FC Chapter 9 Flashcards
True or False: The ADF is an automated execution system.
False, the ADF is the Alternative Display Facility and does not provide an execution system.
May a DMM accept a not-held order?
No. Not-held orders are given to a Floor Broker.
Nasdaq Level III allows a market maker to ______ and _______ its quote.
Nasdaq Level III allows a market maker to enter and change its quote.
True or False: BDs may not enter proprietary orders through the Nasdaq Market Center Execution System.
False. Both agency and proprietary orders may be entered into the system.
Is this a not-held order? “Buy 5,000 shares of LNC sometime this week.”
No, because not-held orders are only effective for one day.
After 3:55 p.m., for what reason may MOC or LOC orders be entered?
A published imbalance on one side of the market
What is an ECN?
Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes
True or False: Quotes for OTCBB securities are always good for at least 100 shares.
False. Quote sizes vary based on the price of the security.
May a Designated Market Maker (DMM) accept a market order?
Yes; however, it must be immediately executed at the best current price.
True or False: If delisted from Nasdaq, issuers must meet the initial listing requirements to requalify.
True
Does this order require prior discretionary authorization? “Sell 300 shares of XYZ today if it starts to rise”
No, this is a not held order.
Define painting the tape.
Traders effecting transactions back and forth to create a misleading appearance of activity
In Nasdaq Level II, what does TotalView provide members?
Additional depth and aggregate size at the five best price levels
Once notified that its market making application is effective, when may a firm register for, and begin quoting, stocks?
On the same day
After what time may market- and limit-on-close orders no longer be cancelled (even for a legitimate error)?
3:58 p.m.
To satisfy best execution requirements for a non-Nasdaq OTC equity, BDs must obtain quotes from how many dealers?
A minimum of three BDs or all BBD that are quoting a price if there are less than three.
For an order to NOT be adjusted, it must be marked ________________.
For an order to NOT be adjusted, it must be marked Do Not Reduce (DNR).
Is this a not-held order? “Buy 500 shares of XYZ this morning if it looks good.”
Yes
What is a not held order?
An order giving agents discretion as to execution time/price. Clients must specify buy/sell, security, and quantity.
What exception allows a firm to quote a non-exchange stock without filing Form 211?
The piggyback exception. The exception is based on the stock having been subject to regular and continuous quotes.
How many dealers must an executing BD contact when determining a fair price for an OTC equity security?
A BD must contact a minimum of 3 dealers or all dealers if there are fewer than 3.
Before initiating quotes for a non-exchange security, a market maker must file __________.
Before initiating quotes for a non-exchange security, a market maker must file Form 211.
On the floor of the exchange, who executes orders for clients of the Floor Broker?
The Two Dollar Broker
True or False: The OTCBB is a part of Nasdaq.
False
True or False: Not-held orders may be entered by both retail and institutional clients.
True
What are the regular hours for the ADF Trading Center?
9:30 a.m. to 4:00 p.m. ET
When is the inside market displayed for an OTCBB security?
When at least two market makers publish two-sided quotes
Define the inside market.
The highest bid and lowest asked/offer price for a security
On the floor of the exchange, who trades for his own account?
The Competitive Trader
True or False: Issuers must pay a dividend to be listed on Nasdaq.
False
What’s the minimum bid price and number of market makers required to remain listed on Nasdaq Global and Capital Markets?
A minimum bid price of $1.00 with at least two market makers
True or False: Only companies whose stock is listed as Nasdaq Global Select are subject to corporate governance rules.
False. All companies whose stock is listed in the Nasdaq market are subject to corporate governance rules.
True or False: All NYSE members have the authority to stop stock.
False. Only a Designated Market Maker may stop stock.
True or False: ECNs allow subscribers to post quotes and trade electronically and anonymously.
True
Nasdaq market maker normal market hours are _____ a.m. to _____ p.m. ET.
Nasdaq market maker normal market hours are 9:30 a.m. to 4:00 p.m. ET.
True or False: An ATS (Alternative Trading System) is NOT required to register with the SEC.
False. Under Regulation ATS, an ATS is generally required to register as a BD.
What is the difference between National Market System (NMS) securities and OTC equities?
NMS securities are those listed on Nasdaq or other national exchanges, while OTC equities are not.
What does the following quote of a Nasdaq market maker indicate it is willing to do? 15.30 - 15.35, 6 x 10
Buy up to 600 shares at 15.30 or sell up to 1,000 shares at 15.35
True or False: The ADF is not an execution or reporting system.
True. The ADF is a display system.
What are the requirements for quoting on the OTCBB?
Issuers must file 10-Qs and 10-Ks, while market makers must file Form 211 (due diligence).
True or False: OTCBB quotes must be two-sided.
False, they could be one-sided, two-sided, or bid/offer wanted.
On the floor of the exchange, who executes orders for the clients of their firm?
The Floor Broker (also called the Commission House Broker)
To correct a legitimate error, market- and limit-on-close orders may be cancelled between _____ p.m. and _____ p.m.
To correct a legitimate error, market- and limit-on-close orders may be cancelled between 3:55 p.m. and 3:58 p.m.
True or False: Based on price, a different minimum size could apply to each side of a two-sided quote.
True
If a Nasdaq market maker publishes a firm quote, what is it obligated to do?
Buy or sell up to the size quoted at its stated bid or offer (minimum 100 shares)
On the OTCBB, quotes for what securities are not displayed/updated on a real-time basis?
DPPs, which may be quoted, but are updated only twice per day
To provide best execution, the _____________ lists the OTC equity quotes obtained from at least three market makers.
To provide best execution, the order ticket lists the OTC equity quotes obtained from at least three market makers.
Does this order require prior discretionary authorization? “Buy some ABC shares today if its price begins to fall.”
Yes. This is NOT a not held order since the client did not specify the quantity of shares to be purchased.
Explain the role of Nasdaq market makers.
To buy or sell at their publicly quoted prices, to trade from inventory, and to provide liquidity
When handling orders, the DMM must always give ________ orders priority over _______ orders.
When handling orders, the DMM must always give market orders priority over limit orders.
What does selling short mean?
Selling securities that are not owned, but are borrowed from a BD
True or False: Nasdaq market makers must provide two-sided quotes.
True, they must provide a bid and ask.
True or False: Large orders may not be split to enter them into the Nasdaq Market Center Execution System.
False. Large orders may be split to enter them into the system.
To qualify for the piggyback exception, a quote must have appeared on at least ____ of the last ____ days.
To qualify for the piggyback exception, a quote must have appeared on at least 12 of the last 30 days.
What securities are quoted on the OTCBB?
Certain OTC equities (including U.S. and foreign equities), warrants, ADRs, and DPPs (DPPs are not displayed real-time)
True or False: A BD maintaining an order-routing relationship with a market maker is a prohibited practice.
False
True or False: Securities quoted on the OTCBB and Pink Sheets are considered National Market System (NMS) securities.
False. NMS securities are those listed on Nasdaq or other national exchanges.
How long will a GTC Limit order remain on the Display Book?
Until executed or cancelled by the customer
Before initiating quotes for a stock quoted in the Pink Sheets, with whom must Form 211 be filed?
FINRA
True or False: Form 211 must be filed by all market makers in Nasdaq securities.
False. Form 211 is required for those initiating quotes in non-exchange (OTC) securities.
True or False: Form 211 must be filed by firms that intend to make markets in Nasdaq securities.
False. Form 211 is required for firms that intend to initiate quotes for non-exchange securities.
In order to NOT file Form 211, a quote for the stock must have appeared on at least ____ of the last ____ days.
In order to NOT file Form 211, a quote for a stock must have appeared on at least 12 of the last 30 days.
If an ECN is unable to match a subscriber’s order internally, it will most likely display the order on the ____.
If an ECN is unable to match a subscriber’s order internally, it will most likely display the order on the ADF.
True or False: Although Nasdaq market maker open hours are 9:30 a.m. to 4:00 p.m., extended trading hours are available.
True. However, specific risks are inherent in extended hours trading.
True or False: If delisted from Nasdaq, the security may no longer trade in any market.
False. A delisted Nasdaq security may begin trading on the OTCBB or in the Pink Sheets immediately.
What does Level III Nasdaq give market makers the ability to do?
Change their quotes
True or False: The ADF displays quotes for OTC equities.
False. The ADF displays quotes for Nasdaq and CQS securities.
For any reason, a MOC or LOC order on the NYSE may be cancelled up to _____ p.m.
For any reason, a MOC or LOC order on the NYSE may be cancelled up to 3:50 p.m.
Characterize the market for OTC equities.
Issues may be thinly-traded and prone to manipulation
Beyond bid price and market makers, list some other considerations for a stock to be able to list on a market platform?
Public float, round-lot shareholders, market cap, and revenues, but the NOT offering price
Does this order require prior discretionary authorization? “Buy 500 shares of DMB sometime today.”
No, this is a not held order. The customer specified the action (buy), the amount (500 shares), and the asset (DMB).
What different quotes are acceptable for the OTCBB?
Priced (firm) quotes (both one- and two-sided), unsolicited customer interest, and unpriced indications (BW/OW)
Name the member on the floor of the NYSE that was formerly referred to as the Specialist.
The Designated Market Maker (DMM)
If not a market maker, a Nasdaq member may have access to what level of Nasdaq to view quotes?
Level II
Prior to initiating quotes for an OTC equity, how many specific items about the issuer may be required?
16 items that must be reasonably current
What is the maximum size order that can be entered into the Nasdaq Market Center Execution System?
999,999 shares
Along with the stock’s price, what orders are reduced on the ex-dividend date?
Buy limit and sell stop orders
If a regulatory halt is imposed, market- and limit-on-close orders are __________.
If a regulatory halt is imposed, market- and limit-on-close orders are cancelled.
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?
Since both orders are discretionary, written authorization is required prior to entry.
If a market maker decides to raise its bid, on what Nasdaq level does this occur?
Level III
Not held orders may be placed by both ________ and _______________ customers.
Not held order may be placed by both retail and institutional customers.
After 3:55 p.m., if a published imbalance exists on the buy side, may MOC or LOC orders be entered?
Yes, but only on the contra side of the imbalance–in this case, the sell side.
What is the Nasdaq Market Center Execution System?
The automated quotation and execution system for Nasdaq
In the OTCBB, for the inside market to be displayed, at least ____ market makers must display ____-sided quotes.
In the OTCBB, for the inside market to be displayed, at least two market makers must display two-sided quotes.
If at least two market makers publish two-sided quotes, on what will the security’s inside market be based?
Any priced quotes in the system (both one- and two-sided)
True or False: If executed, MOC orders receive the closing price.
True
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.
What type of order only permits discretion related to the time and/or price of execution?
A not-held order
Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past ____ days.
Filing Form 211 is not required if stock has been the subject of regular and continuous quotes for the past 30 days.
What is an ATS (Alternative Trading System)?
An SEC-approved, non-exchange electronic trading system designed to match the buy and sell orders of its subscribers
What are the normal business hours for the OTCBB?
9:30 a.m. to 4:00 p.m. ET
The CQS is the _______________________________.
The CQS is the Consolidated Quotation System.
What is the ADF?
The Alternative Display Facility; ECNs use it to display orders rather than the Nasdaq Market Center Execution System
Form 211 must be filed at least ______ business days prior to initiating quotes for an OTCBB security.
Form 211 must be filed at least three business days prior to initiating quotes for an OTCBB security.
A customer market order receives __________ execution.
A customer market order receives immediate execution.
In order to complete Form 211 prior to quoting a stock, where may the issuer information be obtained?
From the issuer’s current prospectus or offering circular, or its most current 10-K and subsequent 10-Q and 8-K Forms
Are exchanges considered auction markets or negotiated markets?
Auction markets
The NBBO or National Best Bid and Offer is also referred to as the _________ market.
The NBBO or National Best Bid and Offer is also referred to as the inside market.
The third market is the term used to describe ____ and ____ listed securities trading ________________.
The third market is the term used to describe NYSE and AMEX listed securities trading over-the-counter.
Is this a not-held order? “Sell some of my RST position today if the news is bad.”
No, because the client did not specify the number of shares to sell.
What orders may be placed in the Designated Market Maker’s (Specialist’s) Book?
Stop and limit orders placed away-from-the-market
As it applies to the piggyback exception, what does regular and continuous quoting imply?
A quote has appeared on at least 12 of the last 30 days with no more than four business days elapsing without a quote
By what time are market- or limit-on-close (MOC or LOC) orders required to be entered?
3:55 p.m.
Does Nasdaq allow firms to display quotes and report transactions using multiple Market Participant Identifiers (MPIDs)?
Yes, provided the resulting trades use the same MPID that was used to display the quote.
True or False: The Nasdaq Level I display function identifies all market makers at the inside market.
False. The Nasdaq Level I display does not identify the market maker.
During normal OTCBB business hours, how are priced quotes treated?
Priced quotes are firm for a size that varies based on the security’s price.
At least ______ business days prior to quoting an OTCBB security, a market maker must file Form 211.
At least three business days prior to quoting an OTCBB security, a market maker must file Form 211.
What is the initial bid price requirement for a stock listed on any level of Nasdaq?
$4.00
List some examples of an Alternative Trading System (ATS).
Electronic Communication Networks (ECNs), trade crossing networks, and a firm’s internal execution system
What are the Pink Sheets?
A real-time electronic quotation system for OTC equities
Which level of Nasdaq will only show the inside market for a security?
Level I
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.
What is the process by which an existing Nasdaq market maker registers to make a market in specific stocks?
The firm registers for specific stocks through its terminal and may begin quoting on the same day.
True or False: LOC orders are to be executed at the close only if that price is at or better than the set limit.
True
What are the system hours of operation for the ADF?
8:00 a.m. to 6:30 p.m. ET
According to the Piggyback Exception, when is the filing of Form 211 not required?
When the stock has been quoted on a regular and continuous basis for the past 30 days
What can be found on Level II Nasdaq?
Current quotes of all market makers for a specific security
When providing a firm quote for a Nasdaq stock, the minimum size is ______ shares.
When providing a firm quote for a Nasdaq stock, the minimum size is 100 shares.
True or False: Pink Sheets equities have listing requirements.
False
How are priced quotes treated when entered in the Pink Sheets?
As firm quotes for a size that varies based on the security’s price
A not-held order gives a floor broker the discretion to determine the best _____ and/or ______ of execution.
A not-held order gives a floor broker the discretion to determine the best time and/or price of execution.
What is the role of the Designated Market Maker (DMM)?
Provide a two-sided quote, provide liquidity, and maintain an orderly market
True or False: The normal hours of operation for the CQS are from 8:00 a.m. to 8:00 p.m.
True
Are priced quotes for Pink Sheets securities always firm for 100 shares?
No. Priced quotes are firm for a size that varies based on the security’s price.
How is an away-from-the-market order handled by the Designated Market Maker (DMM)?
The DMM enters it into its order book according to the priorities of price/time/size.
Which orders may be entered as either good ‘til cancel (GTC) or as day orders?
Limit and stop orders
If the difference between the bid and ask narrows, is this a sign of a liquid or an illiquid market?
Narrow spreads are a sign of a liquid market.
If a security is delisted from Nasdaq, when may it begin trading on the OTCBB or in the Pink Sheets?
Immediately
What does UTP mean?
Unlisted Trading Privileges, which allows an exchange to trade securities not listed on that exchange.
A market maker’s registration ceases if no quote is made within _____ business days.
A market maker’s registration ceases if no quote is made within five business days.
Where can you find quotes for stocks not listed on an exchange or Nasdaq?
The OTCBB and Pink Sheets
Not held orders are considered to be in effect for _____ trading day(s).
Not held orders are considered to be in effect for one trading day.
After the initial requirement is met, what bid price is required to continue to be listed on any level of Nasdaq?
$1.00
True or False: All quotes on the OTCBB must be two-sided.
False. Quotes may be both one- and two-sided.
When an order for an unlisted, OTC equity security is received, firms must obtain quotes from at least _______ dealers.
When an order for an unlisted, OTC equity security is received, firms must obtain quotes from at least three dealers.
Nasdaq system hours are _____ a.m. to _____ p.m. ET.
Nasdaq system hours are 4:00 a.m. to 8:00 p.m. ET.
Before initiating quotes for a non-exchange stock, what is the member firm’s responsibility?
The quoting firm must collect and review certain information about the issuer (i.e. complete Form 211).
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?
With no size indicated, the quote represents a willingness to buy 100 shares at its bid or sell 100 shares at its offer.
What is the OTCBB?
The Over-the-Counter Bulletin Board – provides electronic quotes for non-Nasdaq (OTC equity) stocks
Prior to initiating quotes for an OTC equity, with whom must the information collected about the issuer be filed?
FINRA
What is the minimum bid price and number of market makers needed to qualify for listing on the Nasdaq Capital Market?
A minimum bid price of $4.00 with at least three market makers
Securities quoted through the CQS are _________ securities trading over-the-counter.
Securities reported through the CQS are listed securities trading over-the-counter.
True or False: Securities listed on the AMEX and/or regional exchanges may also be quoted on the CQS.
True
May a Designated Market Maker (DMM) hold a market order in its order book?
No. Market orders must be immediately executed the best current price.
True or False: The CQS consolidates quotes for NYSE-listed and Nasdaq equities.
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.
After 3:55 p.m., a _______-share imbalance must exist to allow for entry of MOC or LOC orders on the contra side.
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.
What securities are quoted on the CQS?
Common and preferred stock, convertible bonds, warrants, and rights
Before initiating quotes for a non-exchange security, a market maker must file _________.
Before initiating quotes for a non-exchange security, a market maker must file Form 211.
Before initiating quotes for a non-exchange stock, where may required information be obtained about the issuer?
The issuer’s current prospectus or offering circular, or its current Form 10-K and all subsequent 10-Q and 8-K Forms
The inside market is the _________ bid and the ________ ask.
The inside market is the highest bid and the lowest ask.
Are quotes on the OTCBB firm?
Yes (except for DPPs)
What is the minimum quote size for a Nasdaq market maker?
100 shares or one round lot
Market participants who publish quotes on the ADF can report the trades through what reporting system?
The Trade Reporting and Comparison Service (TRACS)
True or False: A Designated Market Maker must display its quotes on the Nasdaq Market Center Execution System.
False. A DMM conducts its business on the floor of the NYSE.
A client enters an MOC order. What happens to the order if the market closes early due to extreme market conditions?
The order is cancelled and the client is notified.
If the difference between the bid and ask widens, is this a sign of a liquid or an illiquid market?
Wide spreads are a sign of an illiquid market.
As it applies in the Piggyback Exception, what is considered regular and continuous quoting?
A quote has appeared on at least 12 of the last 30 days with no more than four business days elapsing without a quote.
What is the system that provides quotes for the Third Market?
Consolidated Quotation System (CQS)
True or False: Like Nasdaq and the OTCBB, Pink Sheets issuers must file financial reports with the SEC.
False. Pink Sheets issuers are not required to file financial reports.
How long will a Day Limit order remain on the Display Book?
Until executed or the end of the day (if unexecuted)
OTCBB system operation hours are _____ a.m. to _____ p.m. ET.
OTCBB system operation hours are 8:00 a.m. to 8:00 p.m. ET.
In order to NOT file Form 211, no more than _____ business days may have elapsed without a quote for the stock.
In order to NOT file Form 211, no more than four business days may have elapsed without a quote for the stock.
True or False: Market makers and ECNs must display their quotes on the Nasdaq Market Center Execution System.
False. Market participants may display their quotes on the ADF.
What is the NBBO?
The National Best Bid and Offer, also considered the inside market
Before initiating quotes for an OTC equity, what is the quoting firm’s responsibility?
To collect, review, and ultimately submit certain information about the issuer to FINRA
How many specific items about an issuer must a member firm collect and submit to FINRA prior to quoting the stock?
16 specific items that are reasonably current
True or False: Level III Nasdaq is available to the public.
False. Level III is exclusively for market makers.
What is the CQS?
The Consolidated Quotation System; provides quotes for NYSE and AMEX listed securities, including third-market quotes
