Unit 16

Question 1

DEA

Answer 1

Designated examining authority
FINRA, an exchange, or the Federal Reserve Bank

Question 2

Freeriding

Answer 2

Securities are purchased and then sold without making payment for the purchase on settlement date
Generally prohibited in both cash and margin accounts
Penalty: account will be frozen for 90 days, no new transactions can occur unless there’s cash or marginal securities in the account before purchase

Question 3

SMA

Answer 3

Special memorandum account

Question 4

EE

Answer 4

Excess equity
In margin account
Amount of equity exceeding Reg T requirement

Question 5

LMV

Answer 5

Long market value

Question 6

SMV

Answer 6

Short market value

Question 7

CR

Answer 7

Credit register
The amount of money in the customer’s account, equal to the sales proceeds plus the margin deposit requirement. Think of it as a credit balance in the account

Question 8

FINRA minimum maintenance requirement

Answer 8

Long positions, 25%
Short positions, 30%
The firm may impose a higher house minimum

Question 9

SMV at maintenance

Answer 9

Total credit balance divided by 1.3 (130%)
The maximum market value to which a short sale position can increase before a maintenance call issued

Question 10

COD

Answer 10

Collect on delivery

Question 11

POD

Answer 11

Payment on delivery

Question 12

Pink sheets

Answer 12

Operated by the OTC markets group
An e-quote platform displays asks and bids from market makers
Most companies do not meet the minimum listing requirements for trading on a stock exchange

Question 13

What is the language used for a firm quote?

Answer 13

The market is
We are quoting
It is currently

Question 14

What is the language for a subject nominal or workout quote?

Answer 14

It is around
Last I saw
Subject
Workout

Question 15

The more active the security…

Answer 15

The narrower the spread.
The reverse is true, as well.

Question 16

Interpositioning

Answer 16

Members cannot route an order through another (third party) firm when the member can route directly
(Unless it results in a better price for the customer)

Question 17

Regulation SHO

Answer 17

Naked Short selling is prohibited
Firms must locate the stock for borrowing to ensure that the delivery of the stock will be made on the settlement date
The lending firm will provide a tag number to the firm of the short seller
The tag number must be on the order ticket

Question 18

Not held order

Answer 18

A market order coded NH
The floor broker can choose the price or the time of execution
Market NH orders may not be placed with the NYSC designated market maker DMM

Question 19

Excess margin securities

Answer 19

Securities in excess of 140% of the debit balance
The securities are available to the broker dealer for debit balance financing purposes, but they must be segregated and earmarked as the customer’s property.

Question 20

MWVD

Answer 20

Marketwide circuit breaker
Protect against rapid, uncontrolled drops in the market
Reference: S&P 500 index

Question 21

Arbitrageurs

Answer 21

Buy one stock on one exchange and then sell the same stock on another exchange
This is not market manipulation