NASDAQ/OTC Market

Question 1

When was NASDAQ recognized as an exchange?

Answer 1

2006/2007

Question 2

What makes an OTC stock an OTC stock

Answer 2

It cannot meet NSDQ standards and are quoted in display facilities

Question 3

What items do not ever trade on the NSDQ?

Answer 3

Mutual funds and limited partnerships

Question 4

What 2 items make up the OTC equity markets?

Answer 4

OTCBB and Pink sheet

Question 5

What are the 2 subdivisions of NASDAQ?

Answer 5

1. Global Market (NGM) - upper tier of the NSDQ (3,000 stocks)
2. Capital Market - lower tier (500 stocks)

Question 6

What time is the NSDQ open?

Answer 6

Same as NYSE - 9:30 - 4:00 ET

Question 7

What are the 2 levels of the NSDQ system?

Answer 7

Level I - Summary of market intended for reps

Level II - Lists all market makers and their quotes

Question 8

What is the inside market of NSDQ level I?

Answer 8

Defined by the highest bid and the lowest ask

Question 9

How do brokers earn their income?

Answer 9

By Commission

Question 10

How do dealers earn their income?

Answer 10

By mark ups

Question 11

Summarize the disclosure for mark ups and commissions on NASDAQ and non-NASDAQ stocks:

Answer 11

• OTC and Exchange trades - commission disclosed
• OTC principal in NSDQ - commission disclosed
• NASDAQ Markets - markup always disclosed
• Non NASDAQ markets - markup not disclosed

Question 12

Can the NASDAQ system accept odd lots?

Answer 12

Yes

Question 13

What does the NSDQ require market makers have during regular market hours?

Answer 13

A 2 sided bid-ask quote

Question 14

Does the NSDQ accept stop orders?

Answer 14

NO

Question 15

What is OATS?

Answer 15

Order Trail Audit System: captures flow of order information for NASDAQ securities. Reporting member must record the details of the order in OATS as to immediate receipt

Question 16

What is ACT?

Answer 16

Automated Confirmation Transaction Service: Provides reporting and dissemination of LAST SALE INFO on all equity and equity related issues

Question 17

What party of a trade reports to ACT?

Answer 17

Only the executing member. Once reported, it is reviewed by the contra-party to accept/decline within 20 MINUTES

Question 18

What is a Firm quote?

Answer 18

Means the dealer will honor the quote

Question 19

What is an unfirm quote?

Answer 19

Subject to negotiation

Question 20

What is a bids wanted (BW)?

Answer 20

Dealer wants to SELL a position and is looking for a BIDDER

Question 21

What is an offer wanted (OW)?

Answer 21

Dealer wanting to BUY a position and is looking for an OFFER

Question 22

What is a subject quote?

Answer 22

Subject to confirmation. Approximate and can be changed

Question 23

What is a nominal quote?

Answer 23

Not really a quote. A dealer’s guess at a price. Not actually willing to trade

Question 24

What is a workout quote?

Answer 24

Approximate quote. The dealer has to work out the price at which she will trade

Question 25

What is a principal transaction?

Answer 25

It is the taking of long or short positions for the dealers inventory

Question 26

What do principal transactions consist of?

Answer 26

• Position trading
• Riskless or Simultaneous trade
• Arbitrage

Question 27

Define position trading

Answer 27

Selling a security with a mark up

Buying a security with a mark down

Question 28

Define riskless/simultaneous trading

Answer 28

After a dealer gets a buy order from a customer, the dealer purchases that stock into inventory and re-sells it to that customer

Question 29

Define arbitrage

Answer 29

Buying and selling short the same security at the same time with different market maker to lock in a temporary price differential

Question 30

What is an agency transaction?

Answer 30

Buying or selling for a customer through a dealer to earn a COMMISSION. Consists of

• Crossing
• Dual Agency Trades (Proceeds transaction trade)

Question 31

What is crossing?

Answer 31

Market order to buy and sell come in from 2 different customers at the same time and amount. The cross must be effected at current market price, and 2 commissions are earned

Question 32

What is a dual agency trade? (Proceeds transaction trade)

Answer 32

When a customer tells you to sell one stock and use the proceeds to purchase another. 2 commissions are earned

Question 33

How many quotes must be obtained for Non-NASDAQ stocks to find best available market?

Answer 33

3 quotes must be obtained

Question 34

What are prohibited transaction actions?

Answer 34

• Interpositions
• Backing away
• Front running
• Trading ahead of research
• Trade shredding
• Trading pools
• Wash trades (painting the tape)
• Marking the open/close

Question 35

What is front running?

Answer 35

Trading ahead of a customer’s order that is held for the firm’s own gain. If firm has barriers that prevent customer order information from being disclosed, orders can come in internally and don’t violate the rule

Question 36

What is trading ahead of research?

Answer 36

Basically inside trading with the firm’s own information

Question 37

What is trade shredding?

Answer 37

Splitting an order into a lot of smaller ones to max. the monetary amount received by the member firm

Question 38

What is a trading pool?

Answer 38

When investors get together and “trade” stocks to manipulate their prices while never actually changing stock ownership

Question 39

What is a wash trade? (aka painting the tape)

Answer 39

buying and selling to create the appearance of a trade, blowing up the tape

Question 40

What is marking the open/close?

Answer 40

Trading at the open or close to falsely affect stocks trading price