Supervision Of Trading & Market Making

Question 1

Under ACT/TRF rules, a clearing broker has the option to review certain trades executed by it correspondent market makers prior to becoming obligated to clear the trades.

If the correspondent market maker executes a trade that exceeds the single trade limit, the clearing broker has ________ to determine if it will accept the trade

Answer 1

15 minutes

Question 2

Order ticket vs. Customer Confirmation

Answer 2

An order ticket includes the following

Time stamp
Solicited / unsolicited
Locate requirement (if applicable)

Control relationships, if applicable, appear on customer confirmations

Question 3

Physical Delivery

Answer 3

All physical deliveries are made by the seller at the office of the purchaser.

Any expenses incurred in connection with the delivery are borne by the seller

Question 4

Who distributes proxy statements

Answer 4

Issuers send proxy statements directly to shareholders or to broker dealers holding customer securities in street name.

DTCC does not distribute proxy statements on behalf of the issuers

Question 5

For trades executed during normal hours and canceled at or before 4:00, the cancellation report must be made within _______ of the time the trade is cancelled

Answer 5

10 seconds

Question 6

Trade indicator .F

Answer 6

Institutional buy side investors often use algorithmic trading schemes that may require an ISO.

These orders are not subject to auto routing

The firm sending the ISO fulfills its regulation NMS order protection obligations by simultaneously sending order to those market centers with better prices.

Question 7

For interdealer trades that are settled outside of the scope of automated confirmation and transaction reporting, paper confirmations must be sent no later than _______

Answer 7

T+1

Question 8

OATS Report

Answer 8

Must include the following

Time stamp
Stock symbol 
Limit price
Time limit order was in force
Execution price
From who the order was received
Type of Account

The type of securities and the CUSIP number of the security are not required.

Question 9

In an interdealer trade of a corporate bond, Trace rules require which party to report the trade

Answer 9

TRACE rules require both side to report the trade

Question 10

If a market maker receives a customer order that improves its sales price or size, the order must be displayed within ___________ of the receipt unless an exemption is available

Answer 10

30 seconds

Question 11

Exceptions that the SEC allows market makers to trade alongside customer limited

Answer 11

Retail orders of 10,000 shares or more or a value of $100,000 or more

A customer whose order is being traded along with must give permission to the member

Question 12

Who is the final authority in matters concerning certificate negotiability

Answer 12

The transfer agent

Question 13

Form 211 must be filed with FINRA at least _______ business days prior to entering quotations in either OTC pink or the OTCBB

Answer 13

3 business days

Question 14

What does the NYSE require regarding open orders when an issuer does a reverse split

Answer 14

Cancellation

Question 15

During what hours must a limit order be protected

Answer 15

Limit orders must be protected during the hours when quotes must be firm

9:30am to 6:00pm

Question 16

ACES

Answer 16

Advanced Computerized Execution System

Allows order entry firms to access a market makers internal trading system for order placement and execution

The market makers that receive the order pays the fee for the use of the ACES

Question 17

What securities are excluded from TRACE reporting

Answer 17

Debt securities with 1 year exactly or less of maturity

Foreign debt, municipal debt, money market securities

Question 18

Registered Bond Denominations

Answer 18

1,000 minimum

100,000 maximum

Question 19

A fail to deliver (dealer to dealer) can be bought in no sooner than ______ days after settlement

Answer 19

3

Question 20

Market Operations Review Committee

Answer 20

Hearing appeals of a NASDAQ decision regarding a erroneous trade is the responsibility of this committee

Question 21

Preferenced Order

Answer 21

Order directed to specific market maker or ECN

Question 22

Directed Order

Answer 22

An order that a market participant uses to access a particular quote, not a specific market maker

Question 23

Intermarket Sweep Order

Answer 23

Placed for customer requiring trade execution in a specific market - though there may be a better price found in another market center

Question 24

What are the requirements when a member borrows stock from another member?

Answer 24

The borrowing firm must put up, in cash, an amount equal to the market value of the borrowed shares.

Question 25

How many market makers are required to display a 2 sided quote in the OTCBB market

Answer 25

2 market makes

Question 26

Mechanics of a short sale

Answer 26

When a customers stock is loaned for a short sale, the stock must be returned on demand to the lending firm

The borrowing firm gives the lending firm cash equal to the stocks market value. The loans are marked to market.

The lender retains all ownership rights EXCEPT voting rights

Customer margin stock may only be loaned if the customer signs a loan consent agreement

Dividends paid during the loan period are payable to the lender by the buyer.

Question 27

.Z modifier

Answer 27

Indicates that a trade report is being made late

Question 28

Under a T3 modifier, the period between the time a market maker can begin quoting a stock and trading a stock is referred to as ________

Answer 28

5 minute window

Question 29

Customers must be notified __________ of their right to request information on how and where their non-directed ordered were routed for execution

Answer 29

Annually

Question 30

Security termination vs. Security suspension

Answer 30

A security that was terminated must, prior to reinclusion, comply with initial requirements of inclusion

If the security was suspended, it must, prior to reinclusion, comply with the requirements of continued inclusion

Question 31

Failure to deliver - customer

How long do firms have to buy in a fail to deliver after settlement

Answer 31

10 days

Question 32

What happens to a firm if it enters a quote that will lock or cross the market?

Answer 32

If a firm attempts to lock or cross the market, the order will be routed to the next market maker in line for an execution at the locking quote.