Series 7 > Series 7 STC Orders & Trade Execution (Ch. 17) > Flashcards
Series 7 STC Orders & Trade Execution (Ch. 17) Flashcards
How far must the S&P 500 Index be down on a trading day for the market to close for the remainder of the day?
5%
7%
13%
20%
20%
When a broker-dealer brings a security into its inventory to fill a pre-existing customer order at the same price with a markup, the transaction is considered a _________ transaction.
Riskless Principal
When a broker-dealer brings a security into its inventory to fill a pre-existing customer order at the same price with a markup, the transaction is considered a(n):
Riskless principal transaction
Agency cross transaction
Net basis transaction
Violation
Riskless principal transaction
When a broker-dealer brings a security into its inventory to fill a pre-existing customer order at the same price with a markup, the transaction is considered a riskless principal transaction.
When describing “the spread” for a security, an over-the-counter trader is referring to the:
Difference between the bid and asked price of a security
Difference between his cost price and his selling price
Amount of his markup from his cost price
5% markup that’s allowable under SRO rules
Difference between the bid and asked price of a security
If the S&P 500 Index is down 7% from the previous day’s close at 3:00 p.m. ET, the market will close for:
15 minutes
30 minutes
The remainder of the day
The remainder of the week
15 minutes (Level 1 hault)
A member firm is serving in the capacity of a broker and is charging a commission. The firm is acting as a(n):
Principal
Agent
Dealer
Market maker
Agent
Which of the following statements is TRUE of buy stop orders?
Buy stop orders are entered below the market.
Buy stop orders may be executed at any price once they’re triggered.
Buy stop orders can only be executed below the trigger price once they’re triggered.
Buy stop orders can only be executed above the trigger price once they’re triggered.
Buy stop orders may be executed at any price once they’re triggered.
A Nasdaq market maker’s failure to execute orders at its quoted prices is referred to as:
Execution errors
Backing away
Decision error
Trading ahead
Backing away
If an order ticket is marked “discretion not exercised,” this means that it’s:
For a non-discretionary account
The same as a solicited order
Been rejected by a principal
An order in a discretionary account that was approved by the customer
An order in a discretionary account that was approved by the customer
The insertion of a third party between a customer and the best market in the execution of an order is referred to as:
Trading ahead
Frontrunning
Marking-the-trade
Interpositioning
Interpositioning
When a broker-dealer brings a security into its inventory to fill a pre-existing customer order at a different price, the transaction is considered a(n):
Riskless principal transaction
Agency cross transaction
Net basis transaction
Violation
Net basis transaction
T/F. An All-or-None order requires the entire order to be executed or not at all. This means that partial execution is not permitted.
True (if it was immediate execution that required complete order to be filled, it would be Fill-or-Kill)
Which of the following orders require the entire order to be executed IMMEDIATELY or cancelled?
Immediate-or-Cancel (IOC)
Fill-or-Kill (FOK)
All-or-None (AON)
All orders must be executed in their entirety
Fill-or-Kill (FOK)
Which of the following orders allow for partial execution?
Immediate-or-Cancel (IOC)
Fill-or-Kill (FOK)
All-or-None (AON)
All orders must be executed in their entirety
Immediate-or-Cancel (IOC)
T/F. Immediate-or-Cancel (IOC) orders require the immediate execution of as much of the order as possible, but allows for any unfilled portion to be cancelled. In other words, IOC orders allow for partial execution.
True
When a designated market maker guarantees to execute a customer’s order at a specified price, this is referred to as:
Stopping stock
A cross guarantee
A riskless transaction
A violation
Stopping stock
When a designated market maker (DMM) guarantees to execute a customer’s order at a specified price, this is referred to as stopping stock. A DMM is only permitted to stop stock for public orders.
The quoting of the same security in multiple markets by one market maker is:
A violation
Permitted if the quotes are at the same price
Permitted if the quotes are at different prices
Permitted if the quotes are at the same price, but orders are executed at different prices
Permitted if the quotes are at the same price
If a not-held order is entered by a retail customer:
It gives the broker-dealer discretion as to the security being purchased or sold, as well as the time and/or price of execution
It gives the broker-dealer discretion as to the amount of money invested and/or number of shares being purchased
It must be executed by the end of the day or cancelled
It requires written discretionary authority
It must be executed by the end of the day or cancelled
Not-held orders that are entered by retail customers give the broker-dealer discretion as to only the time and/or price of execution. The customer must specify the amount of money or number of shares to be purchased or sold as well as the name of the security. However, if not executed by the end of the day, a not-held order is cancelled. Not-held orders don’t require written discretionary authority from the customer.
T/F. Orders to establish positions based on information that will be published in a research report is referred to as trading ahead of research.
True
Which of the following statements is TRUE of FINRA’s 5% Markup Policy?
It establishes the maximum markup that’s permitted.
It establishes the minimum markup that must be charged.
New issues are subject to the 5% policy.
A 5% markup may be considered too high.
A 5% markup may be considered too high.
FINRA’s 5% Markup/Markdown Policy is a guideline, not a rule. It’s the characteristics of a trade that dictate what’s considered reasonable. In certain circumstances, a 5% markup may be considered too high. Securities that are sold under a prospectus (new issues) are exempt from the policy since they’re sold at a specific public offering price.
Which of the following situations is an example of front-running?
A registered representative hears of an impending takeover and executes trades to purchase that company’s stock.
With knowledge of a large order about to be executed, a registered representative places an order to purchase the same stock.
Based on a research report his company is about to release, a registered representative places an order to establish a position in a subject company.
After receiving an order from a customer, a registered representative decides to bring another broker-dealer in to assist in executing the order.
With knowledge of a large order about to be executed, a registered representative places an order to purchase the same stock.
Although each of these situations is generally considered a prohibited activity, front-running occurs when trades are executed based on the knowledge of impending large orders. Trading based on the knowledge of information that’s not yet been made public (e.g., a potential takeover) is considered insider trading. Orders to establish positions based on information that will be published in a research report is referred to as trading ahead of research. Bringing another broker-dealer into a trade for execution is referred to as interpositioning and, unless it benefits the client, the practice is prohibited.
T/F. Trading based on the knowledge of information that’s not yet been made public (e.g., a potential takeover) is considered insider trading.
True
New issues are sold under a _______
Prospectus
An order to sell stock may be marked “long” in each of the following situations, EXCEPT:
The customer has exercised a warrant on the security being sold
The customer owns the security, but will not deliver the shares by the settlement date
The customer has exercised a call option on the security being sold
The customer has converted a convertible security on the security being sold
The customer owns the security, but will not deliver the shares by the settlement date
If a customer owns the security, but will not be delivering the shares by the settlement date, the sell order ticket must be marked “short.” If the customer has exercised a warrant, call option, or converted a convertible security into the security being sold, the ticket can be marked “long.”
Which of the following statements is NOT TRUE of a sell limit order?
It’s entered above the current market.
It may never be executed.
It must be executed at the limit price or higher.
It may be used as a hedge against losses on a long position.
It may be used as a hedge against losses on a long position.
Since a sell limit order is entered above the market and must be executed at the limit price or higher, the investor will lose money if the underlying security falls in value and the order is not executed. The type of order that can hedge (protect) a long stock position against downside risk is a sell stop order.
T/F. A sell limit order is entered above the current market price
True
A broker-dealer is about to issue a research report on a stock for which it makes a market. Under FINRA’s interpretation on trading ahead of a research report, all the following practices are prohibited, EXCEPT:
Establishing an inventory in advance of a favorable report if the firm’s position is flat
Increasing its inventory in advance of a favorable report solely for the purpose of meeting an anticipated increase in customer demand
Liquidating a position in advance of a negative report
A person with no knowledge of the report executing customer orders
A person with no knowledge of the report executing customer orders
FINRA has issued an interpretation that prohibits a member from establishing, increasing, decreasing, or liquidating an inventory position in a particular security or derivative of that security, based on material, non-public, advance knowledge of the content and timing of a research report in that security. The interpretation prohibits inventory adjustments in advance of either positive or negative reports. However, inventory changes that are related to regular order flow from retail customers or other broker-dealers are not covered. Information barriers are required to prevent a trading department from learning of a pending research report regarding a security in which it has a position. Information barriers are required for broker-dealers to prevent insider trading violations.
Which of the following statements is TRUE of sell stop orders?
Sell stop orders are entered above the market.
Sell stop orders are used to guarantee execution at a specific price or better.
Sell stop orders can only be executed above the stop price.
Sell stop orders are used as a hedge against losses for long positions.
Sell stop orders are used as a hedge against losses for long positions.
Sell stop orders are entered below the market and, once triggered, they may be executed at any price. Sell stop orders are often used to hedge (protect) against losses on long positions.
The type of transaction in which one customer of a firm wants to sell a security and another customer of the same firm wants to buy the same security is referred to as a(n):
Agency trade
Principal trade
Riskless principal trade
Agency cross trade
Agency cross trade
The responsibility for maintaining liquidity and promoting a fair and orderly market on the NYSE is given to:
The SEC
The designated market maker
FINRA
The floor governor
The designated market maker
On the floor of the NYSE, the designated market maker (DMM) is responsible for maintaining liquidity and promoting a fair and orderly market.
A broker-dealer will charge a commission for:
Buying and selling securities in a principal capacity and assuming risk
Buying and selling securities on a client’s behalf
Providing advice to its high net worth clients
Acting in the role of the designated market maker
Buying and selling securities on a client’s behalf
When acting in an agency capacity, a broker-dealer will buy and sell securities on its clients’ behalf and charge a commission.
All of the following statements are TRUE of directed orders that are received by a broker-dealer, EXCEPT:
It’s not required to be accepted.
Customers specify where they want their orders to be executed.
The orders are subject to the best execution rule.
If accepted, the customer’s orders must be followed.
The orders are subject to the best execution rule.
A directed order is one in which a customer specifies where the order is to be executed. Although broker-dealers are not required to accept them, if they are accepted, the customer’s instructions must be followed. Directed orders are not subject to the best execution rule.
(26937)
T/F. The Best Execution Rule is a legal mandate enforced by FINRA and the SEC requiring brokers to seek the most favorable options to execute their clients’ orders.
True
The charge to a purchasing customer when the broker-dealer is acting in a principal capacity is a:
Commission
Markup
Sales charge
Spread
Markup
An NYSE designated market maker is permitted to act as:
An agent only
A principal only
Neither an agent nor a principal
Both an agent and a principal
Both an agent and a principal
Which of the following rules ensures that a customer’s order will be executed if a market maker trades for its own account at the same or better price?
Quote Increment Rule
Limit Order Display Rule
Order Protection Rule
Customer orders are not protected
Order Protection Rule
The Order Protection Rule requires market makers to fulfill customer orders when executing trades for their own accounts at the same or better price as their customers’ orders.
Which of the following orders has first priority in execution?
Market orders
Buy limit orders
Sell limit orders
Stop loss orders
Market orders
Market orders have first priority in execution. Limit orders are ranked by price. If limit orders are placed at the same price, they’re ranked by the time of entry.
The inside market is represented by the:
High bid and high offer
Low bid and low offer
High bid and low offer
Low bid and high offer
High bid and low offer
The inside market is represented by the high bid and low offer for a security.
Which of the following OTC Markets Group platforms includes the highest quality companies?
OTCQX
OTCQB
OTC Pink
All include high quality companies
OTCQX
The OTCQX platform includes higher quality U.S. and global companies. The OTCQB platform includes development stage U.S. and international companies. The OTC Pink platform includes smaller or newer companies that don’t meet the listing requirements for major exchanges, foreign entities that want to trade in the U.S., or companies that want less regulatory scrutiny.
T/F. The OTCQB platform includes development stage U.S. and international companies.
True
T/F. The OTC Pink platform includes smaller or newer companies that don’t meet the listing requirements for major exchanges, foreign entities that want to trade in the U.S., or companies that want less regulatory scrutiny.
True
In which of the following are large blocks of stocks able to be purchased and/or sold anonymously and with complete lack of transparency?
The Fourth Market
Electronic Communication Networks
Dark Pools
Grey Markets
Dark Pools
Dark pools are systems that provide for the purchase and sale of large blocks of stock anonymously, without disseminating quotes. Grey markets include stocks that have been delisted as well as companies that are soon to go public.
Which of the following orders allow the order to be executed over the course of the trading day, but if not fully executed, it’s cancelled at the end of the trading day?
Immediate-or-Cancel (IOC)
Fill-or-Kill (FOK)
All-or-None (AON)
All orders must be executed in their entirety
All-or-None (AON)
Which of the following statements is NOT TRUE as it pertains to a broker-dealer executing trades for customers?
A broker-dealer may act as an agent for its customer in a transaction.
A broker-dealer may act as a principal in a customer transaction.
A broker-dealer may act as both an agent and a principal for a customer in the same transaction.
A broker-dealer may act as an agent for the customer and another person.
A broker-dealer may act as both an agent and a principal for a customer in the same transaction.
A broker-dealer CANNOT act as both an agent and a principal in regard to the same transaction and charge a customer both a commission and a mark-up on that transaction.
A customer receives a confirmation for a securities transaction which discloses that the broker-dealer acted in the capacity of a dealer. This means that the firm acted as a(n):
Agent
Intermediary
Principal
Broker
Principal
When exchange-listed securities trade over-the-counter, they’re considered to have traded in the:
Third Market
Fourth Market
Electronic Communication Networks
Black Pools
Third Market
T/F. Third market is where OTC securities trade
True
T/F. Fourth market is where trading among institutions occurs
True
Which of the following statements is NOT TRUE of a sell limit order?
It’s entered above the current market.
It may never be executed.
It must be executed at the limit price or higher.
It may be used as a hedge against losses on a long position.
It may be used as a hedge against losses on a long position.
Since a sell limit order is entered above the market and must be executed at the limit price or higher, the investor will lose money if the underlying security falls in value and the order is not executed. The type of order that can hedge (protect) a long stock position against downside risk is a sell stop order.
A buy stop limit order at $35 will be triggered at:
$35 or higher
$35 or lower
Only below $35
Only above $35
$35 or higher
