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Series 24 > Unit 4 Supervision of Trading and Market Making > Flashcards

Unit 4 Supervision of Trading and Market Making Flashcards

1
Q

In an active, competitive market, the prevailing market price for determining a markdown is

A

the highest bid

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2
Q

Under rules, a nondirected order must be

A

a market order or a marketable limit order

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3
Q

A NASDAQ market maker uses an in-house system that tracks changes in the inside market and generates quotes updates to keep the market maker’s quotes away from the best market. This action is …

A

prohibited

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4
Q

An excuse withdrawal may be granted by NASDAQ for which of the following reasons

A
  1. Equipment malfunction
  2. The market maker is in possession of inside information on the issuer
  3. The market maker involuntarily fails to maintain a clearing agreement
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5
Q

With consent of the account holder, a market maker in WXYZ may act in a principal capacity when selling WXYZ stock to which of the following accounts?

A

WRAP accounts

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6
Q

In a proceeds transaction, markup is computed based on

A

a combination of the compensation earned on the sell and buy side applied against the prevailing market price on the buy side

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7
Q

The modifier Z appended to an ACT report indicates that the trade report

A

is being made late

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8
Q

Under ACT rules, trades must be reported within

A

10 seconds of execution

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9
Q

To voluntarily terminate registration as a NASDAQ market maker, a member firm

A

withdraws its quotes from NASDAQ

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10
Q

Interpositioning can be justified when

A

a member receives a superior execution

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11
Q

Unless an exemption is available, member firms must provide purchasers of penny stocks with…

A
  1. a risk disclosure document
  2. current bid and ask quotes
  3. compensation to be earned by both the member and the registered representative
  4. monthly statements
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12
Q

The rules prohibiting front running apply to…

A
  1. proprietary accounts
  2. employee accounts
  3. employee-related accounts
  4. accounts over which the member has discretionary authority
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13
Q

A firm one-side quote is permitted for

A

Bulletin board Stocks

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14
Q

A market maker in a Global Market stock is quoting 23.15-23.30, 10 X 10. A customer enters an order to buy 400 shares at 23.15. Under SEC rules, the market maker

A

must update its quote size to 14 x 10

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15
Q

A locked market is one in which the inside bid is

A

the same as the inside offer

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16
Q

The NSDQ identifier on NASDAQ reflects

A

nonattributable orders/quotes

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17
Q

Which if the following are defined as penny stocks

A
  1. Bulletin Board stock trading at $5 per share
  2. Pink Open Market stock trading at $5 per share
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18
Q

Failure to honor a firm quite is called

A

backing away

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19
Q

A T1 modifier displayed on a NASDAQ terminal indicates

A

that news is pending

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20
Q

If a registered reporting ADF market maker voluntarily terminates its registration by withdrawing its quotes from ADF, it may NOT reregister in that security for

A

20 business days

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21
Q

A Series 57 license is required for

A
  1. NASDAQ market makers
  2. proprietary OTC traders
  3. persons who supervise NASDAQ market makers and proprietary OTC traders
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22
Q

Under rules, the maximum order size is

A

999,999 shares

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23
Q

Under trade reporting rules, an as/of trade is one

A

executed outside of normal market hours and reported on the following business day

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24
Q

NASDAQ Level 1 data service

A

displays the inside market and last sale information

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25
Q

Which of the following statements is true?

A
  1. The FINRA/NASDAQ TRF and ORF permit firms to submit outside normal market hours trade reports throughout the day
  2. If a trade was executed between the midnight and 8 am, the trade must be reported on trade date by 8:15 am
  3. If a trade was executed between the close of a FINRA facility and midnight, the trade must be reported on an “as/of” basis the following business day (T+1) by 8:15 am
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26
Q

Which if the following orders is a member permitted to execute during a trading halt?

A

None. No unsolicited orders from any source.

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27
Q

A crossed market is one in which the inside bid is

A

higher than the inside offer

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28
Q

If no execution option is specified at time of order entry, NASDAQ will assume

A

Price and Time

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29
Q

Under SEC rules, limit orders that improve a market maker’s price or size must be displayed within how many seconds of receipt?

A

30 seconds

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30
Q

Under SEC rules, which if the following limit orders do NOT have to be displayed?

A
  1. All-or-none orders
  2. Block size orders
  3. Orders delivered to an eligible ECN
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31
Q

FINRA has the authority to issue a trading halt with regard to

A
  1. Global Market stocks
  2. Capital Market stocks
  3. Third-market stocks
  4. Bulletin Board stocks
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32
Q

An average weighted price trade that occurred outside market hours is modified by

A

.T and .W

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33
Q

A T.2 modifier displayed over NASDAQ indicates that

A

a news announcement has been made

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34
Q

A Bulletin Board market maker is quoting a stock at 5.25-5.50. under FINRA rules, the market maker must be willing to buy or sell, at its stated quotes, a minimum of

A

100 shares

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35
Q

Under rules, preferenced orders are sent to

A

a specific market maker at the inside market

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36
Q

OATS rules apply to

A
  1. Global Market securities
  2. Capital Market securities
  3. NYSE listed securities
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37
Q

The open outcry of bids and offers characterizes most closely

A

NYSE trading

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38
Q

Order execution reports by market centers must be prepared

A

monthly

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39
Q

To review its trades to ensure best execution, an introducing firm can request which of the following from its clearing firm

A

Compliance Report Card

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40
Q

Member firms who are required to transmit trade reports to OATS may do so

A

Daily

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41
Q

SEC Rule 10b-17 requires issuers of listed securities to advise the exchange of an upcoming record date at least how many days in advance?

A

10 days

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42
Q

A confirmation for a when-issued contract includes all of the following

A
  1. a description of the security
  2. designation of FINRA as the authority to rule on the contract
  3. procedures for marking the contract to the market
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43
Q

All of the following deliveries are subject to reclamation

A
  1. a bearer bond delivered with missing coupons
  2. a mutilated certificate
  3. a bond certificate rejected by the transfer agent
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44
Q

In an interdealer trade of 600 shares, all of the following would be good delivery

A
  1. two 300 share certificates
  2. twelve 50 share certificates
  3. six 60 share certificate and six 40 share certificate

five 120 share certificates would not be a good delivery

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45
Q

For interdealer trades that are settled ex-clearing, paper confirmations must be sent

A

no later than T+1

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46
Q

The ex-date for stock dividends and/or splits that are valued at 25% or more of the subject security is 1 business day

A

after payable date

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47
Q

The ex-date for cash settlement transactions is 1 business day

A

after record date

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48
Q

Which of the following statements regarding the physical delivery of securities are true?

A
  1. Delivery is made at the office of the buyer
  2. Delivery expenses are borne by the seller
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49
Q

If a buying member fails to pay for securities purchased when they are delivered on settlement date, the selling member can sell out of the position

A

any time after settlement date

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50
Q

A corporate bond paying interest on March 1 and September 1 is purchased on Friday, May 19, in a regular way trade. The number of days of accrued interest payable to the seller is

A

83 days

51
Q

Accrued interest is

A
  1. added to the buyer’s confirmation
  2. added to the seller’s confirmation
52
Q

The first day a stock trades without a due bill attached is the

A

ex-date

53
Q

When one member borrows stock from another member, which if the following statements are true?

A
  1. The borrowed stock is marked to the market daily
  2. The lending member is entitled to any dividends on the loaned stock
  3. The stock is returnable upon demand of the lending member
54
Q

If securities delivered in an interdealer trade are refused byu the transfer agent, the time frame for reclamation is

A

30 months from delivery date

55
Q

Under Uniform Practice Rules, a partial delivery of common stock in an interdealer trade is

A

acceptable as long as the amount remaining to be delivered does not include an odd lot

56
Q

Securities transactions must be entered on the BD blotter no later than the

A

business day following the trade date

57
Q

Minimum criteria for listing on the NYSE include number of shareholders, earning per share, earnings, and number of publicly hold shares. True or False?

A

False

no minimum requirements

58
Q

Only a DMM may accept not held orders. True or False?

A

False

Floor brokers and two-dollar brokers may accept these orders

59
Q

A DMM may not trade for tis own account. True or False?

A

False

DMM may trade own account

60
Q

For initial listing as a Capital Market stock, an issue must have a minimum bid price of $4 per share. True or False?

A

True

61
Q

The only reasons FINRA may terminate an issue’s inclusion in NASDAQ are if the issuer files for bankruptcy or the issuer’s independent accountants issue a disclaimer opinion on the company’s financial statements. True or False?

A

False

May also terminate if its in the public’s interest

62
Q

A market maker may seek an excused withdrawal because of equipment malfunction, a pending new announcement, involuntary failure to maintain a clearing agreement, the requirements of Regulation M, sudden price changes, or influx of orders. True or False?

A

False

Pending new announcement is not an acceptable reasons for an excused withdrawal

63
Q

To voluntarily terminate its registration in a particular security, a market maker withdraws its quotes from NASDAQ

A

True

64
Q

Market makers are prohibited from accepting any type of compensation from an issuer to make a market in the issuer’s securities, but may accept payment from services rendered and reimbursement of expenses.

A

True

65
Q

A market maker in ABCD is quoting 20-20.25, 13 x 10, which is the inside market. The market maker accepts a customer order to buy 100 shares at 20. According to SEC rules, the market maker must

A

protect the order

66
Q

A market maker is holding an undisplayed customer limit order to buy 500 shares at 10.25 while quoting 10-10.40, 10 x 10. the customer’s limit order includes an agree-on markup of .15. If the market maker then receives a market order to sell 200 shares and executes against the undisplayed limit, the market maker must fill the customer order at

A

10.10

67
Q

A market maker holds a customer limit order to buy 300 shares of ABCD at 120 AON. The market maker purchases 100 shares of ABCD as principal at 10. Limit order rules require that the MM

A

not execute the customer limit order

68
Q

A MM is quoting a 10.10-10.30, 8 x 10 at the inside market. The bid at 10.10 represents a customer limit order. To avoid triggering a Manning obligation, the MM must purchase as principal at least

A

.01 above the bid

69
Q

The inside market for ABCD stock is 20-20.30, 12 x 20. A MM in the stock is currently quoting 19.95-20.30, 10 x 10 and receives a customer order to buy 500 shares at 20.20. The MM’s quite

A

must be updated to 20.20-20.30, 5 x 10

70
Q

Lowest asked price/highest bid price is

A

Active conpetitive

71
Q

Contemporaneous sales to other dealers/contemporaneous purchases from other dealers

A

Inactive competitive

72
Q

Cost/cost is

A

Dominated/controlled market

73
Q

FINRA views a proceeds transaction as a single trade for markup/commission purposes. True or False?

A

True

74
Q

FINRA may issue a trading halt on NASDAQ and non-NASDAQ securities. True or False?

A

True

75
Q

Under the Investment Advisers Act of 1940, member firms must execute all transactions with managed accounts in stocks in which they are a market maker on a principal basis. True or False?

A

False

MM when selling to managed accounts may act in an agency capacity

76
Q

A registered BD may undertake each of the following actions.

A
  1. reporting a trade that occurred during market hours after the market has closed
  2. partially executing an IOC order and canceling the balance without customer permission
  3. failing to display a customer limit order
77
Q

The penny stock rules apply to any OTC equity security with a price of less than $5 per share. True or False?

A

True

78
Q

Established customers are exempt from the suitability requirements of the penny stock rules. True or False?

A

True

79
Q

Before filing an order for a Pink security, a member is required to contact a minimum of 5 dealers to determine the prevailing market. True or False?

A

False

no requirement to check with 5 dealers. Price must be fair and reasonable.

80
Q

Convertible debt securities are quoted in the CQS system. True or False?

A

False

CQS is a SIP that collects and processes all equity quotes in listed securities, local issues, and bonds from all US Stock Exchanges and FINRA

81
Q

CQS operates from 9 am to 6:30 om ET. True or False?

A

True

82
Q

After a voluntary withdrawal of quotes, a NASDAQ or ADF MM must wait 10 business days to reregister. True or False?

A

False

83
Q

Which of the following systems is an order-routing system that can be customized to allow order-entry firms to direct orders tot the internal trading system of specific market makers?

A

ACES

84
Q

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

A

price and time

85
Q

GTC orders are available to display/execution until

A

4 pm each day

86
Q

Reverse-pegged buy orders are priced at

A

.01 lower than the inside offer

87
Q

If the current inside bid for WXYZ is $24, the threshold price for an unpriced sweep order to sell would be

A

$21.59

88
Q

Once a price cap is reached, a pegged or reverse-pegged order becomes a

A

limit order

89
Q

Unlinked, or ineligible ECNs display quotes on the

A

ADF

90
Q

Day orders designated as X orders expire, if unexecuted, at

A

8 pm that day

91
Q

If a MM’s attributable interest is reduced to less than 100 shares, and the firm has no reserve size, NASDAQ will zero out the exhausted side of the market for

A

30 seconds

92
Q

OTC transactions must be reported within 10 seconds of execution. True or False?

A

True

93
Q

Trades in OTC Equity Securities, gray market, are not reportable. True or False?

A

False

OTC equity securities are reported through the OTC Reporting Facility or ORF

94
Q

In a transaction between 2 nonmarket makers, the buyer reports. True or False?

A

False

In a transaction between 2 nonmarket makers, the seller reports the TRF

95
Q

The FINRA trade reporting facilities transmit last sale information. True or False?

A

True

96
Q

Clearing brokers and correspondent executing brokers are the two types of participants that input trade reports, True or False?

A

False

Its the MM and order entry firms

97
Q

Trade reports must be make within 10 seconds of trade execution, True or False?

A

True

98
Q

If a MM involuntarily fails to maintain a clearing agreement, the MM is subject to an excused withdrawal and can begin quoting after arranging an alternate clearing arrangement. True or False?

A

True

99
Q

Price at which a principal trade of 100 shares at 22.10, which includes a markdown of .40, is reported

A

22.50

100
Q

Price at which a principal trade of 100 shares at 22.10, which includes a markup of .35, is reported

A

21.75

101
Q

Price at which a riskless principal trade with a purchase of 100 shares at 22.10 and sale of 100 shares at 22.10 plus a markup of .30 is reported

A

22.10

102
Q

Price at which a sale of 22.35 less commission of .35 is reported

A

22.35

103
Q

A cash settlement trade reporting modifier

A

.C

104
Q

A late trade report trade reporting modifier

A

.Z

105
Q

An extended settlement trade reporting modifier

A

.SNN

106
Q

A trade is effected outside of market hours but reported on the same day trade reporting modifier

A

.T

107
Q

A trade is effected outside of market hours but reported on the next day trade reporting modifier

A

As-of

108
Q

Type of security not subject to regulatory reporting requirements is

A

Pink Open Market

109
Q

Example of a security that is reported to the NASDAQ/TRF is

A

OTCBB

110
Q

The system that provides reports for corporate bond transactions is

A

TRACE

111
Q

Modifier included when a trade performed outside of market hours is reported on the next business day

A

As/of

112
Q

Modifier included when a trade performed outside of market hours is reported on the same business day

A

.T

113
Q

Modifier included when a trade is not reported on time

A

.Z

114
Q

The ex-date for most stock splits is the business day after the record date. True or False?

A

False

The ex-date for stock splits and stock dividends is the business day after the payable date where the number of shares represents a 25% or more increase

115
Q

A securities buy-in can take place no sooner than the business day after the settlement date. True or False?

A

False

A security buy-in can take place no sooner tam 3 business days after the settlement date.

116
Q

Notification of a dividend distribution must be made to the Exchange or FINRA at least 10 days before the record date. True or False?

A

True

117
Q

Stock borrowed, dealer to dealer, requires the borrower to put up 50%. True or False?

A

False

The borrowing member must put up, in cash, an amount equal to the market value of the borrowed stock

118
Q

Clearly erroneous trades must be reported to FINRA within 30 mins of the execution. True or False?

A

True

119
Q

Bearer bonds must be delivered in denominations of $1000 or $5000. True or False?

A

True

120
Q

Accrued interest payable to the seller includes the prior interest payment date but does not include the settlement date. True or False?

A

True

121
Q

The time frame for reclamation of stole or counterfeit certificates is unlimited. True or False?

A

False

Reclamation of stolen or counterfeit certificates must be make within 30 months form the delivery date.

122
Q

Sellouts cans be executed any time after settlement without prior written notice. True or False?

A

True

123
Q

If a customer does not pay for a trade, sell out may be expected in T+5 business days. True or False?

A

True

Series 24 (11 decks)

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