Series 24 New Sessions Four Flashcards
There are 6 trading markets. Name the first three.
1) florr based stock exchanges
2) OTC stock exchanges
3) OTC markets
There are 6 trading markets. Name 4,5,6.
4) Negotiated market/algorithmic
5) Third market - exhange listed that trade OTC
6) Alternative Trading System - ATS
The Electronic Communication Netowkr (ECN) is used on the ATS. Member firms use this to accept orders from whom?
institutional customers
What are the hours for ECN?
They are open 24 hours a day
Who is the regulatory authority for the floor based exchanges?
NYSE and FINRA
Who is the regulatory authority for the OTC, third and fourth market?
FINRA
What is required of a company to be listed on the NYSE?
1) a specific number of shares
2) a minimum market value
3) no minimum EPS - no profit required
4) national interest
5) voting stock and solicitation of proxies
A firm is delisted from the NYSE if what?
1) they file bankruptcy
2) they fail to meet the minimum maintenance criteria
A firm can voluntarily delist from NYSE by doing what?
1) getting approval from their BOD
2) Filing Form 25 with the SEC
Circuit Breaker Rules (80B), says what?
a decline of 10%, the market is halted for 1 hour; a decline of 20%, the market is halted for 2 hours; a decline of 30%, the market is halted for the rest of the day
What happens to pending orders, limit orders and new orders if the market is halted for the rest of the day?
They are moved to the next day
What happens to market on close orders if the market is halted from the rest of the day?
They are cancelled.
The alternate uptick rule (SEC RULE 201) is triggered when?
if the stock drops 10% or more from the previous close
Cannot cross stock unless what?
It is first offered on the floor at 1 cent higher than the current bid.
What is the DMMs responsibility?
1) sets the opening price
2) maintains a fair and orderly market in the assigned stock
Can the DMM carry inventory in his stock?
yes
what is considered a block trade?
10,000 or more shares or $200,000 or more in value
Block orders usually means someone is what?
dumping stock
When are block orders reported during the day?
at the end of the day
What happens to orders on the book if there is a reverse split?
they are canceled
What happens to orders on the books if there is a positive split in a stock?
all orders are adjusted
On the exchanges,market on close orders can be entered up until what time (unless there is an order imbalance)?
3:45
On Nasdaq, market on close orders can be entered up until what time (unless there is an order imbalance)?
3:50
If an issuer wants to delist from the NYSE, what two things are required?
1) approval of the board of directors
2) filing of form 25 with the SEC
Nasdaq OTC has three tiers. Name them.
1) Global Select Market
2) Global Market
3) Capital Market
Non-Nasdaq OTC requires quotes from a minimum of how many dealers?
3
When is it not required that you get 3 quotes for Non-Nasdaq OTC?
When there are 2 or more firm priced quotes (other than yours).
Level One of the Nasdaq data feed provides what?
The best price - the inside price
Level Tw of the Nasdaq data feed provides what?
The top three prices
Nasdaq Total View of the Nasdaq data feed provides what?
A more comprehensive view of prices available to all market participants
Level Three of the Nasdaq data feed provides what?
an interactive view for Market Makers
Nasdaq accesses liquidity across multiple markets if better prices can be found. True or False
True
Intermarket Sweep Order on Nasdaq does what?
Does not route so it gets the best Nasdaq price but doesn’t look at other markets
What is the MM’s spread?
the difference between the price at which he is willing to buy and the price at which he is willing to sell.
There are two types of customer purchase transactions. What are they?
1) market maker (dealer/principal) where the MM sells net with a markup
2) Non market maker (broker/agency) where the firm buys at the inside market and sells at that price with a commission or where the firms buys at the inside market and sells with a markup - this is a riskless principal transaction and you have to show the markup
When you register as a MM with FINRA, you have to wait for what before entering quotes? If you register today, you can start entering quotes when? What is you fail to enter quotes for 5 days?
approval - apply today and you can enter quotes befinning tomorrow unless it is an IPO - if you don’t enter quotes within 5 days, you will be canceled and will have to re-apply
MM trading rules include two things?
1) maintain a two-sided market (bid/ask)
2) all quotes must be firm
Failure to honor a firm quote is called what?
backing away
Market Makers have obligations. One involves reporting trades. What is the time limit for reporting trades?
within 30 seconds
Market Makers have obligations. How often are volume reports to be filed?
Daily
Market Makers have obligations. How often must they report on short positions?
Twice monthly for customer and proprietary accounts
Can a MM accept a payment from an issuer to make a market in a stock?
no
A market maker can obtain an excused withdrawal from Nasdaq for up to 5 business days. He must apply and receive permission. What are considered acceptable reasons?
1) personal or personnel-related
2) equipment issues
3) Insider information
4) Involuntary failure to maintain a clearing agreement
5) becomes a member of a syndicate
A MM can be terminated from Nasdaq involuntarily if what happens?
He fails to follow the rules - like backing away
A MM can voluntarily request termination from Nasdaq by what?
simply withdrawing his quotes from Nasdaq
If a MM voluntarily withdraws from Nasdaq, we can he re-register?
20 days
To trade on Nasdaq, the Nasdaq book is the order and display executive system. What does it show?
The highest 5 bids and the lowers 5 asks
What is the maximum order size on Nasdaq?
999,999 shares
On Nasdaq, quotes can be MPID and SIZE. What does that mean?
MPID is attributed to the MM; SIZE is not attributable.
NAsdaq book is open to whom?
Market Makters and ECNs (institutions)
What is a nondirected order?
one executed in rotation
What is a preferenced order?
one that goes to a specific market maker
Preferenced orders go through what execution system?
ACES
Market Makers pay for access to ACES. True or False
True
What a directed orders?
ones that go to a specific MM and the MM must respond with 1) accept 2) counter 3) reject 4) partial fill
What is a broadcase order?
One that is sent to all MMs and they can respond if interested but they can also ignore it.
What is the default option on Nasdaq?
Price / Time
What are pegged orders?
a limit order that tracks the inside market. you can set the system to always be inside
ACES is the order entry firm that can access a MMs internal order book for placement and execution.. ACES handles what kind of orders for Nasdaq securitie?
1) market and limit orders
2) preferenced orders
If no option is specified, orders placed in the Nasdaq book are filled based on what?
Price then time
If no option is specified on the exchange, orders are filled based on what?
Time then price
FINRA has two audit trail systems. One (developed as a result of Oct 1987) is called what? What is the other one called?
1) OATS - Order audit trail system
2) TRACE
What does the OATS system do?
1) accepts trades from acceptance to execution on all NMS (National Market Securities)
2) time stamps to provide hour, minute, and second
3) trades cannot be aggregated
What does the TRACE system do?
It is the reporting system for OTC trades of most corporates and agencies
TRACE was the first system for what?
bonds
TRACE reports within how many minutes to FINRA?
15 minutes
FINRA Reports to the public all TRACE bonds how quickly?
immediately
Does TRACE report investment or non-investment grade bonds?
both
TRACE provides dual side reporting. True or False
True
ACT is a reporting system for what kinds of trades?
1) OTC interdealer and third market trades
2) convertible bonds listed on Nasdaq
3) Non- Nashdaq securities
Who does ACT submit data to?
NSCC - National Securities Clearing Corp
What is ACT data used for?
to compare and submit trasnsactions and to disseminate last sale information
Do ACT report include or exclude markups or commissions?
excludes
ACT report used modifiers. What is a .z trade?
.z reported late
ACT reporting uses modifiers. What is a .t trade?
.t is executed outside normal hours and reported same day
ACT reporting uses modifiers. What is a as/of trade?
as/of is executed outside normal business hours and reported the next day
What are Nasdaq hours?
9:30 a.m. to 6:00 p.m.
What are ACT hours?
8:00 a.m. to 8:00 p.m.
What is TRACS?
It is used to report Alternate Display FAcility Trades - coms that can’t use ACT
How many seconds after ADF eligible securities are sold are they reported by TRACS?
30 seconds
What are TRACS hours?
9:30 a.m. to 4:00 p.m.
TRACS reports transactions between who?
between members
TRACS reports transactions between members and who?
non members
Does TRACS report commission?
no
TRACS is never used for what three trasnactions?
1) primary distributions
2) transactions on an exchange
3) private placements
To register as a Non - Nasdaq MM, you must file Form 211 with FINRA how many days before entereing quotes on OTC PInk or OTC BB?
3 business days
You can avoid Form 211 by piggybacking. What does this mean?
If a MM has published quotes on at least 12 business days out of the last 30 calendar days, he can piggyback a previous filing.
In order to piggyback, in addition to publishing quotes on at least 12 business days out of the last 30 calendar days, how many days can you go without a quote in order to still qualify?
No more than 4 consecutive business days without a quote
If a MM has been delisted from Nasdaq, he can still be a Bulletin Board MM without filing form 211 if he was a Nasdaq MM for how many days before delisting?
30
The OTC BB is an electronic quotation medium for issues that don’t meet the listing rqeuirements fof NAsdaq. Quotes are provided for what securities?
1) domestic securities not listed elsewhere
2) foreign equity securities and ADRs
3) securities being delisted
The OTC Market (Pinks) provide real time quotes on the Web. There are no rules. The OTC Market (pinks) allows what two things?
1) one-sided or two-sided quotes
2) securities are not required to be current with regulatory filings
Which of the following is true regarding TRACE?
1) It is a execution system for OTC corporate debt securities
2) Trades must be reported within 15 minutes of execution.
3) Both the buyer and the Sell report the trade
4) convertible corporate bonds report through TRACE
(Number 2 & 3 are true)
FINRA’s 5% policy guideline does not apply to what?
1) prospectus offerings - circulars
2) exempt securities - munis & govts
FINRA’s 5% policy applies whether agency or principal. True or False
True
Do you have to reveal fees charges to customers?
yes
Do you have to reveal original cost of a security?
no
Interpositioning is allowed when?
when it results in a better execution for the customers
What is front running?
Trading in front of the customer
If you are a MM, you can mark up. In this case you take ownership. If you never take ownership and act as an agent, it is called what?
commission
Sell tickets must be marked what?
long or short
What is a limit order?
An order to buy or sell at security at a stated price….I won’t pay more than $10.
A customer is long the stock if he has a convertible security and has issued conbversion instructions. True or False
True
A customer is long a security if he owns a call and has issued exercise instructions. True or False
True
A customer is long a security if he owns a warrant and has issued exercise instructions. True or False
True
Members cannot trade ahead of customer orders at what?
the same price
A market maker is holding a customer buy limit order for 600 shares at $30.30. As principal, the firm buys 200 shares at $30.30. What must the firm do?
Execute the customer order for 200 shares and protect the remaining 400 shares.
Members can trade ahead of customer limit orders if what?
1) the customer is an institution
2) the order is for 10,000 shares or more and has a value of more than $100,000
3) not held orders - orders places when you think the timing is right.
Members must display customer bid or offer and size if better than the b/d/quote. They must be displayed and filled how quickly?
Immediately
On Nasdq, GTC orders are good for how long?
1 year
On NYSE, GTC orders are good for how long?
never expire
Trading along is permitted if what?
1) if there is an agreement in place with the customer and it cannot be a blanket agreement
What is the dollar limit on a penny stock?
$4 (or $5)
In order to purchase a penny stock, the customer must sign what?
a suitability statement prior to confirmation
Established customers are exempt from the suitability statement but not what?
the disclosure
To be egilible exampt from the penny stock suitability statment, the customer must have what?
1) held an account for at least one year
2) has made at least 3 penny stock trades of different issuers on different days
How often do penny stock holders receive statements?
monthly if they hold penny stock
How often are customer statements typically mailed?
quarterly unless there is activity or unless there are penny stocks, then it must be monthly
The CQS (consolidated quote system) was developed in response to what?
the third market - listed on the exchange and traded OTC
The CQS shows bid and ask quotes with size for what kinds of securities?
listed equity securities
What are listed equity securities?
1) common and preferred stock
2) ADRs
3) rights
4) warrants
The CQS shows quotes from the who?
from all MMs and the exchange (DMMs)
CQS follows the same rules as Nasdaq except when voluntarily terminating for CQS, you must wait how many days?
only 1 - Nasdaq is 20
The consolidated tape prodice last sale information on listed equity securities from what markets?
1) exchanges
2) 3rd market
3) 4th market
The SEC can suspend trading on any exchange for up to how many days by giving notice to the United States President?
90 calendar days
The SEC can suspend trading on any one security for up to how many days?
10 business days
For a Nasdaq trading halt, what does T1 mean?
news pending
For a Nasdaq trading halt, what does T2 mean?
news released
For a Nasdaq trading halt, what does T3 mean?
Two times are displayed - the first is the time MM can begin quoteing; the second is the time MM can begin trading
SEC halts apply to what exchanges?
all
Nasdaq can initiate a trading halt on what exchange?
their own
For nonregulatory trading halts, trading can continue in which market?
ECD or third market
Regulation SHO is the short sales locate requirement. It mandates locate requirements for all short sales in all equity securities. The rule mandates a close out of short sales not resulting in delivery if the MM fails in a threshol security for how many consecutive settlement days?
13
National Market System (NMS) promotes efficient and fair price information. Several rules fall under Regulation NMS. What are the rule numbers?
604,605,606,611 & 612
Rule 604 is the what rule?
limit order display rule
Rule 605 is what rule?
monthly execution reports by exchanges and Nasdaq
What is Rule 606?
quarterly reports where non-directed orders are routed and compensation
What is Rule 611
prohibition on trade throughs
What is Rule 612?
no subpenny pricing unless the stock is less than $1 per share
For Nasdaq IPOs, what is the POP?
The first bid in the book
Nasdaq IPOs provide for a quotation only period for how many minutes?
15
A T1 modifer displayed on a Nasdaq terminal means what?
news is pending
If a CQS MM voluntarily withdraws as a MM, how long is the wait to reregister?
1 day
