UNIT 01.03 003 Flashcards
An exchange is part of what market?
A) Primary market
B) OTC market
C) Secondary market
D) Third market
Secondary market
Exchanges provide a central trading location for investors to purchase and sell securities as part of the secondary market. The OTC and third market are other portions of the secondary market.
Regarding settlement of a customer’s trade through a broker-dealer, which of the following statements are true?
Standard settlement is regular way.
The customer is requested to meet Regulation T requirements.
Standard settlement is cash settlement.
The customer is required to meet Regulation T requirements.
Standard settlement is regular way.
The customer is required to meet Regulation T requirements.
Standard settlement of a trade is regular way. Cash settlement is a settlement that would need to be requested from the broker-dealer and granted by the broker-dealer. The customer is required to meet Regulation T requirements (S+2).
When do secondary market trades of corporate securities settle?
A) Two business days after the trade
B) One business day after the trade
C) One calendar day after the trade
D) Two calendar days after the trade
Two business days after the trade
Corporate securities settle on the second business day following the trade (T+2).
The record date
A) is set by the issuing corporation to determine which stockholders will receive a declared dividend.
B) is fixed by the SEC to determine which investors own stock.
C) indicates when the public offering of new issues can be made legally.
D) is set by the issuing corporation as the mailing date for distribution of cash dividends.
is set by the issuing corporation to determine which stockholders will receive a declared dividend.
The record date is set by the corporation, at which time a list of stockholders who will receive a dividend is compiled. Ex-date rules are heavily covered in the SIE. Keep that SIE material handy for these basic industry questions.
SuperTech Industries is an exchange-listed security. Great Plains Brokerage, a FINRA member broker-dealer, maintains an inventory and makes a market in Supertech. In this example Great Plains is functioning in which of the following markets?
A) Fourth market
B) Third market
C) Second market
D) First market
Third market
In this example the broker-dealer is acting in the third market, which is part of the secondary (not second) market.
Cash settlement for a trade in a customer’s account must settle
A) the day of the trade.
B) three business days after the trade.
C) five business days after the trade.
D) the next business day following the trade.
the day of the trade.
Cash settlement occurs on the day of the trade.
Which of the following statements describe the Securities Exchange Act of 1934?
It created the SEC.
It requires registration of broker-dealers with the SEC.
It provides for registration of new issues.
It regulates the activities of investment advisers.
It created the SEC.
It requires registration of broker-dealers with the SEC.
The Securities Exchange Act of 1934 (the people act) requires registration of people and exchanges transacting securities business in order to prevent manipulative and deceptive practices. The Act of 1934 also created the SEC and mandated the creation of SROs.
The Securities Exchange Act of 1934 regulates or mandates each of the following except
A) extension of credit to customers.
B) manipulation of the secondary market.
C) full and fair disclosure on new offerings.
D) creation of the SEC.
full and fair disclosure on new offerings.
The Securities Exchange Act of 1934 created the SEC and regulates the secondary market. The Securities Exchange Act of 1934 does not address full and fair disclosure issues; the Securities Act of 1933 addresses such issues.
Which of the following describe a securities exchange?
Prices are set by negotiation between interested parties.
The highest bid and the lowest offer prevail.
Only listed securities can be traded.
Minimum prices are established at the beginning of the day.
The highest bid and the lowest offer prevail.
Only listed securities can be traded.
An exchange is not a negotiated market but an auction market in which securities listed on that exchange are traded. No minimum price is set for securities. Rather, the highest bid and the lowest offer prevail.
A registered representative receives a large buy order for XYZ stock from an insurance company. If, just before entering that order, the representative buys some XYZ for her personal account, this would be known as
A) pegging.
B) arbitrage.
C) commingling.
D) front running.
front running.
The prohibited practice of front running involves a securities professional entering an order for their own account ahead of a client (usually institutional) to take advantage of the market impact of the order that will follow.
When a brokerage firm sells stock from its own inventory, it is acting in the capacity of
A) a principal and charges a commission.
B) a principal and charges a markup.
C) an agent and charges a markup.
D) an agent and charges a commission.
a principal and charges a markup.
A broker-dealer that purchases securities for, or sells securities from, its inventory is acting in the capacity of a principal. Principals charge markups on sales from inventory. When acting in the capacity of agent (facilitating a transaction between a buyer and a seller), the broker-dealer receives a commission.
Under the Uniform Practice Code, regular way transactions for common stock settle on
A) the second business day following the settlement date.
B) the second business day following the trade date.
C) the first business day following the trade date.
D) the same day as the trade date.
the second business day following the trade date.
Under the Uniform Practice Code, regular way trades settle two business days after the trade date (T+2). Cash settlement for a trade occurs on the same day as the trade date.
ALFA Securities acts as a dealer when filling a customer’s order to purchase 300 shares of LMN. ALFA makes its profit from
A) a markup on the offering price plus a commission on the sale.
B) a markdown on the bid price of the securities.
C) a markup on the offering price of the securities.
D) a commission.
a markup on the offering price of the securities.
ALFA is acting as a dealer and is compensated by a markup on the offering price to the customer. Only a markup or a commission can be charged on a given transaction, not both. If the broker-dealer were acting as agent, it could charge a commission. If the broker-dealer were acting as principal on a customer sale, it would make its profit on a markdown on the bid price.
Under the Conduct Rules, all of the following actions violate fair and ethical treatment of customers except
A) encouraging customers to purchase mutual fund shares just before the ex-date to ensure that the customer receives the upcoming dividend.
B) recommending that a customer regularly move his assets among several fund families with similar investment objectives to ensure diversification and top performance.
C) assuring a customer that, because dollar cost averaging is one of the most effective means of investing for the long term, his account is unlikely to suffer any losses.
D) recommending that a customer set up a scheduled investment program, depositing the same amount each period regardless of market value.
recommending that a customer set up a scheduled investment program, depositing the same amount each period regardless of market value.
Encouraging a customer to invest according to a schedule is perfectly lawful.
An individual or firm that charges a fee for executing transactions on behalf of its customers is called what?
A) Broker
B) Market maker
C) Dealer
D) Principal
Broker
A broker (agent, agency) is an individual or firm that charges a fee for executing transactions on behalf of its customers, as opposed to holding an inventory of the security and trading into and out of its own inventory.
