A

Bring together buyers and sellers on an exchange and is paid a commission for this service

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34
Q

Dealers

A

Acts in a principal capacity, which means they buy and sell from their own inventory of stocks and are paid based on the spread between the buy and sale price

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35
Q

Mark ups and commissions

A

A customer can be charged either a mark up or a commission but not both

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36
Q

Market-on-close and Limit-on-close orders

A

Must be entered electronically by 3:50pm. Can be cancelled or reduced up until 3:50pm. They can not be canceled or reduced after 3:50pm, no exceptions even to correct legitimate errors

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37
Q

NYSE Rule 7.12

A

If trading is halted for the day all MOC and LOC orders will be canceled and NYSE crossing sessions may not take place

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38
Q

Short sales can only be done in

A

a margin account

and are marked to marked daily

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39
Q

Prior to the short sale

A

The firm must confirm that it has the security available to be borrowed by the investor before the short sale is submitted for execution

This is referred to as a “locate” under regulation SHO

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40
Q

Stock borrowing length of time

A

Can be indefinitely but the firm can demand it be returned at any time

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41
Q

Risk Arbitrage

A

when someone wants to profit from a merger or acquisition

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42
Q

Short against the box

A

If a customer is long a stock in their account and shorts that same stock

Done for either arbitrage or hedge against anticipated decline

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43
Q

Short against the box and selling/tendering stock

A

If you are short against the box and want to sell your share you must list it as a short sale

If they want to participate in a tender offer they must have a net long position

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44
Q

Trade reporting Facility (TRF) is used…

A

For trades that occur OFF the floor of an exchange

45
Q

EMMA - Electronic Municipal Market Access

A

It is the official MSRB source for:
Official statements
Continuing discourse documents
Advance refunding Documents
Real time trade price information

46
Q

Real Time Transaction Reporting

A

Each trade of a municipal bond must be reported within 15 minutes to the National Securities Clearing Corporation.
Much slower then the 10 second requirement of stocks due to the fact that most of the municipal bond market is not electronic

47
Q

Designated Market Marker

A

Key individual on the trading floor
Required to maintain a fair and orderly market in the securities assigned to them

48
Q

Designated Market Markers typically act as a

A

broker- executing trades for other members and receiving a commission
But they can act as a dealer and buy and sell from the firms own account

49
Q

Designated Market Makers handle

A

Market orders
Open orders
and day orders

They do not handle “Not Held” orders

50
Q

Important Info about Designated Market Maker

A

Does not participate in IPO

Can contact potential buyers when a large influx of sell orders come in

Execute odd lot orders but they are not reported to the tape

51
Q

Stopping Stock

A

The customers price is guaranteed (for a limited time)
The order must be solicited by the floor broker not the designated market maker
there must be at least a 2 cents spread between the bid and the ask

52
Q

OTC vs. Exchange traded stock symbols

A

OTC stocks are typically 4 symbols where an exchange traded stock is usually 1-3 characters

53
Q

Designated Market Makers own accounts

A

Must bid higher then any offer on their book to buy and must offer lower than anything on their book as a sale

54
Q

Auction Procedures

A

When orders are entered on the floor of an exchange, competitive bidding occurs and orders are executed based on Priority (larger orders get priority over smaller orders and market orders get priority over limit orders),
Parity (orders with matching size)
, and precedence (orders that were received first

but never premiums

55
Q

Registered Reps and the NYSE trading floor

A

RR are not allowed to trade on the NYSE trading floor

56
Q

NYSE order ticket contain

A

Type of order
Time of entry
Designation of the Customers account

Commissions will not appear on the order ticket

57
Q

Universal Trading Platform (AKA Designated order turnaround (DOT) system)

A

Automatically executes market and limit orders
All NYSE stocks are eligible
Reports back instantaneously
Used by individuals and institutions
There ARE size limitations
Must be reported within 10 seconds of execution

58
Q

Market Trading Halts

A

Happen when the S&P500 index drops a certain % from the previous day’s close

59
Q

Market Trading Halt values

A

Level 1 - 7%
Level 2 - 13%
Level 1 and 2 are only active from 9:30am until 3:25pm and result in a 15 minute halt

Level 3 - 20% - can happen anytime and result in halted trading for the rest of the day

Nasdaq will also halt trading in according with the NYSE trading halts

60
Q

Ticker Tape Reporting

A

The tape reports the sell side only on a transaction

Common stock, preferred stock, warrants and rights are reported

Odd lots and options are not reported on the tape

Commissions are not reported on the tape, execution price only

61
Q

OTC Markets

A

All securities trades that take place off of a listed exchange

62
Q

Listed Securities

A

Are traded by designated market makers on an exchange

63
Q

Unlisted securities

A

are traded by market makers in the OTC market through their own inventory

64
Q

Prices on an OTC market

A

Determined through negotiation between a seller and the market makers

65
Q

Information about OTC

A

Number of securities traded on OTC is greater than all exchanges combined (number of securities not dollar volume of trades)
Stocks of most banks and insurance companies are traded OTC
Most symbols are 4 characters

66
Q

Market Maker in OTC

A

maintain a firm bid and offer price in a given security by standing ready to buy or sell from their own inventory at a publicly quoted price
Can take long or short positions at any time
Must report trading volume daily
Not required to disclose profit or losses on their inventory positions

67
Q

Value moves of stocks

A

If the price or a stock is greater then $1.00 is must move in at least $0.01 increments

If the price of a stock is less then $1.00 it can move in sub-penny increments

68
Q

Firm quote

A

Means the market maker is trade at least 100 shares of a stock at the quoted price

69
Q

Subject quote

A

Provides information only and is subject to change

70
Q

Workout market

A

Used for a thinly traded stock where it is a subject quote that provides an estimated price range that a dealer feels then can obtain the security within a reasonable period of time

71
Q

Narrow vs wide spread implications

A

Narrow spread indicate an actively traded stock

A wide spread indicates a less active stock

72
Q

Markup policy

A

Is the 5% guideline that must be used when calculating mark ups/down transactions

73
Q

Pink Sheets

A

Always subject quotes
Published daily
No not meet requirements to be on NASDAQ
Market price less than $5/share
Thinly traded which makes them more volatile
inter dealer quotes
Before sold RR must disclose the bid/offer and compensation paid to both the RR and the firm in the trade
Must provide risk disclosure statement
Must provide monthly (not quarterly) statements

74
Q

5% markup policy

A

The 5% policy if added to the price that a buyer must pay and taken from the price the seller receives (but there is no commission)

75
Q

Mark up policy does not apply to…

A

New issues, registered secondary distributions or open end investment shares (mutual funds)

76
Q

OTC trading level

A

Pink sheets (designated securities)- market price of less than $5.00 per share
NASDAQ- worlds largest electronic stock market

77
Q

Penny Stocks are on…

A

The OTC markets only.

A stock on the exchange that is under $5.00 does not have a special name

78
Q

Before selling a penny stock an advisor must…

A

Determine suitability for the customer
send the customer a copy of the suitability determination
And they must receive back a copy of the suitability determination that is signed by the client

79
Q

Exemption to penny stock disclosure rules

A

Transactions with institutional accredited investors
Transactions that satisfy Reg D
Transactions where the customer owns 5% or more of the stock of the company
An established customer if the RR did not make the recommendation

80
Q

NASDAQ’s two markets

A

NASDAQ Capital market- includes small cap securities
NASDAQ Global Market - Includes large cap securities

81
Q

NASDAQ Reporting

A

Subject to real time reporting in 10 seconds or less, for round lot trades
Last sale prices are displayed in the system
Reports to news media the inside market (highest bid and lowest ask by all market makers)

82
Q

Suspended Trading on NASDAQ

A

Can be done at either:
The request of the company
Pending an announcement
If the net worth of the company declines below a certain amount

Not suspended if the company issues non-voting common shares

83
Q

NASDAQ Quote levels

A

Level 1- used by RR and gives inside quote. These are subject quotes
Level 2 - Firm quotes for at least 100 shares of stock. Used by OTC traders and gives quotes for each market maker
Level 3- Firm quote, Used by registered market makers. Allows market maker to change their big and ask quote throughout the day

Basic Cable
Premium Cable
Premium+ sports

84
Q

To be quoted on NASDAQ…

A

Have at least two registered market makers
Have a minimum number of shareholders
have a minimum number of shares outstanding

No waiting period once its registration becomes effective

85
Q

Consolidated Quotation Service (CQS)

A

Provides the current and continuous best quote (bid and ask) in the system for all listed (trading on the floor of an exchange) securities in the system

86
Q

Electronic Communication Network (ECN)

A

Privately owned electronic order execution systems that display, match and execute order on listed AND OTC securities.

Generally route order away from exchanges and OTC so that you can get better execution prices.
Do not maintain their own inventory
Must register with the SEC

87
Q

3rd Market

A

Where listed (exchange) securities are traded OTC

88
Q

4th Market

A

Where financial institutions trade directly with each other Commissions are typically lower

89
Q

Instinet (INET)

A

was the first and one of the largest ECNs

Provides quotes for and handles many large block trades executed on the 4th market

participants can trade anonymously

trades do not cross on the floor of an echange

90
Q

Regular way settlement
Common stock
Corporate Bonds
Government Bonds
Municipal Bonds
Options
Preferred Stocks

A

2nd business day - Common Stock, preferred stock, corporate bonds, and Municipal Bonds

1st business day - government bonds and options

91
Q

Regulation T settlement

A

Most securities are 4th business day

92
Q

Cash Transaction

A

Cash is required to be delivered on the day of the transaction
NYSE - cash transactions completed before 2pm are due by 2:30pm. Any made after 2pm are due within 30 minutes after the trade

93
Q

Depository Trust Clearing Company (DTCC)

A

One of the worlds largest securities depositories
Created to reduce costs
Provides safekeeping and transfers securities electronically using bookkeeping entries

94
Q

National Securities Clearing Corporation

A

The NSCC is a subsidiary of the Depository Trust Company (DTC). The NSCC provides centralized clearing, information, and settlement services to the financial industry including broker-dealers, banks, mutual funds, and insurance companies

95
Q

Continuous Net Settlement (CNS)

A

Operated by NSCC
an automated settlement system that centralizes and matches the settlement of security transactions and money balance of its member participants

Settles all trades through equity securities, corporate bons and municipal bonds through NSCC. Eliminates window settlement

96
Q

Fixed Income Clearing Corporation (FICC)

A

subsidiary of DTCC

Provides central clearing for government securities

Also handles Repurchase agreements and mortgage backed securities

97
Q

Seller’s Option 180 day contract

A

Used to sell a stock when you will not be able to deliver the stock for more then 2 business days (regular way settlement) but within 180 days

98
Q

Seller’s Option 180 day contract: buyers obligation

A

Seller must give buyer one days written notice before delivery
Buyer must deposit funds within 4 days after delivery

99
Q

SEC Rule 15C3-3

A

Rule prescribes mandatory buy in period for customers who fail to deliver securities that they have sold

This regulates sellers, Reg T regulates buyers

100
Q

Good Delivery

A

The stock or bond certificate is in a form permitting ownership to be readly transfered

101
Q

Good delivery of stocks

A

Must be in units of 100 shares
Multiples of 100 shares
or combinations permitting 100 share units`

102
Q

Odd lot good delivery

A

Good in any amount as long as they equal the amount of the odd lot

103
Q

Assignment and power of substitution

A

Back of a stock certificate
Legal document
Must be signed on the back exactly as their name appears on the front
Assignment call a “stock power” or “bond power”

104
Q

In a transfer, Broker Dealer will guarantee ..

A

the signature and the signature and guarantee must be accepted by the transfer agent

105
Q

The following are acceptable signatures for a transfer agent

A

Stock in the name of:
an individual signed by the individual
each spouse as joint tenants signed by both spouses
a partnership signed by one of the general partners
a corporation signed by an authorized officer or officers
an estate signed by the legal representative of the estate

Stock help in an UTMA account signed only by the minor is not acceptable

106
Q

Good Delivery of a bond with mutilated coupons

A

Must be authenticated by the issuer or transfer agent (not the broker dealer)

107
Q

Handling of certificates by the transfer agent

A

cancels old certificates
issues new certificates
resolves problems with certificates that have been lost

108
Q

Handling of certificates by the registrar

A

Maintain the stock record book
must account for all shares and prevent over issuance of shares

109
Q
A

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