Equity Trading Markets Flashcards
If an investor is short stock, a buy stop order can be used to limit _________ risk.
If an investor is short stock, a buy stop order can be used to limit upside risk.
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:
$50 (at the stop price)
Trading on material, non-public information is considered ________ ________.
Trading on material, non-public information is considered insider trading.
_______________ following the trade date is the settlement for trades involving corporate or municipal securities.
3 business days (T+3) following the trade date is the settlement for trades involving corporate or municipal securities.
Define painting the tape.
Traders effecting transactions back and forth to create a misleading appearance of activity
Stop and stop-limit orders are triggered when a round lot trades at, or through, the _____ ______.
Stop and stop-limit orders are triggered when a round lot trades at, or through, the stop price.
Can a stop-limit order have a different stop and limit price?
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.
What are the two ways order tickets can be marked when selling securities?
Long (selling shares that are owned) or short (selling stock that is being borrowed)
What does selling short mean?
Selling securities that are not owned, but are borrowed from a BD
What is an ECN?
Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes
True or False: ECNs allow subscribers to post quotes and trade electronically and anonymously.
True
True or False: Stocks found in the Pink Sheets are often thinly traded.
True
According to NYSE rules, if the S&P 500 falls by 7% from the previous day’s close, trading will halt for ______ minutes.
According to NYSE Rules, if the S and P 500 falls by 7% from the previous day’s close, trading will halt for 15 minutes.
If the S&P 500 falls by 20% from the previous day’s close, trading halts for ________________________.
If the S andP 500 falls by 20% from the previous day’s close, trading halts for the remainder of the day.
Individuals must register with the SEC within __________ of becoming an insider.
Individuals must register with the SEC within 10 days of becoming an insider.
___________ is the settlement for cash transactions (also referred to as cash trades or cash settlement).
Same day is the settlement for cash transactions (also referred to as cash trades or cash settlement).
How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?
Agent or broker
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?
The buy limit order (Buy 500 ABC at 52.50), since it is the one entered below the market.
Any quote qualified by the terms “subject”, “workout,” or “nominal” is not considered a ______ quote.
Any quote qualified by the terms “subject”, “workout” or “nominal: is not considered a firm quote.
How long will a Day Limit order remain on the Display Book?
Until executed or the end of the day (if unexecuted)
True or False: Nasdaq is a securities exchange registered with the SEC.
True
A BD is ready to issue a favorable research report. What must exist for the BD to continue regular trading operations?
Effective information barriers must be in place.
__________ is a manipulative activity that is designed to keep the price of a stock from rising (and is prohibited).
Capping is a manipulative activity that is designed to keep the price of a stock from rising (and is prohibited).
Name two prohibitions that relate to being an insider.
- No shorting of the stock and 2. No keeping of short-swing profits
Transactions effected on an exchange or OTC must be reported within ____ seconds.
Transactions effected on an exchange or OTC must be reported within 10 seconds.
What rules must DMMs follow when trading for their own account?
DMMs may compete as market participants. The specialist, which preceded DMMs, could not compete.
Firms acting in the capacity of a broker will collect a ____________.
Firms acting in the capacity of a broker will collect a commission.
What does Level III Nasdaq give market makers the ability to do?
Change their quotes
What is the criminal penalty for insider trading by corporations?
$25 million per violation
What is the system that provides quotes for the Third Market?
Consolidated Quotation System (CQS)
To what is a firm entitled when acting in the capacity of a principal or dealer?
Markup when selling to a customer and markdown when buying from a customer
“For insider trading violations, the SEC can sue for treble damages.” What does that statement mean?
The SEC can sue for three times the damage (profit made or loss avoided).
What is the Nasdaq Market Center Execution System?
The automated quotation and execution system for Nasdaq
The ______________ is where trades occur between institutions without the use of BDs.
The Fourth Market is where trades occur between institutions without the use of BDs.
When must insiders report their transactions?
Within 2 business days of the trade
Market makers must report trades within _____ seconds.
Market makers must report trades within 10 seconds.
When must dealer-to-dealer confirms be sent?
Next business day (T + 1)
Is interpositioning an acceptable practice?
No, it is generally prohibited.
According to NYSE rules, if the S&P 500 falls by 13% from the previous day’s close, trading will halt for ____ minutes.
According to NYSE rules, if the S andP 500 falls by 13% from the previous day’s close, trading will halt for 15 minutes.
A BD is ready to issue a favorable research report. Information barriers must exist between what two departments?
Trading and research
If an order has been entered as Immediate-or-Cancel (IOC), is a partial execution acceptable?
Yes. The order must be executed immediately, but not completely.
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:
There is no execution, since no trade occurring after the trigger satisfied the buy limit at $97.
If an investor is long stock, a sell stop order can be used to limit ___________ risk.
If an investor is long stock, a sell stop order can be used to limit downside risk.
What is interpositioning?
The placement of another BD between a customer and the best market
Which level of Nasdaq will only show the inside market for a security?
Level I
What type of order gives discretion as to price and time of execution?
Not Held
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:
$97 (at the stop price)
The ___________________________ is the primary system for accessing the quotes of Nasdaq market makers.
The Nasdaq Market Center Execution System is the primary system for accessing the quotes of Nasdaq market makers.
What is the violation for a market maker failing to honor its firm quote?
Backing away
If a stop order is activated, at what price will the trade be executed?
The next trade after activation.
What orders may be placed in the Designated Market Maker’s (Specialist’s) Book?
Stop and limit orders placed away-from-the-market
Insiders must return short-swing profits, which are profits earned on stock that has been held for less than ___ months.
Insiders must return short-swing profits, which are profits earned on stock that has been held for less than six months.
Define an insider. 5
- Officers,
- directors,
- partners,
- greater than 10% owners, and
- immediate family members of all listed
_________________ means the DMM is guaranteeing a price on a public order for a floor broker.
Stopping stock means the DMM is guaranteeing a price on a public order for a floor broker.
What are the three orders that are reduced on the ex-dividend date?
- Buy Limits,
- Sell Stops, and
- Sell Stop Limits (unless marked DNR)
Do stop orders guarantee a specific price when buying or selling?
No, stop orders execute at the market price (which is uncertain) once they are activated.
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:
$49.98 (the next trade after the trigger is touched)
What regulation prohibits an issuer from disclosing material non-public information to securities professionals?
Regulation FD (Fair Disclosure)
True or False: Investors generally place stop orders to limit a loss or protect a profit on a stock position.
True
What is the trade reporting system for Nasdaq securities?
Trade Reporting Facility (TRF) - formerly the Automated Confirmation Transaction system (ACT)
What can be found on Level II Nasdaq?
Current quotes of all market makers for a specific security
Under FINRA rules, market makers are required to report trades in what types of securities? 4
- All Nasdaq securities,
- Nasdaq-listed convertible bonds,
- CQS securities,
- OTC equities
Where may quotes for non-Nasdaq (OTC equity) stocks be found?
Pink Sheets or the OTC Bulletin Board
What are the three categories of Nasdaq issues?
Nasdaq Global Select, Nasdaq Global Market, and Nasdaq Capital Market securities
What is the purpose of an information barrier between trading and research departments?
To prevent the trading department from learning of an impending report about a stock in which the firm has a position
Stop orders become _________ orders once they are triggered/activated.
Stop orders become market orders once they are triggered/activated.
True or False: Level III Nasdaq is available to the public.
False. Level III is exclusively for market makers.
The criminal penalty for insider trading by an individual is a maximum of $_________ and/or ___ years in prison.
The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.
How long will a GTC Limit order remain on the Display Book?
Until executed or cancelled by the customer
What are some of the different functions of Designated Market Makers?
Maintaining liquidity and buying and selling from their own account
On the floor of the exchange, the _____ maintains a fair and orderly market.
On the floor of the exchange, the DMM maintains a fair and orderly market.
How is a firm acting if it is trading for, or from, its own inventory?
As a principal / dealer
_____________________________ routes orders directly to the DMMs on the NYSE floor.
The Super Display Book System routes orders directly to the DMMs on the NYSE floor.
What must be implemented to limit the flow of communication between research and investment banking departments?
Information barriers
The highest bid and the lowest offer for a security is referred to as the ________________.
The highest bid and the lowest offer for a security is referred to as the Inside Market.
List some of the information to be included on municipal dealer-to-dealer confirmations. 7
- Description,
- call features,
- yield/price,
- final dollar amount,
- confirming/contra party,
- trade/settlement dates,
- CUSIP #
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:
$73.02 (through the stop price)
A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?
Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.
Which market is the decentralized, negotiated market?
The over-the-counter market (OTC)
The ______________ is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.
The third market is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.
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:
$73.08 (the next trade after the trigger is touched)
True or False: Super Display Book accepts market orders, limit orders, and both round-lot and odd-lot orders.
True
True or False: Stop-limit orders are guaranteed execution if the trigger is touched.
False. Stop-limit orders may not be executed if the limit price cannot be met.
Stop-limit orders become ________ orders once they are triggered/activated.
Stop-limit orders become limit orders once they are triggered/activated.
On the floor of the exchange, who executes orders for the clients of their firm?
The Floor Broker (also called the Commission House Broker)
A _______ order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.
A limit order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.
What is the trade reporting system for OTC equities?
Over-the-Counter Reporting Facility (ORF)
__________ is a manipulative activity that is designed to keep the price of a stock from falling (and is prohibited).
Pegging is a manipulative activity that is designed to keep the price of a stock from falling (and is prohibited).
An investor’s strategy is __________ when effecting a short sale.
An investor’s strategy is bearish when effecting a short sale (If stock falls, investors may buy back at a lower price).
What are treble damages?
The civil penalty for insider trading, which is three times the profit made or loss avoided
If a stop-limit order is activated, at what price will the trade be executed?
The next trade that satisfies the limit price. Not receiving execution is possible.
May the Designated Market Maker (Specialist) accept a not held order?
No
What will a firm establish between departments to restrict the flow of potential insider information?
Information barriers
What does DNR mean, and when is it used?
Do Not Reduce; used when a client does not want their Buy Limit, Sell Stop or Sell Stop-Limit reduced on ex-dividend.
A ________ order indicates quantity, security, and whether to buy or sell and is executed at the best price available.
A market order indicates quantity, security, and whether to buy or sell and is executed at the best price available.
