Customers Orders Flashcards
Order ticket aka order memorandum
Execution report
Customer confirmation- normal vs
when-issued trades
Customer confirmation- retention?
Order ticket/ order memo
BD execution of order
-What is the order (buy sell, what?)
- Long v short (reg SHO)
- security identifier or CUSIP
- Cash or margin
-Terms & conditions to execute
-Acc# (not name); RR identifier
-How order was received
-Solicited, unsolicited; discretionary?
-Time received & entered
Allows firm & regulators to review if complaints, disputes, irregularities
Tickets-
-Must be prepared prior to order entry
-Promptly reviewed by principals (us. by EOD)
-Changes are subject to principal approval (ex: correction of a mistake? They have to review & approve. If RR spots the mistake, just tell principal- DON’T try to fix it themselves)
Unsuitable orders?
-must be placed if customer insists
-marked “unsolicited”
-should note interaction in customer file
* * * * * * *
Order ticket checked against Execution report. All good? Send written confirmation to customer.
Problem? Report to principal & don’t touch.
Principal documents issue & resolution, approves any changes. Documentation retained 3 years
* * * * * *
Written trade confirmation given/sent to customer at or before settlement
Execution & settlement dates
Customer funds- $$ to or from customer
What is being bought/sold- ID of security, price, # shares
Role of BD- market maker? Agent v principal capacity? Control relationship? Dual Agent?
Fees- commissions (incl source), markup/markdown, other fees (mailing etc), any deferred sales loads (description)
debt security info- total par value, accrued interest, YTC (or YTM) whichever is lower
* * * * * *
new issue Municipal bonds typically sold before issued & available for delivery-
SAT are the unknown pieces of info:
-settlement date
-accrued interest
-total $$ due at settlement
TWO trade confirmations-
First- when- issued
SAT is missing
When issued trade confirm incl:
-Description of security
-Purchase price or yield (serial bond)
-Trade date
Once issued, new confirmation-
Includes settlement date, accrued interest, TOTAL purch price (SAT)
3 years retention
Market order
Have priority over all other orders
“Do it now, whatever the cost”
Buy/sell immediately at whatever price is available
investor objective =immediate execution
Guaranteed execution but not price
Always fully executed
Investors usually avoid placing overnight
Default is “day order”
Limit order
Risks
Stock ahead
Price guarantee, but no execution guarantee
Do it if you can get the price I want “or better”
If you can’t get my preferred price or better, the order won’t be executed
Limit orders are filled at the first price that satisfies the limit.
Can be partially executed.
Caps profits.
Day order or GTC (good til cx)
SLoBS over
BLiSS
Are orders placed above market or below?
If dividends are declared, does order adjust on ex-dividend date?
Use Buy Limit when you believe the security is overpriced
Use Sell Limit when you own stock and think it’s undervalued
Risk- may not be fulfilled bc mkt doesn’t reach the limit
Or
Mkt reaches limit but an order placed before yours (stock ahead) took precedence
Stop order
Why would you place a Buy Stop (BS) order? vs technical trader?
Why would you place a Sell Stop (SS) order? vs technical traders?
What is gap risk?
AKA stop loss. May use in very volatile market to limit losses. Ex: expect volatility in your stock just before its time to close trades.
No guarantee of execution or price
(May not need it, but if you do you can’t be sure what price it will be executed at)
If market price hits a figure I designate (the “trigger”), it becomes a market order.
Now it’s “do it now at whatever price”
If triggered, this gets fully executed bc it is now a market order
Use to protect a profit or prevent losses.
Think in terms of closing a position:
Buy stop- used as a hedge for short stock (cut your losses if the price to buy back is getting too high)
Sell stop- use as a hedge for long stock (cut your losses if your stock starts to fall & lose too much value)
Gap risk- Actual execution price (best bid if selling, best offer if buying) may be worse than specified stop price.
But you said do it no matter what.
Remember:
SLoBS over
BLiSS
Buy stop used by technical traders who track support and resistance. Buy stop placed just ABOVE resistance
Believe if it breaks through resistance, it will continue to move upward rapidly
Sell stop placed just BELOW support by technicians to short stock before it develops downward momentum
Stop limit order
If market price hits a figure I designate (the “trigger”), it becomes a limit order.
Do the deal ONLY IF you can get the price I want “or better”. If not? Doesn’t get executed.
Take profit (prevent losses) vs. limit losses (stop, stop- loss). Better for beginner investors to avoid mistakes.
Market on close order
Order is held & executed near end of trading hours.
As close to closing price as possible
Stop order and limit order together. Why?
Can place both to create a bubble. Ex: Long stock at $50
Sell stop at $45 (get out!!)
Sell limit at $55 (if I can get $55 or better, let’s sell for a profit)
SLoBS over
BLiSS
DNR
Orders placed above market value are Sell Limit (SL) and Buy Stop (BS). Executed if market goes up.
*Orders of any kind placed above market are NOT adjusted on ex- dividend date if dividend declared.
Orders placed below market price are Buy Limit (BL) and Sell Stop (SS). Executed if market price drops. Automatically adjusted down on ex- dividend date if a dividend is declared (bc stock price will drop by dividend amount). This prevents dividend from activating the “or better” search or triggering the orders.
Do NOT Reduce (DNR)- Investor doesn’t want order adjusted in case of dividend. OK if this causes order to be executed.
Violations:
Interpositioning
Order splitting/trade shredding
Churning
Principal & agent roles
Interpositioning- adding an extra broker dealer as principal when there is no benefit to customer (extra fees)
Order splitting/ trade shredding- chopping up order into many small orders for purpose of collecting more feed.
(You CAN break a large order into smaller orders if it achieves best execution for customer)
Churning- excessive trading to grab more fees
Principal & agent- not permitted to act as both in a single transaction. Not allowed to collect both (D/P= markup/markdown) (B/A= commission)
Also:
Pmt by firm to influence mkt price
Coordination & intimidation
Pmts for market making
Front running- rep becomes aware of large order (“block trade”- typically 10k shares+). Trades on his own account first, hoping the large order will drive pricing for his order.
Ex: Buy before block trade buy drives up the price. Sell before block trade sell drives down the price.
Trading ahead of customers (placing your own trading interest ahead of client’s- unless corrected immediately- within 60 sec- so customer doesn’t lose)
Trading ahead of research reports
Pump & dump- hyping a company or stock to inflate the price. Then sell for a profit.
Marking the open/ marking the close- entering buy/sell orders just prior to open or close of trading in an attempt to influence open or close price
Spoofing- entering an order you have no intention of executing at quoted price. Trying to manipulate prices by enticing other participants.
Circulation of rumors- passing false or misleading statements regarding a security
Not held order
Gives broker time & price discretion to seek the best price available
Can be placed as market order or limit order
When? Illiquid stocks, market volatility (after earnings announcement, broker downgrade, macroeconomic release such as jobs report)
Types:
Market not held order- market order that expires at EOD (trading day). Ex: Buy 1000 shares Apple at at best price available before mkt close.
Limit not held order- Order submitted with limit attached (“or better).Broker has discretion in executing even if market trades at limit price.
Ex: Buy 1000 Apple at $200 (buy limit- doesn’t want to pay more than $200).
If price is $200 but broker thinks price is too high, he can elect not to fill the order.
**Broker is not liable for losses. Investor cannot dispute the trade if all regs followed.
*This is not a discretionary order (3 As= asset, amount, action)
Publication of transactions and quotations
Equities= report tsxn within 10 seconds (to appropriate facility)
Municipal securities = within 15 minutes (to RTRS- real time reporting system)
Arbitrage
When an investor takes advantage of a temporary price disparity.
Ex: stock priced differently on 2 exchanges. Buy cheap on one exchange, then sell for profit on the other.
Block trade
Trade of 10,000+ units
Front running is a violation- trading ahead, with knowledge this is coming and will influence prices
AON
IOC
FOK
All or none. Must fill all shares or cancel the whole thing
multiple attempts allowed
Immediate or cancel- IMMEDIATELY fill as many shares as you can, canceling the others.
Only one shot.
Fill or kill- fill all shares IMMEDIATELY or cancel the whole thing.
One shot.
Which investment company products cannot be bought/sold with limit orders or stop orders?
Anything not negotiable. Mutual funds and UITs are redeemable with issuer only.
Closed end funds and ETFs are exchange traded, so these orders can be used.
