NASDAQ/OTC Market Flashcards
When was NASDAQ recognized as an exchange?
2006/2007
What makes an OTC stock an OTC stock
It cannot meet NSDQ standards and are quoted in display facilities
What items do not ever trade on the NSDQ?
Mutual funds and limited partnerships
What 2 items make up the OTC equity markets?
OTCBB and Pink sheet
What are the 2 subdivisions of NASDAQ?
- Global Market (NGM) - upper tier of the NSDQ (3,000 stocks)
- Capital Market - lower tier (500 stocks)
What time is the NSDQ open?
Same as NYSE - 9:30 - 4:00 ET
What are the 2 levels of the NSDQ system?
Level I - Summary of market intended for reps
Level II - Lists all market makers and their quotes
What is the inside market of NSDQ level I?
Defined by the highest bid and the lowest ask
How do brokers earn their income?
By Commission
How do dealers earn their income?
By mark ups
Summarize the disclosure for mark ups and commissions on NASDAQ and non-NASDAQ stocks:
- OTC and Exchange trades - commission disclosed
- OTC principal in NSDQ - commission disclosed
- NASDAQ Markets - markup always disclosed
- Non NASDAQ markets - markup not disclosed
Can the NASDAQ system accept odd lots?
Yes
What does the NSDQ require market makers have during regular market hours?
A 2 sided bid-ask quote
Does the NSDQ accept stop orders?
NO
What is OATS?
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
What is ACT?
Automated Confirmation Transaction Service: Provides reporting and dissemination of LAST SALE INFO on all equity and equity related issues
What party of a trade reports to ACT?
Only the executing member. Once reported, it is reviewed by the contra-party to accept/decline within 20 MINUTES
What is a Firm quote?
Means the dealer will honor the quote
What is an unfirm quote?
Subject to negotiation
What is a bids wanted (BW)?
Dealer wants to SELL a position and is looking for a BIDDER
What is an offer wanted (OW)?
Dealer wanting to BUY a position and is looking for an OFFER
What is a subject quote?
Subject to confirmation. Approximate and can be changed
What is a nominal quote?
Not really a quote. A dealer’s guess at a price. Not actually willing to trade
What is a workout quote?
Approximate quote. The dealer has to work out the price at which she will trade
What is a principal transaction?
It is the taking of long or short positions for the dealers inventory
What do principal transactions consist of?
- Position trading
- Riskless or Simultaneous trade
- Arbitrage
Define position trading
Selling a security with a mark up
Buying a security with a mark down
Define riskless/simultaneous trading
After a dealer gets a buy order from a customer, the dealer purchases that stock into inventory and re-sells it to that customer
Define arbitrage
Buying and selling short the same security at the same time with different market maker to lock in a temporary price differential
What is an agency transaction?
Buying or selling for a customer through a dealer to earn a COMMISSION. Consists of
- Crossing
- Dual Agency Trades (Proceeds transaction trade)
What is crossing?
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
What is a dual agency trade? (Proceeds transaction trade)
When a customer tells you to sell one stock and use the proceeds to purchase another. 2 commissions are earned
How many quotes must be obtained for Non-NASDAQ stocks to find best available market?
3 quotes must be obtained
What are prohibited transaction actions?
- Interpositions
- Backing away
- Front running
- Trading ahead of research
- Trade shredding
- Trading pools
- Wash trades (painting the tape)
- Marking the open/close
What is front running?
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
What is trading ahead of research?
Basically inside trading with the firm’s own information
What is trade shredding?
Splitting an order into a lot of smaller ones to max. the monetary amount received by the member firm
What is a trading pool?
When investors get together and “trade” stocks to manipulate their prices while never actually changing stock ownership
What is a wash trade? (aka painting the tape)
buying and selling to create the appearance of a trade, blowing up the tape
What is marking the open/close?
Trading at the open or close to falsely affect stocks trading price
