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Trading Markets > Trading Market Basics > Flashcards

Trading Market Basics Flashcards

1
Q

What issues belong in the Primary Market?

A

New issues being issued for the FIRST time

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2
Q

What issues are in the Secondary Market?

A 
Issues that are trading that were previously issued.
It is divided into 4 markets
1. First
2. Second
3. Third
4. Fourth
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3
Q

What issues belong in the First Market?

A

Exchange listed securities (NYSE, AMEX, NASDAQ)

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4
Q

What is a dual listed stock?

A

A stock that trades on 2 or more exchanges

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5
Q

What is CQS?

A

Consolidated Quotation Services: provides a centralized place for price quotes of EXCHANGE-LISTED securities. It is divided into 3 different tapes: A, B, and C tapes

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6
Q

What does Network A tape report?

A

NYSE listed issues

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7
Q

What does Network B tape report?

A

AMEX (NYSE-MKT) issues

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8
Q

What does Network C tape report?

A

NASDAQ listed issues

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9
Q

What is UTP?

A

Unlisted trading privileges: exchanges trade NASDAQ shares under this basis

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10
Q

Do bonds trade on the NYSE?

A

Yes, but only a small few. Most bonds trade OTC

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11
Q

What belongs in the Second market?

A

Over the counter (OTC) trading of UNLISTED securities

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12
Q

What is the OTCBB?

A

The OTC Bulletin Board: a display facility run by FINRA for PUBLICLY traded companies that can’t meet exchange standards

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13
Q

What goes on the SOLD OTC?

A

New issues

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14
Q

What issues belong in the Third Market?

A

OTC trading of EXCHANGE LISTED securities

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15
Q

What are some common characteristics of the third market?

A

They compete with the exchanges by offering slightly better prices, and stay open 24 hours

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16
Q

What is a Payment for order flow?

A

Occurs when a third market and the NYSE are offering a trade at the same price. Market makers pay small amounts to retail member firms that direct the order to that market maker

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17
Q

What are the rules for payment order flow?

A

SEC allows IF:

  1. Payment for order flow is disclosed on customer trade confirm
  2. Other rules for disclosure for broker dealers and markets that make these payments
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18
Q

What securities belong in the Fourth Market?

A

Direct trading of securities OTC between large institutions

  • ECN’s
  • Instinet
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19
Q

What is an ECN?

A

Electronic Computer Networks: computer networks that MATCH customer orders to buy and sell 24 hours a day on an AGENCY basis

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20
Q

What is an ATS?

A

Alternative Trading System: they address the growth of ECN’s, Dark pools, etc. They have no rules for their users other than types of orders placed

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21
Q

What is Regulation ATS?

A

Requires ECN’s, Dark pools, etc be registered with SEC and regulated as broker-dealers. It requires that ATS’s that
1. Displays orders to anyone besides ATS employees and
2. Has average daily trading volume in an NMS security of 5% of aggregate volume in that issue for 4/6 previous months MUST
Link with the national securities exchange so that ECN quote is displayed and can be accessed under ADF

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22
Q

What is an ADF?

A

An Alternate Display Facility. It displays ECN quotes if the ECN wasn’t going to post its quote in an exchange order book

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23
Q

What are the 3 major rules of Regulation NMS?

A
  1. All market centers must enforce policies to prevent “trade throughs”
  2. When providing access to markets, they cannot favor one firm over the other
  3. Sub-penny pricing is prohibited on NMS stocks trading at $1 or above
24
Q

What is a trade through?

A

When a market center executes an order at a lower price to that displayed by any other market center

25
Q

What is Rule 602 of NMS?

A

Exchanges must collect Display Bids and Offers

26
Q

What is Rule 604 or NMS?

A

Limit Order Display Rule

  • Exchanges must display customer limit orders publicly so that everyone can access them
  • If a customer specifically asks for order not to be displayed, then follow the request (exception)
27
Q

What is Rule 605 of NMS?

A

Market Center Order Execution Report
- Requires market centers to prepare and make available **MONTHLY reports summarizing data execution (OTCBB and pink sheets are excluded from report)

28
Q

What is Rule 606 of NMS?

A

Reports to Customers on Order Routing and Payment for Order Flow

  • **Rule requires that detailed disclosure of payment order flow on customer confirmation
  • **Upon request of customer, firm must disclose identity of the market to which the customer orders were routed in the LAST 6 MONTHS
  • **Quarterly Reports are required by the member that detail the percentage of customer orders that were “non-directed”
29
Q

What is rule 607 of NMS?

A

Each broker-dealer must NOTIFY each new customer at account OPENING and ANNUALLY thereafter of

  • policies regarding receipt of payment for order flow
  • policies for determining the routing of each customer order subjecting it to PMT for order flow
30
Q

What is rule 611 of NMS?

A

Trade through rule

  • All markets that quoted NYSE, AMEX, and NASDAQ stocks must be electronically linked and
  • Any executable order must be executed in market with best price within 1 second
31
Q

What is rule 610 of NMS?

A

Market access: Quoting market centers must offer automatic execution of orders - they cannon discriminate by offering members faster executions than non-members

32
Q

What is rule 612 of NMS?

A

Sub penny quoting is prohibited on stocks trading at $1 or higher (it is $.0001 for less than $1). This rule does not apply to non-NMS stock (i.e. OTCBB or pink sheets)

33
Q

What is a dealer?

A
  • Dealers make markets and maintain inventories of securities
  • They quote in bid and ask
  • They SELL the stock to a person at the lowest ASK price
  • They BUY the stock from a person with the highest BID price
34
Q

What is a specialist/DMM?

A
  • These are dealers on the NYSE floor
  • Only 1 DMM per NYSE stock
  • Market makers who CANNOT deal with the public
  • Wholesalers of securities and deal only with retail members of NYSE (Goldman, Merrill, etc.)
35
Q

What is a Market maker?

A

OTC dealers who register with FINRA and maintain a market in an issue

  • there are multiple market makers per stock in NASDAQ. They compete
  • OTC firms are allowed to act as broker OR dealer (cannot act as both)
36
Q

Non-NASDAQ market basics:

A
  • Not electronically linked (OTCBB and Pink OTC markets only)
  • To trade, one must negotiate with market maker posting the quote through phone trade application
37
Q

How do brokers and agents earn their income?

A
  • Brokers earn commissions

- Dealer earn markups and markdowns

38
Q

How does a representative place an order?

A

The rep. fills out an order tix either on paper or electronically?

39
Q

What types of sales are subject to Regulation SHO

A

Short stock positions

40
Q

What is regulation SHO?

A

Requires that the broker make sure that the shares borrowed can be delivered by settlement date

41
Q

What things go on an order ticket?

A
  • Buy or sell
  • Order size
  • Duration of order
  • Order specifics (AON, Not held, Stop, Limit, etc)
  • Security Name
  • Execution Price
  • Manager approval
42
Q

What are the different types of order durations, and what do they stand for?

A

Day - canceled at end of day if not filled
GTC - Good til canceled
GTW - good through week
GTM - good through month

43
Q

What is an AON order?

A

All or nothing. SEVERAL attempts can be made to try and fill the entire order, otherwise not executed

44
Q

What is a FOK order?

A

Fill or Kill - ONLY ONE attempt can be made to try and fill the entire order or it is canceled

45
Q

What is an IOC order?

A

Immediate or cancel - try to fill as much as possible in one attempt, the remaining unfilled is cancelled

46
Q

What is a Not Held order?

A

Trader will “hold back” on an order if he think the order can be better executed later on

47
Q

What is a DNR order?

A

Do not reduce - on ex date orders are reduced to reflect loss of dividend, unless DNR is specified

48
Q

At the opening/close

A

To be filled at the opening or closing price, respectively

49
Q

What is a Market order?

A

No specific price specified - order is filled at prevailing price

50
Q

What is a limit order?

A
  • A limit to buy is filled at that price or lower

- A limit to sell is filled at that price or higher

51
Q

What is a Stop order?

A
  • A stop order to sell is filled if market falls to that price or -lower (stop selling if price gets too low)
  • A stop order to buy is filled if the market rises to that price or higher (stop buying if it gets too expensive)
52
Q

What is the exception to prohibition of alterations to order tickets?

A

Can be done IF

  1. ) Manager approves it
  2. ) Reasons are documented in writing
53
Q

What is a market Not held order?

A

An order to be filled when the trader thinks price is best - it must be executed That day

54
Q

What is the resistance and support level?

A

Resistance level is on top - bullish

Support level is floor - bearish

55
Q

When is a trade elected and executed for a Buy 100 ABC @ 21 Stop?

A
  • Buy Stop = BS = OSLOBS = rising market
  • Buys tock on next sequential price at 21 or HIGHER
  • Elected at 21, executed at 22 or higher
56
Q

Where do closed end and open end funds trade, respectively?

A

Closed end funds are listed on exchanges and trade like any other stock

Open end funds (aka mutual funds) do not trade

57
Q

Where do REITS and Direct Part. Programs trade, respectively?

A

REITS are listed on exchanges and trade just like any other stock

Direct Part Programs (limited partnerships) do not trade

Trading Markets (5 decks)

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