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Paul Series 24 > U4 - Key Points > Flashcards

U4 - Key Points Flashcards

Mastery Unit 4

1
Q

What is the minimum earnings per share (EPS) requirement to qualify for a NYSE listing?

A

None. However the company must have earnings.

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2
Q

A Level I trading halt (part of Rule 80b) results from a decline in the S&P 500 from the previous day of how much? How long is the trading halt in effect for Level I?

A

7% decline from the close in the S&P 500 for 15 minutes.

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3
Q

A Level 2 trading halt (part of Rule 80B) results from a decline in the S&P 500 from the previous day of how much? How long is the trading halt in effect for Level 2?

A

15% decline from the close in the S&P 500 for 15 minutes.

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4
Q

A Level 3 trading halt (part of Rule 80B) results from a decline in the S&P 500 from the previous day of how much? How long is the trading halt in effect for Level 3?

A

20% decline from the close in the S&P 500 for the remainder of the day.

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5
Q

The Order Audit Trail System (OATS) must report each trade in an NMS security how frequently and to whom?

A

Daily to FINRA.

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6
Q

When a market maker becomes registered in an issue it must enter quotes within how many days?

A

5 business days

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7
Q

How many days may market maker have an excused withdrawal for?

A

5 business days.

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8
Q

If the market maker voluntarily withdrawals how long is the waiting period before they can re-register?

A

20 days.

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9
Q

In accordance with Regulation SHO when our customers considered “long” the security?

A

They own the subject securities

They own convertible securities, options, warrants or rights and HAVE ISSUED conversion instructions

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10
Q

How frequently does the “easy to borrow” lists need to be updated by broker-dealers?

A

Daily.

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11
Q

A customer limit order to buy 500 shares of ABCD at 20 (net or gross) including a ,25 mark-up, must be protected at what price?

A

19.75

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12
Q

What is “trading ahead”?

A

Trading ahead always involves research reports.

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13
Q

What is “front running”?

A

It is a violation. When a member has non-public knowledge of an impending block order to buy or sell, that member cannot place an order in front of the block order. This is for “like” type securities (i.e. long stock, long options, convertible securities)

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14
Q

What is “trading along”?

A

Trading along is permitted as long as there is an agreement in place. These agreements are on a order by order basis. No blanket agreements are allowed.

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15
Q

What is “marking the close”?

A

It is a manipulative attempt (and is prohibited) designed to induce investors to take action that they would otherwise not take.

Painting the tape (or a wash sale) is an example of that.

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16
Q

After a trading halt, market makers have how much time to adjust their quotes before the reopening of trading?

A

5 minutes.

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17
Q

Interpositioning, the act of inserting a third-party between a member firm in the best available market is only allowable when?

A

The only time it can be justified is if it results in a better execution for the customer.

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18
Q

Wrap fees, which include commissions, investment management, performance evaluation and custody services require the member to be registered how?

A

As an Investment Advisor (IA).

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19
Q

What is “ghosting” and is it allowed?

A

Collusion. Ghosting is an example of the illegal practice by multiple market makers colluding to influence the price of the stock. It’s subject to the severest of penalties.

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20
Q

What is the OTCBB and what is it for?

A

It is the Over-The-Counter Bulletin Board and is an electronic interdealer quotation service for issues that do not meet the listing requirements of stock markets, such as the NASDAQ and, therefore, fall outside the National Market System.

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21
Q

Can stocks be traded on the NASDAQ and the OTCBB at the same time?

A

No. Whenever referencing the OTCBB never use the word “listed”.

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22
Q

What is required to register as a market maker in a bulletin board stock?

A

3 business day.

A form 211 needs to be filed at least 3 business days in advance of entering quotations.

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23
Q

What is “piggybacking”?

A

It allows another market maker of a bulletin board stock to “piggyback” on the quotes another market maker and does not require a form 211 filing.

Note if the firm piggybacks on existing market maker in that market maker subsequently withdrawals, the firm does not have to file a form 211. He can remain as a market maker

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24
Q

What is the “Third Market”?

A

Listed stocks that trade over-the-counter (OTC)

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25
Q

What is the Consolidated Quotation System (CQS) and when does it operate?

A

It provides quotes from both 3rd market makers and DMM’s in LISTED stocks.

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26
Q

What is the Series 57 license and what is it for?

A

Is required for NASDAQ market makers, proprietary OTC traders and for persons who directly supervise those activities.

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27
Q

What is the definition of a penny stock?

A

It is a non-NMS, OTC equity security trading at less than $5 per share.

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28
Q

What are members required to do relating to penny stocks?

A

Customers, before their initial transaction in a penny stock, must be given a copy of the Risk Disclosure Document.

Members must provide purchases with the current bid and ask quote on the stock

information relative to how members are compensated must be provided

Monthly statements are required

A Suitability Statement must be sent to the customer for a signature. Once returned, the member may effect the trade.

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29
Q

When must a Risk Disclosure Document be provided to a customer?

A

Before the initial transaction in the penny stock. Note that a member must receive written acknowledgment back from the customer that the document has been received.

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30
Q

A member may solicit an established customer without having to prepare a suitability statement. What is the definition of an established customer for penny stock purposes?

A

An established customer is one who has:

Effected a non–penny stock transaction or may deposit the funds or securities an account at least one year before the proposed penny trade or

Made 3 unsolicited purchases of penny stocks, on 3 separate days, on 3 separate issues.

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31
Q

In addition to the “establish customer exception” other exemptions apply for solicitation. They are:

A

Unsolicited trades

Transactions with institutional accredited investors

Private placements meeting the requirements of SEC Rule 506

Transactions executed by a member whose revenue from penny stocks trades is 5% or less of total revenue

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32
Q

The penny stock rules only apply to stocks traded where?

A

Pink Open Market or Bulletin Board stocks under $5 per share only

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33
Q

The Consolidated Tape System reports real-time trade information on what?

A

ALL listed equity securities that take place in any market are reported.

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34
Q

Are NASDAQ market makers required to accept automatic executions?

A

Yes.

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35
Q

Do Electronic Communication Networks (ECN) have to accept automatic executions or accept delivery of an order?

A

No. ECM’s have a choice. They can either accept automatic executions or accept delivery in order which they can respond to if they wish. If they do accept delivery, they must respond within 5 SECONDS of receipt!

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36
Q

May orders be sent to specific market makers?

A

Yes. It is called a “preferenced order” and can be sent to a specific market participant that is at the inside market.

Note: if the market participant that received the order is not the inside market, the order is sent back. If a partial fill is received (after displayed in reserve size) the un-executed portion is returned to the entering party.

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37
Q

What is a non-liability order?

A

Examples would be a “all or none (AON)” or a “minimal acceptable quantity (MAQ)”.

These are usually DIRECTED ORDERS use to access a specific quote in the system.

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38
Q

What is the Alternative Display Facility (ADF) and what is it for?

A

To keep it simple, the ADF is the FINRA operated facility allowing its members to quote or affect trades in National Market Securities (NMS) stocks other than on exchange.

It is NOT an execution facility.

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39
Q

If no execution option is specified at the time of order entry, the Book will assume:?

A

Price/time

40
Q

GTC orders are available for display/execution until what time each day?

A

4 PM Eastern each day.

41
Q

Unlinked, or ineligible ECM’s display quotes on what system?

A

ADF-Automated Display Facility

42
Q

OTC transactions must be reported within how many seconds of execution?

A

10 seconds.

43
Q

What is ACES and what is it for?

A

It is the Advanced Computerized Execution System) and is a NASDAQ order routing system that allows quick and convenient routing of orders between order entry firms for EXECUTION.

44
Q

In an interdealer trade does the buy side ever report the trade?

A

Only when the buyer is the market maker and the selling dealer is not.

Note: if both are marketmakers the selling dealer reports.

45
Q

Marketmakers who voluntarily failed to maintain a clearing agreement must wait how long before attempting to re-register as a market maker?

A

20 days.

46
Q

What is a trade called when a non-market maker fills a customer order by purchasing from a market maker and then simultaneously selling the stock to customer with the markup?

A

A riskless Principal Trade.

47
Q

What is a . T modifier for?

A

Use when trades are affected OUTSIDE of market hours but reported on the SAME day.

48
Q

What is a .Z modifier for?

A

Trades that are reported late. More than 10 seconds after execution.

49
Q

What is an “as-of “modifier?

A

Used when trades are affected OUTSIDE of market hours but REPORTED THE NEXT DAY.

50
Q

What is a “no was” modifier?

A

It is a correction report. No represents a cancel portion; was represents the correction. No one’s reports must be made by 8 PM ON THE DAY OF THE TRADE.

51
Q

What is TRACE for?

A

TRACE is FINRA’s trade reporting system for OTC primary and secondary market transactions.

Note: TRACE is not an execution system.

52
Q

What securities are TRACE eligible?

A

Fixed income securities, such as corporate, agency, government-sponsored enterprises including those affected pursuant to Rule 144A.

53
Q

Are municipal securities TRACE eligible?

A

No. Municipal securities transactions are reported by MSRB’s EMMA system.

54
Q

When our trades on TRACE reported?

A

Within 15 minutes of execution. Otherwise, the transaction report is considered late.

55
Q

Which sides of an inter-dealer trade must report on TRACE?

A

Both sides report. It’s considered dual side reporting.

56
Q

What type of security is not subject to regulatory reporting requirements?

A

Pink Open Market

57
Q

What is the Uniform Practice Code (UPC) and what is it for?

A

The UPC of FINRA was created set rules for dealer to dealer transactions in the over-the-counter market. The code ONLY applies to transactions and nonexempt securities.

58
Q

When is regular way settlement?

A

Trade date +2

59
Q

What is a “when issued” contract

A

It is a written agreement between members to buy or sell a security prior to its issuance.

The buying member puts up 50%.

60
Q

In the instance of a clearly erroneous trade, if a member wants to have a trade nullified or adjusted it must notify the NASDAQ Market Operations within how many minutes of execution?

A

30 minutes.

61
Q

Who can appeal the decision of the NASDAQ Market Operations (NRO) relative to an erroneous trade?

A

The Market Operations Review Committee (MORC).

62
Q

Delivery of bearer bonds must be in what denominations?

A

$1000 or $5000. Any other denomination is a counterfeit.

63
Q

Delivery of registered bonds must be in denominations of how much?

A

$1000 or multiples thereof ($5000, $10,000, $25,000 etc.). In no event is the denomination larger than $100,000.

64
Q

Is a partial delivery acceptable under Uniform Practice Rules?

A

Yes. But only if the amount remaining to be delivered does not include an odd lot.

65
Q

How is accrued interest calculated?

A

Payment date is included but settlement date is not.

Example: a corporate bond paying interest on January 1 and July 1 is purchased on Thursday, March 17, trade date.

To compute the number of days of accrued interest payable to the seller, start with the settlement date because corporate bonds settle regular way, settlement date is Monday, March 21.

So you have 30 days of accrued interest in January and February +20 days in March for a total of 80 days.

66
Q

What is an ADR?

A

In American Depository Receipt (ADR) are investment vehicles allowing US investors to buy and sell foreign securities without having to exchange dollars for foreign currency. RULES OF UPC APPLY.

They are liquid, US registered securities and are issued by US commercial banks and registered with the SEC.

67
Q

What is a “foreign internal security”?

A

Is a foreign security, not an ADR. You do have to exchange US dollars for foreign security.

RULES OF FOREIGN COUNTRY APPLY.

68
Q

What is “reclamation” and when does it have to be affected by?

A

It’s when a member accepts securities on settlement date and later discovers that the securities were not in good deliverable form. It represents a right to return the security that had previously been accepted.

If the certificates have minor irregularities, the time=frame is 15 days from delivery date.

If the certificates delivered are refused by the transfer agent (or stolen or counterfeit) or if the certificates are stolen or counterfeit, the time-frame is 30 months from delivery date.

69
Q

What is required to change the account designation (name or number) on an order an ticket?

A

Prior approval by a principal.

Retention of reasoning is 3 years.

70
Q

What is a “sellout”?

A

A close-out requirement. A sellout occurs if a member sells securities to another member (the buyer) and the buying member fails to pay when the securities are delivered on settlement date.

Sellouts can be executed any time after settlement and no prior written notice is required.

The party executing a sellout must as promptly as possible ON THE DAY OF EXECUTION, but no later than 6 PM Eastern, notify the other party of the quantity sold in the price received.

71
Q

When a customer “fails to deliver” securities by the settlement date, when does the member firm close out the position?

A

The member firm will by the securities back in after 10 business days from settlement date (as +10).

72
Q

What is “buying in” and when does it happen?

A

In trades between members failure to deliver securities does not result in cancellation of the trade. If securities are not delivered to the buying member on settlement the buyer may close out the position no earlier than the 3RD BUSINESS DAY FOLLOWING SETTLEMENT DATE.

Written notice MUST be delivered to the seller by 12 pm Noon ET. 2 days prior to executing the buy-in.

73
Q

Who determines the ex date for open-ended management company shares?

A

The Board of Directors of the management company.

74
Q

Who determines the ex date for a security?

A

Declaration, record and payment date or determine by the Board of Directors and FINRA, OR THE EXCHANGE DETERMINES EX-DATE

75
Q

The 1st day of stock trades without a due bill is what day?

A

The ex-date.

76
Q

What is the ex-date for CASH SETTLEMENT trades?

A

1 AFTER the record date.

77
Q

What does DERP represent?

A

It represents the order in which the dates involving dividend distributions occur.

The order of dates is Declaration, Ex, Record, Payable.

78
Q

Who normally sets the ex dividend date?

A

It is set and published by the market where the security principally trades (e.g., the ex dividend date is set by the NYSE if the stock is listed, and by FINRA if the stock trades over-the-counter).

79
Q

What is ex-date for regular way trades?

A

One business day prior to record date.

For example: if RST declares a cash dividend of $.75 to stockholders of record on Wednesday, June 21, the ex-date is Tuesday, June 20.

80
Q

TRACE is the reporting engine for what securities?

A

TRACE is a reporting engine for most corporate bonds, both investment grade and non-investment grade, convertible and non-convertible. Open from 8 to 6:30 pm ET.

81
Q

The TRF, which operates as part of the ACT platform, reports trades where?

A

The TRF, which operates as part of the ACT platform, reports trades for Nasdaq stocks and third-market trades.

It does not report OTCBB or OTC Pink Market trades, whereas ACT trade reporting facilities do.

82
Q

When must transactions in a TRACE eligible security be reported by?

A

As soon as practical but no later than 15 minutes of the time of execution. They are dual reported.

83
Q

What is ACES?

A

It is a NASDAQ order routing system that allows quick and convenient routing of orders between order entry firms and to their preference to market makers internal trading systems for EXECUTION.

84
Q

What securities are excluded from TRACE reporting?

A

Specifically excluded from TRACE reporting are foreign debt, municipal debt, and money market securities, i.e. debt securities with 1 year exactly or less to maturity.

85
Q

A market maker is required to report “as/of” trades with which modifier if reported between 8 a.m. and 8:15 a.m. ET?

A

Trades executed after normal hours and reported the next business day (T+1) are designated as “.T” trades from 8:00 am and 8:15 am. After 8:15 am the trade modifier is “.U”.

86
Q

What does ACT do?

A

Provides trade reporting, trade review and trade comparison.

Note: ACT is NOT an execution system.

87
Q

If a member firm crosses 600 shares of the stock at $50 per share, charging each site a commission of $.75 per share, how is this transaction reported to a TRF?

A

600 shares at $50

In an agency cross, ACT rules require that the number of shares be reported only ONCE. Reports are made exclusive of any commissions, markups, or markdowns.

Note: a Principal crosses also only reported once.

88
Q

Under FINRA/TRF rules, clearing brokers must accept or decline a single trade, executed by correspondent market maker EXCEEDING THE SINGLE TRADE LIMIT, within how many minutes of execution?

A

15 minutes

Note: clearing broker has the option to review certain traits prior to becoming obligated to clear them. In the case of a trade that exceeds a single trade limit (currently $1 million) the clearing broker has 15 minutes to determine if it looks up the trade.

These are typically called BLOCKBUSTER trades.

89
Q

Trades executed between midnight and 7:59:59 a.m. and reported after 8:15 am, must use which modifier?

A

.U

90
Q

Transactions in listed securities traded over the counter must be reported to the Consolidated Tape within what time-frame?

A

10 SECONDS!

91
Q

What part of the transaction is reported on ACT?

A

Just the amount of shares and the price. Ex. 100 shares at $35.50

Note: ACT reports do not include commissions, markups, or markdowns.

92
Q

When does a cancellation report need to be made if the trade is done during normal business hours (830 to 4 PM Eastern)?

A

Within 10 seconds.

93
Q

When a firm enters an order and identifies a specific party to which the order should be delivered, it is termed a(n)?

A

Preferenced Order can be directed to a specific market maker.

94
Q

When a firm enters an order to access a specific quote it’s called what?

A

Directed Order.

95
Q

When must the syndicate account be settled and by whom?

A

Within 90 days following the “syndicate settlement date”.

96
Q

How frequently do member firms have to make publicly available reports regarding their order routing methods?

A

Quarterly.

Paul Series 24 (5 decks)

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