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Series 24 Group Share > FC Chapter 9 > Flashcards

FC Chapter 9 Flashcards

1
Q

True or False: The ADF is an automated execution system.

A

False, the ADF is the Alternative Display Facility and does not provide an execution system.

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2
Q

May a DMM accept a not-held order?

A

No. Not-held orders are given to a Floor Broker.

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3
Q

Nasdaq Level III allows a market maker to ______ and _______ its quote.

A

Nasdaq Level III allows a market maker to enter and change its quote.

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4
Q

True or False: BDs may not enter proprietary orders through the Nasdaq Market Center Execution System.

A

False. Both agency and proprietary orders may be entered into the system.

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5
Q

Is this a not-held order? “Buy 5,000 shares of LNC sometime this week.”

A

No, because not-held orders are only effective for one day.

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6
Q

After 3:55 p.m., for what reason may MOC or LOC orders be entered?

A

A published imbalance on one side of the market

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7
Q

What is an ECN?

A

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

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8
Q

True or False: Quotes for OTCBB securities are always good for at least 100 shares.

A

False. Quote sizes vary based on the price of the security.

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9
Q

May a Designated Market Maker (DMM) accept a market order?

A

Yes; however, it must be immediately executed at the best current price.

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10
Q

True or False: If delisted from Nasdaq, issuers must meet the initial listing requirements to requalify.

A

True

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11
Q

Does this order require prior discretionary authorization? “Sell 300 shares of XYZ today if it starts to rise”

A

No, this is a not held order.

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12
Q

Define painting the tape.

A

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

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13
Q

In Nasdaq Level II, what does TotalView provide members?

A

Additional depth and aggregate size at the five best price levels

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14
Q

Once notified that its market making application is effective, when may a firm register for, and begin quoting, stocks?

A

On the same day

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15
Q

After what time may market- and limit-on-close orders no longer be cancelled (even for a legitimate error)?

A

3:58 p.m.

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16
Q

To satisfy best execution requirements for a non-Nasdaq OTC equity, BDs must obtain quotes from how many dealers?

A

A minimum of three BDs or all BBD that are quoting a price if there are less than three.

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17
Q

For an order to NOT be adjusted, it must be marked ________________.

A

For an order to NOT be adjusted, it must be marked Do Not Reduce (DNR).

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18
Q

Is this a not-held order? “Buy 500 shares of XYZ this morning if it looks good.”

A

Yes

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19
Q

What is a not held order?

A

An order giving agents discretion as to execution time/price. Clients must specify buy/sell, security, and quantity.

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20
Q

What exception allows a firm to quote a non-exchange stock without filing Form 211?

A

The piggyback exception. The exception is based on the stock having been subject to regular and continuous quotes.

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21
Q

How many dealers must an executing BD contact when determining a fair price for an OTC equity security?

A

A BD must contact a minimum of 3 dealers or all dealers if there are fewer than 3.

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22
Q

Before initiating quotes for a non-exchange security, a market maker must file __________.

A

Before initiating quotes for a non-exchange security, a market maker must file Form 211.

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23
Q

On the floor of the exchange, who executes orders for clients of the Floor Broker?

A

The Two Dollar Broker

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24
Q

True or False: The OTCBB is a part of Nasdaq.

A

False

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25
Q

True or False: Not-held orders may be entered by both retail and institutional clients.

A

True

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26
Q

What are the regular hours for the ADF Trading Center?

A

9:30 a.m. to 4:00 p.m. ET

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27
Q

When is the inside market displayed for an OTCBB security?

A

When at least two market makers publish two-sided quotes

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28
Q

Define the inside market.

A

The highest bid and lowest asked/offer price for a security

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29
Q

On the floor of the exchange, who trades for his own account?

A

The Competitive Trader

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30
Q

True or False: Issuers must pay a dividend to be listed on Nasdaq.

A

False

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31
Q

What’s the minimum bid price and number of market makers required to remain listed on Nasdaq Global and Capital Markets?

A

A minimum bid price of $1.00 with at least two market makers

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32
Q

True or False: Only companies whose stock is listed as Nasdaq Global Select are subject to corporate governance rules.

A

False. All companies whose stock is listed in the Nasdaq market are subject to corporate governance rules.

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33
Q

True or False: All NYSE members have the authority to stop stock.

A

False. Only a Designated Market Maker may stop stock.

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34
Q

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

A

True

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35
Q

Nasdaq market maker normal market hours are _____ a.m. to _____ p.m. ET.

A

Nasdaq market maker normal market hours are 9:30 a.m. to 4:00 p.m. ET.

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36
Q

True or False: An ATS (Alternative Trading System) is NOT required to register with the SEC.

A

False. Under Regulation ATS, an ATS is generally required to register as a BD.

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37
Q

What is the difference between National Market System (NMS) securities and OTC equities?

A

NMS securities are those listed on Nasdaq or other national exchanges, while OTC equities are not.

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38
Q

What does the following quote of a Nasdaq market maker indicate it is willing to do? 15.30 - 15.35, 6 x 10

A

Buy up to 600 shares at 15.30 or sell up to 1,000 shares at 15.35

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39
Q

True or False: The ADF is not an execution or reporting system.

A

True. The ADF is a display system.

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40
Q

What are the requirements for quoting on the OTCBB?

A

Issuers must file 10-Qs and 10-Ks, while market makers must file Form 211 (due diligence).

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41
Q

True or False: OTCBB quotes must be two-sided.

A

False, they could be one-sided, two-sided, or bid/offer wanted.

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42
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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43
Q

To correct a legitimate error, market- and limit-on-close orders may be cancelled between _____ p.m. and _____ p.m.

A

To correct a legitimate error, market- and limit-on-close orders may be cancelled between 3:55 p.m. and 3:58 p.m.

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44
Q

True or False: Based on price, a different minimum size could apply to each side of a two-sided quote.

A

True

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45
Q

If a Nasdaq market maker publishes a firm quote, what is it obligated to do?

A

Buy or sell up to the size quoted at its stated bid or offer (minimum 100 shares)

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46
Q

On the OTCBB, quotes for what securities are not displayed/updated on a real-time basis?

A

DPPs, which may be quoted, but are updated only twice per day

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47
Q

To provide best execution, the _____________ lists the OTC equity quotes obtained from at least three market makers.

A

To provide best execution, the order ticket lists the OTC equity quotes obtained from at least three market makers.

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48
Q

Does this order require prior discretionary authorization? “Buy some ABC shares today if its price begins to fall.”

A

Yes. This is NOT a not held order since the client did not specify the quantity of shares to be purchased.

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49
Q

Explain the role of Nasdaq market makers.

A

To buy or sell at their publicly quoted prices, to trade from inventory, and to provide liquidity

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50
Q

When handling orders, the DMM must always give ________ orders priority over _______ orders.

A

When handling orders, the DMM must always give market orders priority over limit orders.

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51
Q

What does selling short mean?

A

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

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52
Q

True or False: Nasdaq market makers must provide two-sided quotes.

A

True, they must provide a bid and ask.

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53
Q

True or False: Large orders may not be split to enter them into the Nasdaq Market Center Execution System.

A

False. Large orders may be split to enter them into the system.

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54
Q

To qualify for the piggyback exception, a quote must have appeared on at least ____ of the last ____ days.

A

To qualify for the piggyback exception, a quote must have appeared on at least 12 of the last 30 days.

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55
Q

What securities are quoted on the OTCBB?

A

Certain OTC equities (including U.S. and foreign equities), warrants, ADRs, and DPPs (DPPs are not displayed real-time)

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56
Q

True or False: A BD maintaining an order-routing relationship with a market maker is a prohibited practice.

A

False

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57
Q

True or False: Securities quoted on the OTCBB and Pink Sheets are considered National Market System (NMS) securities.

A

False. NMS securities are those listed on Nasdaq or other national exchanges.

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58
Q

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

A

Until executed or cancelled by the customer

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59
Q

Before initiating quotes for a stock quoted in the Pink Sheets, with whom must Form 211 be filed?

A

FINRA

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60
Q

True or False: Form 211 must be filed by all market makers in Nasdaq securities.

A

False. Form 211 is required for those initiating quotes in non-exchange (OTC) securities.

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61
Q

True or False: Form 211 must be filed by firms that intend to make markets in Nasdaq securities.

A

False. Form 211 is required for firms that intend to initiate quotes for non-exchange securities.

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62
Q

In order to NOT file Form 211, a quote for the stock must have appeared on at least ____ of the last ____ days.

A

In order to NOT file Form 211, a quote for a stock must have appeared on at least 12 of the last 30 days.

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63
Q

If an ECN is unable to match a subscriber’s order internally, it will most likely display the order on the ____.

A

If an ECN is unable to match a subscriber’s order internally, it will most likely display the order on the ADF.

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64
Q

True or False: Although Nasdaq market maker open hours are 9:30 a.m. to 4:00 p.m., extended trading hours are available.

A

True. However, specific risks are inherent in extended hours trading.

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65
Q

True or False: If delisted from Nasdaq, the security may no longer trade in any market.

A

False. A delisted Nasdaq security may begin trading on the OTCBB or in the Pink Sheets immediately.

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66
Q

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

A

Change their quotes

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67
Q

True or False: The ADF displays quotes for OTC equities.

A

False. The ADF displays quotes for Nasdaq and CQS securities.

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68
Q

For any reason, a MOC or LOC order on the NYSE may be cancelled up to _____ p.m.

A

For any reason, a MOC or LOC order on the NYSE may be cancelled up to 3:50 p.m.

69
Q

Characterize the market for OTC equities.

A

Issues may be thinly-traded and prone to manipulation

70
Q

Beyond bid price and market makers, list some other considerations for a stock to be able to list on a market platform?

A

Public float, round-lot shareholders, market cap, and revenues, but the NOT offering price

71
Q

Does this order require prior discretionary authorization? “Buy 500 shares of DMB sometime today.”

A

No, this is a not held order. The customer specified the action (buy), the amount (500 shares), and the asset (DMB).

72
Q

What different quotes are acceptable for the OTCBB?

A

Priced (firm) quotes (both one- and two-sided), unsolicited customer interest, and unpriced indications (BW/OW)

73
Q

Name the member on the floor of the NYSE that was formerly referred to as the Specialist.

A

The Designated Market Maker (DMM)

74
Q

If not a market maker, a Nasdaq member may have access to what level of Nasdaq to view quotes?

A

Level II

75
Q

Prior to initiating quotes for an OTC equity, how many specific items about the issuer may be required?

A

16 items that must be reasonably current

76
Q

What is the maximum size order that can be entered into the Nasdaq Market Center Execution System?

A

999,999 shares

77
Q

Along with the stock’s price, what orders are reduced on the ex-dividend date?

A

Buy limit and sell stop orders

78
Q

If a regulatory halt is imposed, market- and limit-on-close orders are __________.

A

If a regulatory halt is imposed, market- and limit-on-close orders are cancelled.

79
Q

A client says, “Sell my 700 shares of ABC later this week and use the funds to buy any stock you like.” What’s required?

A

Since both orders are discretionary, written authorization is required prior to entry.

80
Q

If a market maker decides to raise its bid, on what Nasdaq level does this occur?

A

Level III

81
Q

Not held orders may be placed by both ________ and _______________ customers.

A

Not held order may be placed by both retail and institutional customers.

82
Q

After 3:55 p.m., if a published imbalance exists on the buy side, may MOC or LOC orders be entered?

A

Yes, but only on the contra side of the imbalance–in this case, the sell side.

83
Q

What is the Nasdaq Market Center Execution System?

A

The automated quotation and execution system for Nasdaq

84
Q

In the OTCBB, for the inside market to be displayed, at least ____ market makers must display ____-sided quotes.

A

In the OTCBB, for the inside market to be displayed, at least two market makers must display two-sided quotes.

85
Q

If at least two market makers publish two-sided quotes, on what will the security’s inside market be based?

A

Any priced quotes in the system (both one- and two-sided)

86
Q

True or False: If executed, MOC orders receive the closing price.

A

True

87
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.

88
Q

What type of order only permits discretion related to the time and/or price of execution?

A

A not-held order

89
Q

Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past ____ days.

A

Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past 30 days.

90
Q

What is an ATS (Alternative Trading System)?

A

An SEC-approved, non-exchange electronic trading system designed to match the buy and sell orders of its subscribers

91
Q

What are the normal business hours for the OTCBB?

A

9:30 a.m. to 4:00 p.m. ET

92
Q

The CQS is the _______________________________.

A

The CQS is the Consolidated Quotation System.

93
Q

What is the ADF?

A

The Alternative Display Facility; ECNs use it to display orders rather than the Nasdaq Market Center Execution System

94
Q

Form 211 must be filed at least ______ business days prior to initiating quotes for an OTCBB security.

A

Form 211 must be filed at least three business days prior to initiating quotes for an OTCBB security.

95
Q

A customer market order receives __________ execution.

A

A customer market order receives immediate execution.

96
Q

In order to complete Form 211 prior to quoting a stock, where may the issuer information be obtained?

A

From the issuer’s current prospectus or offering circular, or its most current 10-K and subsequent 10-Q and 8-K Forms

97
Q

Are exchanges considered auction markets or negotiated markets?

A

Auction markets

98
Q

The NBBO or National Best Bid and Offer is also referred to as the _________ market.

A

The NBBO or National Best Bid and Offer is also referred to as the inside market.

99
Q

The third market is the term used to describe ____ and ____ listed securities trading ________________.

A

The third market is the term used to describe NYSE and AMEX listed securities trading over-the-counter.

100
Q

Is this a not-held order? “Sell some of my RST position today if the news is bad.”

A

No, because the client did not specify the number of shares to sell.

101
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

102
Q

As it applies to the piggyback exception, what does regular and continuous quoting imply?

A

A quote has appeared on at least 12 of the last 30 days with no more than four business days elapsing without a quote

103
Q

By what time are market- or limit-on-close (MOC or LOC) orders required to be entered?

A

3:55 p.m.

104
Q

Does Nasdaq allow firms to display quotes and report transactions using multiple Market Participant Identifiers (MPIDs)?

A

Yes, provided the resulting trades use the same MPID that was used to display the quote.

105
Q

True or False: The Nasdaq Level I display function identifies all market makers at the inside market.

A

False. The Nasdaq Level I display does not identify the market maker.

106
Q

During normal OTCBB business hours, how are priced quotes treated?

A

Priced quotes are firm for a size that varies based on the security’s price.

107
Q

At least ______ business days prior to quoting an OTCBB security, a market maker must file Form 211.

A

At least three business days prior to quoting an OTCBB security, a market maker must file Form 211.

108
Q

What is the initial bid price requirement for a stock listed on any level of Nasdaq?

A

$4.00

109
Q

List some examples of an Alternative Trading System (ATS).

A

Electronic Communication Networks (ECNs), trade crossing networks, and a firm’s internal execution system

110
Q

What are the Pink Sheets?

A

A real-time electronic quotation system for OTC equities

111
Q

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

A

Level I

112
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.

113
Q

What is the process by which an existing Nasdaq market maker registers to make a market in specific stocks?

A

The firm registers for specific stocks through its terminal and may begin quoting on the same day.

114
Q

True or False: LOC orders are to be executed at the close only if that price is at or better than the set limit.

A

True

115
Q

What are the system hours of operation for the ADF?

A

8:00 a.m. to 6:30 p.m. ET

116
Q

According to the Piggyback Exception, when is the filing of Form 211 not required?

A

When the stock has been quoted on a regular and continuous basis for the past 30 days

117
Q

What can be found on Level II Nasdaq?

A

Current quotes of all market makers for a specific security

118
Q

When providing a firm quote for a Nasdaq stock, the minimum size is ______ shares.

A

When providing a firm quote for a Nasdaq stock, the minimum size is 100 shares.

119
Q

True or False: Pink Sheets equities have listing requirements.

A

False

120
Q

How are priced quotes treated when entered in the Pink Sheets?

A

As firm quotes for a size that varies based on the security’s price

121
Q

A not-held order gives a floor broker the discretion to determine the best _____ and/or ______ of execution.

A

A not-held order gives a floor broker the discretion to determine the best time and/or price of execution.

122
Q

What is the role of the Designated Market Maker (DMM)?

A

Provide a two-sided quote, provide liquidity, and maintain an orderly market

123
Q

True or False: The normal hours of operation for the CQS are from 8:00 a.m. to 8:00 p.m.

A

True

124
Q

Are priced quotes for Pink Sheets securities always firm for 100 shares?

A

No. Priced quotes are firm for a size that varies based on the security’s price.

125
Q

How is an away-from-the-market order handled by the Designated Market Maker (DMM)?

A

The DMM enters it into its order book according to the priorities of price/time/size.

126
Q

Which orders may be entered as either good ‘til cancel (GTC) or as day orders?

A

Limit and stop orders

127
Q

If the difference between the bid and ask narrows, is this a sign of a liquid or an illiquid market?

A

Narrow spreads are a sign of a liquid market.

128
Q

If a security is delisted from Nasdaq, when may it begin trading on the OTCBB or in the Pink Sheets?

A

Immediately

129
Q

What does UTP mean?

A

Unlisted Trading Privileges, which allows an exchange to trade securities not listed on that exchange.

130
Q

A market maker’s registration ceases if no quote is made within _____ business days.

A

A market maker’s registration ceases if no quote is made within five business days.

131
Q

Where can you find quotes for stocks not listed on an exchange or Nasdaq?

A

The OTCBB and Pink Sheets

132
Q

Not held orders are considered to be in effect for _____ trading day(s).

A

Not held orders are considered to be in effect for one trading day.

133
Q

After the initial requirement is met, what bid price is required to continue to be listed on any level of Nasdaq?

A

$1.00

134
Q

True or False: All quotes on the OTCBB must be two-sided.

A

False. Quotes may be both one- and two-sided.

135
Q

When an order for an unlisted, OTC equity security is received, firms must obtain quotes from at least _______ dealers.

A

When an order for an unlisted, OTC equity security is received, firms must obtain quotes from at least three dealers.

136
Q

Nasdaq system hours are _____ a.m. to _____ p.m. ET.

A

Nasdaq system hours are 4:00 a.m. to 8:00 p.m. ET.

137
Q

Before initiating quotes for a non-exchange stock, what is the member firm’s responsibility?

A

The quoting firm must collect and review certain information about the issuer (i.e. complete Form 211).

138
Q

A market maker is quoting a stock at 22.25 - 25.30. If it receives an order to buy 300 shares, what must it sell?

A

With no size indicated, the quote represents a willingness to buy 100 shares at its bid or sell 100 shares at its offer.

139
Q

What is the OTCBB?

A

The Over-the-Counter Bulletin Board – provides electronic quotes for non-Nasdaq (OTC equity) stocks

140
Q

Prior to initiating quotes for an OTC equity, with whom must the information collected about the issuer be filed?

A

FINRA

141
Q

What is the minimum bid price and number of market makers needed to qualify for listing on the Nasdaq Capital Market?

A

A minimum bid price of $4.00 with at least three market makers

142
Q

Securities quoted through the CQS are _________ securities trading over-the-counter.

A

Securities reported through the CQS are listed securities trading over-the-counter.

143
Q

True or False: Securities listed on the AMEX and/or regional exchanges may also be quoted on the CQS.

A

True

144
Q

May a Designated Market Maker (DMM) hold a market order in its order book?

A

No. Market orders must be immediately executed the best current price.

145
Q

True or False: The CQS consolidates quotes for NYSE-listed and Nasdaq equities.

A

True or False: The CQS consolidates quotes for NYSE-listed and Nasdaq equities.False. The CQS does NOT provide quotes for Nasdaq or OTC equities.

146
Q

After 3:55 p.m., a _______-share imbalance must exist to allow for entry of MOC or LOC orders on the contra side.

A

After 3:55 p.m., a 50,000-share imbalance must exist to allow for entry of MOC or LOC orders on the contra side.

147
Q

What securities are quoted on the CQS?

A

Common and preferred stock, convertible bonds, warrants, and rights

148
Q

Before initiating quotes for a non-exchange security, a market maker must file _________.

A

Before initiating quotes for a non-exchange security, a market maker must file Form 211.

149
Q

Before initiating quotes for a non-exchange stock, where may required information be obtained about the issuer?

A

The issuer’s current prospectus or offering circular, or its current Form 10-K and all subsequent 10-Q and 8-K Forms

150
Q

The inside market is the _________ bid and the ________ ask.

A

The inside market is the highest bid and the lowest ask.

151
Q

Are quotes on the OTCBB firm?

A

Yes (except for DPPs)

152
Q

What is the minimum quote size for a Nasdaq market maker?

A

100 shares or one round lot

153
Q

Market participants who publish quotes on the ADF can report the trades through what reporting system?

A

The Trade Reporting and Comparison Service (TRACS)

154
Q

True or False: A Designated Market Maker must display its quotes on the Nasdaq Market Center Execution System.

A

False. A DMM conducts its business on the floor of the NYSE.

155
Q

A client enters an MOC order. What happens to the order if the market closes early due to extreme market conditions?

A

The order is cancelled and the client is notified.

156
Q

If the difference between the bid and ask widens, is this a sign of a liquid or an illiquid market?

A

Wide spreads are a sign of an illiquid market.

157
Q

As it applies in the Piggyback Exception, what is considered regular and continuous quoting?

A

A quote has appeared on at least 12 of the last 30 days with no more than four business days elapsing without a quote.

158
Q

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

A

Consolidated Quotation System (CQS)

159
Q

True or False: Like Nasdaq and the OTCBB, Pink Sheets issuers must file financial reports with the SEC.

A

False. Pink Sheets issuers are not required to file financial reports.

160
Q

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

A

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

161
Q

OTCBB system operation hours are _____ a.m. to _____ p.m. ET.

A

OTCBB system operation hours are 8:00 a.m. to 8:00 p.m. ET.

162
Q

In order to NOT file Form 211, no more than _____ business days may have elapsed without a quote for the stock.

A

In order to NOT file Form 211, no more than four business days may have elapsed without a quote for the stock.

163
Q

True or False: Market makers and ECNs must display their quotes on the Nasdaq Market Center Execution System.

A

False. Market participants may display their quotes on the ADF.

164
Q

What is the NBBO?

A

The National Best Bid and Offer, also considered the inside market

165
Q

Before initiating quotes for an OTC equity, what is the quoting firm’s responsibility?

A

To collect, review, and ultimately submit certain information about the issuer to FINRA

166
Q

How many specific items about an issuer must a member firm collect and submit to FINRA prior to quoting the stock?

A

16 specific items that are reasonably current

167
Q

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

A

False. Level III is exclusively for market makers.

168
Q

What is the CQS?

A

The Consolidated Quotation System; provides quotes for NYSE and AMEX listed securities, including third-market quotes

Series 24 Group Share (42 decks)

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