FC Chapter 12 Flashcards
What is the ORF?
OTC Reporting Facility; reports trades in OTCBB and Pink Sheet securities
True or False: Trades executed between 8:00 p.m. and 8:00 a.m. ET must be reported within 10 seconds of execution.
False. The 10-second reporting requirement applies to trades executed between 8:00 a.m. and 8:00 p.m. ET.
Once a TRACE report is made, when is the information available to the public?
Immediately
If a trade is effected between two member firms, who is responsible for reporting the trade?
The executing firm
Regulations consider riskless principal trades as ______ trades since the executing BD is not exposed to _______ risk.
Regulations consider riskless principal trades as agency trades since the executing BD is not exposed to market risk.
Explain a give up transaction.
When one broker executes a trade on behalf of another broker and reports the trade to the clearing corporation
FINRA disseminates __________ trade information for TRACE-eligible securities.
FINRA disseminates real-time trade information for TRACE-eligible securities.
Identify the acronym: SIP
Securities Information Processor
When must trades executed between 8:00 a.m. and 8:00 p.m. be reported?
Within 10 seconds of execution
What system facilitates the mandatory reporting of secondary-market trades in eligible fixed-income securities?
TRACE (Trade Reporting and Compliance Engine)
In a trade between two non-market makers, who must report within 10 seconds?
The seller
For trades that occur between 8:00 a.m. and 6:29:59 p.m. ET, when is a TRACE report made?
Within 15 minutes of the trade
What is another name for the Nasdaq Market Center Execution System?
Single Book
In a trade between a market maker and a non-market maker, who must report within 10 seconds?
The market maker
What type of transaction transfers the trade from one BD to another for clearing purposes?
A step out
Give some examples of TRACE-eligible securities.
Depository-eligible, U.S. dollar-denominated debt of U.S. and foreign companies, investment or non-investment-grade debt
When would the following trades be reported to TRACE? One was executed at 6:20 p.m., the other at 8:40 p.m.
Both need to be reported within 15 minutes of TRACE opening on the next business day.
What is TRACS?
Trade Reporting and Comparison Service; TRACS reports trades in securities quoted in the Alternative Display Facility.
True or False: Debt issued or guaranteed by a U.S. government agency or enterprise is TRACE-eligible.
True
If a transaction is reported at a clearly erroneous price, when will review and action be taken by FINRA?
Under normal circumstances, within 30 minutes
For what transactions does TRACE not disseminate real-time trade information?
Rule 144A debt transactions between qualified institutional buyers (QIBs)
True or False: TRACS is used to report ATS trades to the TRF or ORF within 10 seconds of execution.
True
A trade in a TRACE-eligible security is executed at 2:55 p.m. When is the trade required to be reported?
By 3:10 p.m. (within 15 minutes)
Is a riskless principal trade reported to FINRA as one or two transactions?
It is reported as one transaction.
True or False: In order to have a give-up relationship, an agreement must exist between the two firms.
True
Two Nasdaq member firms effect a third-market trade. Who is responsible for reporting the trade?
The executing firm
What is OATS?
The Order Audit Trail System; it enables FINRA to review customer orders and market activity within a member firm
For trades effected between a member firm and a nonmember firm or customer, the ________ reports the trade.
For trades effected between a member firm and a nonmember firm or customer, the member reports the trade.
Between 8:00 a.m. and 6:29:59 p.m. ET, two FINRA members are involved in a trade. Who reports it to TRACE?
Each FINRA member is required to report its side of the trade.
To establish a give-up relationship, which BD is required to file the appropriate forms with Nasdaq?
Both BDs are required to file.
What securities are NOT TRACE-eligible?
Money-market securities (with maturities of less than one year), U.S. Treasuries, and foreign government securities
As it relates to TRACE-eligible securities, what does split-rated mean?
Securities are given an investment-grade rating from one rating organization and non-investment-grade from another.
True or False: An order-entry firm has 10 seconds to accept or reject a trade report submitted to FINRA.
False. The order-entry firm has 20 minutes to accept or reject a trade report submitted to FINRA.
What is the trade reporting system for OTC equities?
Over-the-Counter Reporting Facility (ORF)
True or False: In a step-out transaction, a clearing report, but not a trade report, is submitted.
True
True or False: If a give-up transaction is not reported appropriately, neither firm is responsible.
False. If reporting is not done appropriately, both firms are responsible.
True or False: Government bond trades are reported through TRACE.
True
True or False: TRF is used to execute trades in Nasdaq securities.
False. TRF is a reporting, not execution, system for Nasdaq securities.
Generally, TRACE reporting is required within ____ minutes of a trade.
Generally, TRACE reporting is required within 15 minutes of a trade.
True or False: Debt issued or guaranteed by a foreign government is TRACE-eligible.
False. Only debt issued or guaranteed by a U.S. Government agency or enterprise is TRACE-eligible.
The Nasdaq Market Center Execution System is an order display and execution system for what securities?
Nasdaq and CQS (third-market) securities
True or False: Executions may occur against a market maker’s displayed and reserve (undisplayed) size.
True
What two situations would require a trade to be reported to TRACE within 15 minutes of the next TRACE opening?
A trade occurs within 15 minutes of TRACE closing or a trade occurs when TRACE is not open.
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.
True or False: The Nasdaq Market Center Execution System allows market makers to post anonymous quotes.
True. These non-attributable quotes will show NSDQ as the market participant identifier (MPID).
What information is included in an OATS report?
The life of an order including receipt, routing, display, modification, cancellation, execution
A TRACE-eligible corporate bond trade occurs at 6:20 p.m. When is the trade required to be reported?
It may be reported within 15 minutes of TRACE opening on the next business day.
Is a net basis trade reported to FINRA as one or two transactions?
It is reported as two separate transactions.
What is required of U.S. and foreign corporate debt for it to be TRACE-eligible?
It must be registered with the SEC or purchased or sold under Rule 144A of the Securities Act of 1933.
What system is used for reporting corporate bond trades?
TRACE (Trade Reporting and Compliance Engine)
Define marketable limit order.
An order that may be immediately executed at the current inside market
When are trades in foreign securities excluded from the reporting requirement?
When executed on, and reported through, a foreign exchange or when executed OTC and reported to a foreign regulator
What type of orders are accepted by the Nasdaq Market Center Execution System?
The system accepts market and limit orders.
How often must OATS reports be submitted to FINRA?
Daily
What is TRF?
The Trade Reporting Facility. TRF reports trades in Nasdaq and Third Market securities.
True or False: CQS transactions must be reported within 10 seconds of completion.
True. CQS transactions must be reported within 10 seconds.
What is the trade reporting system for Nasdaq securities?
Trade Reporting Facility (TRF) - formerly the Automated Confirmation Transaction system (ACT)
Explain a step-out transaction.
An executing BD allocates all or part of a trade to another BD for clearing purposes.
Corporate bond trades are reported through TRACE within _____ minutes.
Corporate bond trades are reported through TRACE within 15 minutes. (TRACE then disseminates information in real time)
True or False: Trades executed through the Nasdaq Market Center Execution System do not have to be manually reported.
True. They are automatically reported by the system.
On a net basis trade, BD capacity is reported as __________ on the confirmation, but _______ is NOT disclosed.
On a net basis trade, BD capacity is reported as principal on the confirmation, but markup is NOT disclosed.
True or False: Money-market instruments are TRACE-eligible securities.
False
For a trade involving OTCBB securities, the __________ firm is responsible for reporting.
For a trade involving OTCBB securities, the executing firm is responsible for reporting.
To whom and when are ATS trades reported by TRACS?
To the TRF or ORF within 10 seconds of execution
What does it mean to indicate that Nasdaq Market Center Execution System trades are locked-in?
The terms have been agreed to by the parties, and the transaction is ready for clearance and settlement.
On a riskless principal trade, the _______ on the trade must be disclosed to the client.
On a riskless principal trade, the markup on the trade must be disclosed to the client.
Trades executed through an electronic system are reported _______________.
Trades executed through an electronic system are reported automatically.
True or False: TRACE disseminates information on debt securities sold under Rule 144A and transacted between two QIBs.
False. Although the trade information is reported to TRACE, it will not be disseminated.
What is TRACE?
The Trade Reporting and Compliance Engine. TRACE is a reporting system for corporate bonds.
True or False: In a step-out relationship, only a client’s complete position may be transferred to another BD.
False. All or part of a client’s trade may be transferred to another BD for clearing purposes.
In a trade between two market makers, who must report within 10 seconds?
The seller
True or False: Only a FINRA member involved in a trade with a nonmember is required to report it to TRACE.
True. The FINRA member reports the entire trade.
True or False: For trades negotiated manually (not electronically), reporting is done by the member firm.
False. Negotiated, manual executions are reported by the executing firm.
