Unit 22 (2)

Question 1

When are margin agreements signed?

Answer 1

Promptly after the initial transaction

Question 2

What are the mandatory forms when opening a margin account?

Answer 2

CH
Credit
Hypothecation

Question 3

When must the risk disclosure document be signed?

Answer 3

Before trading

Question 4

What is included in a mixed margin account?

Answer 4

Long and short positions

Question 5

With a positive margin, profits exceed what?

Answer 5

Interest cost

Question 6

What level does equity have to drop below to get a maintenance margin call?

Answer 6

25% under SRO rules. House levels are set at a higher level by BDs

Question 7

Market makers

Answer 7

Function OTC. Sell from their inventory at their asking price and buy for their inventory at their bid price.

Question 8

Market maker spread

Answer 8

Difference between the MM’s bid and ask

Question 9

Specialist is another name for?

Answer 9

Designated market maker

Question 10

Specialists/Designated Market Maker

Answer 10

Handle orders on the NYSE floor as principal or agent

Question 11

Who handles the orders on the NYSE

Answer 11

Specialists/designated market makers

Question 12

Inside market

Answer 12

Highest bid and lowest ask among all MMS

Question 13

Market order

Answer 13

Executed immediately at the best available price. Only order that guarantees execution

Question 14

Limit order

Answer 14

Buy a specific security at or below a certain price or sell at or above a certain price

Question 15

Block trade size

Answer 15

10,000 shares

Question 16

High frequency trading

Answer 16

Algorithmic trading by institutions

Question 17

Specialist is the same thing as a market maker only they work on the

Answer 17

Listed exchanges

Question 18

Options can’t be bought on margin unless it’s a

Answer 18

LEAP

Question 19

What can you buy on margin under Reg T?

Answer 19

Listed stocks and listed bonds

Question 20

Who permits margin on munis and treasuries?

Answer 20

FINRA

Question 21

Can you buy munis and treasuries on margin?

Answer 21

Yes. FINRA permits buying munis and treasuries on margin.

Question 22

When a firm is position trading it is acting as a

Answer 22

Dealer. When a firm has a position in a security that means the firms owns it and is either long or short

Question 23

When the firm is acting for its own account it is acting as a

Answer 23

Dealer or principal

Question 24

Dark pools refer to the transactions between

Answer 24

Institutional traders or trading desks in large block trades

Question 25

Where do dark pools occur?

Answer 25

Away from the trading floor

Question 26

What is unknown in a dark pool?

Answer 26

Volume, quote price, participant identity

Question 27

Compute long equity

Answer 27

CMV long - debit balance

Question 28

Compute short equity

Answer 28

Credit balance - CMV short

Question 29

A nasdaq market maker buys 1k shares of common from a customer at its bid in order to satisfy a customer order

Answer 29

This is an example of a principal or dealer trade

Question 30

A margin call from a BD is called

Answer 30

A house call

Question 31

The term OTC means

Answer 31

Anywhere other than an exchange

Question 32

A new customer calls and says she didn’t see the commission on her first trade confirmation. You explain that

Answer 32

The firm acted as a principal and includes a markup in the price.

Question 33

When are commissions disclosed on the trade confirmation?

Answer 33

Whenever your firm acts as a agent/broker the commission must always be included on the trade confirmation

Question 34

When must the trade confirmation include the capacity in which the BD acted?

Answer 34

The confirmation must always state whether the firm was acting as a broker or dealer.

Question 35

Which accounts require the approval of the appropriate supervisory person?

Answer 35

All accounts, not just margin or trust accounts, require the approval of an appropriate supervisory person

Question 36

Which of the following could, accelerate a rise in a bull market?

1. Buy stop
2. Sell stop
3. Sell limit
4. Buy limit

Answer 36

Buy stop. Think of the things that are on top, buy stop and sell limit. Think buy bc buying will accelerate process

Question 37

An agent submits an order ticket, what does not need to be listed?

1. BDs name
2. Current market price of the security
3. Agents name
4. Details of the order

Answer 37

2. Current market price is never included

Question 38

A fiduciary of a trust that has a portfolio made up of 10% cash and 90% stock that has had a significant increase. What should he do?

Answer 38

Maintain the current allocation if that’s what the trust says. If it’s a question about trusts, almost always look for an answer about following the trusts guidelines

Question 39

Specialist buys or sells where and a market maker buys or sells where

Answer 39

Specialist is on the floor of an exchange. Market maker does similar function in OTC market

Question 40

Specialist also means

Answer 40

Designated market maker and they work on the floor of an exchange

Question 41

“You are authorized to lend to yourself or others any securities held by you in my margin account and carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities”

Answer 41

This is the loan consent agreement of a margin account - it is not required that the customer agree

Question 42

Positive margin means

Answer 42

You were successful in your use of leverage afforded by using margin. That means the total return exceeds the cost of borrowing the money.

Question 43

What is an example of using positive margin?

Answer 43

The rate of return on the investment exceeds the interest cost on the borrowed money.

Question 44

Stock prices in the over the counter market are determined by

Answer 44

Negotiation. The regular market is an auction market

Question 45

Your client calls you to place a sell stop order for a company, which you enter. Soon after, you receive inside information that earnings are going to be disastrous. Can the order still be executed?

Answer 45

Yes because the order was entered before you received the information.