Trading Markets Flashcards
Regulation SHO
- Every ordered ticket to sell must be marked long or short
- if a sale is short, securities must be located
All or None
- entire order must be filled or not executed
- maybe offered additional tries after 1st
Fill or Kill
- either the entire order is filled on the first try or the order is canceled
Immediate or Cancel
- either part of the order is filled on the first try or the remaining balance is canceled
Either Or
EX: Buy at or Sell at, if one side is filled, the other side is canceled
Discretionary
Not specifying the size or security
Limit Order
- to be filled at that price or better (to buy - lower)
- to sell higher
Alterations to Executed Order
- must be approved in writing by branch manager or compliance officer of firm
- must be documented in writing with essential facts as to why
Cancel and Re-bill
- when changing an executed order
Regulation NMS
- market centers to electronically link and provide automated execution at the best price of all markets within 1 second for orders that are executable.
- market centers cannot discriminate against customers who access their quotes.
- requires that markets have procedures in place to prevent trade-throughs - which is “trading through” another market’s better-priced quote (the same thing as executing an order at an inferior price in that market).
- sets disclosure rules for markets - which must provide monthly reports on the speed and quality of trade executions.
- sets disclosure rules for broker-dealers - which must provide customers with reports on how their orders were routed and whether the broker-dealer accepted payments for order flow for sending the order to a specific market.
Trade Through Rule (Rule 611)
- requires that any “fast market” (NYSE, NYSE American (AMEX) and NASDAQ) must either execute a trade within 1 second at the best price posted for a given security at that moment; or must route that order to the market that is posting the better price (this could be a Third Market Maker or an ECN).
SEC Rule 606
-The fact that the firm received payment for order flow must be disclosed on the customer trade confirmation.
RULE 602
- Exchanges must collect and display bids and offers
- promptly communicate changes in bids and offers
Rule 604
- display customer limit orders publicly so they can be accessed by all investors
Rule 605
Market Center order execution report
- effective spreads
- Speed of Execution
- fill rates
- price improvement. disimprovement
Disclosure of payment for order flow
- the fact that the firm received an order for payment must be disclosed on order flow
Disclosure on request of routing of customers order
- must disclose the identity of the market to which the customer’s orders were routed for execution in the preceding 6 months along with the time of execution
Quarterly report
-Percentage of customer orders that were “non-directed;”
Identity of the 10 largest markets or market makers, to whom non-directed orders were routed and any other venue that received 5% or more of the firm’s orders;
Arrangement, if any, for payment for order flow or profit-sharing. Because of this rule, member firms cannot have “hidden” arrangements with market makers to favor them in return for “payment for order flow” - everything is out in the open and is fully disclosed.
Rule 612
Regulation NMS does not allow sub-penny orders to be entered for NMS (NYSE, NYSE American (AMEX) or NASDAQ) stocks.
trade executions are permitted in sub-penny increments, since this makes the market more competitive.
Minimum quote for greater than $1.00 NMS stocks
.01
Minimum quote for less than $1.00 NMS stocks
.0001
Broker
Agent/ Commission
Dealer
Principal/market maker/ mark up or down
NYSE listing standards
- New company listing first issues of shares
- an existing company that is moving its existing shares
Existing companies moving shares standards
- 2,200 stockholders;
- 1,100,000 shares outstanding;
- $100,000,000 aggregate market value of outstanding shares;
- 100,000 shares average monthly trading volume.
IPOs listing standards
- 400 holders of round lots
- 1.1 million shares outstanding
- min mark cap $60 mil
DMM - Designated Market Maker
makes a market in a given listed stock; and also acts as a broker’s broker handling the book of retail orders that are “away” from the current market.
Floor Broker
- represents the retail member firms, manually handling orders on the floor that cannot be executed through the NYSE’s electronic trading system.
- can only act as an agent
$2 Broker
-assists Floor Brokers in executing difficult trades or trades during times of order overflows (and the $2 Broker used to charge $2 per trade to do this, hence the name).
Competitive Trader
- an exchange member that is only allowed to trade for their own account
ACRA ECN
- Supercomputer in New Jersey, where member firms can co-locate their serves and feed order into their system and get lightning fast speed and get virtualy instant execution and roders
Super Display Book
- faster and cheaper to use than manual trading by Floor Brokers.
- accepts Market and Limit orders, up to maximum sizes permitted
- cannot accept Market-Not Held orders
Specialist/DMM performs 2 functions
- will buy and sell for his own inventory account when there are no other market participants
- broker’s broker,” the Specialist/DMM will take orders from retail firms that cannot be immediately executed; if the market moves to that price, the Specialist/DMM will execute the order for the retail member, acting as a broker for another brokerage firm.
DMM earns the spread by
- capacity as a market maker
- earns a commission form each trade in his book
– acts as odd lot dealer
Network A Consolidated Tape
- reports trade of all NYSE listed issues no more than 10 minutes
Network A
reports trades of all NYSE listed issues, no matter where the trade took place
Cabinet Stock
- stock that trades in round lots of 10 shares instead of 100 shares.
- ery thinly traded stocks or very expensive stocks.
s/s
SLD
- Out of sequence
- sold, but out of sequence
OPD
- delayed stock opening
- imbalance of buy and sell orders
Block
10,000 shares
Sell stop orders are placed
lower than the current market and triggered when prices fall
Prohibited Practices of trading on NYSE
- Bet on the course of the market
- Buy or sell dividends
- Buy or sell privileges to receive or deliver securities
- Buy or sell securities at the close
- Buy or sell securities at a stop price away from the market
- Pre-arranged trade
Customer Orders
- receives priority
- cannot buy for the firm’s own account at the next lowest price below the current trading range until all customer orders at that price have been filled.
- cannot sell for the firm’s own account at the next highest price above the current trading range until all customer orders at that price have been filled.
Records of Orders transmitted to the floor must be kept for
3 years and preceding 2 years kept accessible
- terms of the order, time of order transmitted, time of order executed
Trade reported with an error
- customer must pay actual price of trade
- reported, not executed, trade is not binding
Record customer transactions in accounts not later than
- settlement date, same as SEC requirement
Member firms are prohibited from
- Excessive trading
- manipulative operations
- circulating rumors that seem to influence market price
- effecting trades at succesively higher or lower rates-
- changing price of the transaction before the settlement date
- loaning money with stocks
OTC Block Trading Desk
- too large of block size for SuperDisplay Book
- takes the position into the firm’s inventory
- acts as Third Market Maker
- adds liquidity and price stability to the market
A customer is considered to be long if
- owns stock and will deliver on sale of settlement
- owns convertible security, has given orders to convert, and will deliver on settlement
- customer owns rights, warrants
Regulation SHO applies to
- all traded common stocks, NASDAQ, NYSE, Pink Sheets, OTCBB
The locate Requirement of Regulation SHO
- Must locate securities to be borrowed and make sure they can be delivered by settlement
Short against the box
- customer has sold 1,000 shares of ABCD short against 1,000 shares being held by the firm
- used to lock in a gain on an appreciated stock position
“Up-bid” requirement
- stock falls more than 10% in a trading day, it can ONLY sell short above the BEST bid of that day
Easy to borrow list
- securities are readily available
- unlikely to create a fail to deliver on settlement
- must meet the test for 5 Business days
Threshold securities
- A daily list of hard to borrow securities
- must meet the test for 5 business day
Circuit breaker rules
- intended to stop a catastrophic market drop
- 2 levels, market-wide, and single
Level 1
- If S&P 500 drops by 7% from the prior day’s close, listed equity prices will be shut down for 15 minutes
Level 2
- after re-opening if the market drops by 13%, markets will close again for 15 minutes
- allows investors to calmy evaluate market conditions, so a domino effect of panic does not occur
Level 3
- if the market re-opens again and drops by 20%, the market will close for the day
Single stock Limit Up/ Limit Down Rule
- designed to stop erratic trading in a single stock
- LULD rule tracks each NMS stock’s movement in 5-minute windows
LULD/ Tier 1 Stocks
- actively traded NMS stocks
- capped at 5% up or down move from prior 5-minute movement history