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
2
Q
Under rules, a nondirected order must be
A
a market order or a marketable limit order
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
4
Q
An excuse withdrawal may be granted by NASDAQ for which of the following reasons
A
- Equipment malfunction
- The market maker is in possession of inside information on the issuer
- The market maker involuntarily fails to maintain a clearing agreement
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
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
7
Q
The modifier Z appended to an ACT report indicates that the trade report
A
is being made late
8
Q
Under ACT rules, trades must be reported within
A
10 seconds of execution
9
Q
To voluntarily terminate registration as a NASDAQ market maker, a member firm
A
withdraws its quotes from NASDAQ
10
Q
Interpositioning can be justified when
A
a member receives a superior execution
11
Q
Unless an exemption is available, member firms must provide purchasers of penny stocks with…
A
- a risk disclosure document
- current bid and ask quotes
- compensation to be earned by both the member and the registered representative
- monthly statements
12
Q
The rules prohibiting front running apply to…
A
- proprietary accounts
- employee accounts
- employee-related accounts
- accounts over which the member has discretionary authority
13
Q
A firm one-side quote is permitted for
A
Bulletin board Stocks
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
15
Q
A locked market is one in which the inside bid is
A
the same as the inside offer
16
Q
The NSDQ identifier on NASDAQ reflects
A
nonattributable orders/quotes
17
Q
Which if the following are defined as penny stocks
A
- Bulletin Board stock trading at $5 per share
- Pink Open Market stock trading at $5 per share
18
Q
Failure to honor a firm quite is called
A
backing away
19
Q
A T1 modifier displayed on a NASDAQ terminal indicates
A
that news is pending
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
21
Q
A Series 57 license is required for
A
- NASDAQ market makers
- proprietary OTC traders
- persons who supervise NASDAQ market makers and proprietary OTC traders
22
Q
Under rules, the maximum order size is
A
999,999 shares
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
24
Q
NASDAQ Level 1 data service
A
displays the inside market and last sale information
25
Which of the following statements is true?
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
26
Which if the following orders is a member permitted to execute during a trading halt?
None. No unsolicited orders from any source.
27
A crossed market is one in which the inside bid is
higher than the inside offer
28
If no execution option is specified at time of order entry, NASDAQ will assume
Price and Time
29
Under SEC rules, limit orders that improve a market maker's price or size must be displayed within how many seconds of receipt?
30 seconds
30
Under SEC rules, which if the following limit orders do NOT have to be displayed?
1. All-or-none orders
2. Block size orders
3. Orders delivered to an eligible ECN
31
FINRA has the authority to issue a trading halt with regard to
1. Global Market stocks
2. Capital Market stocks
3. Third-market stocks
4. Bulletin Board stocks
32
An average weighted price trade that occurred outside market hours is modified by
.T and .W
33
A T.2 modifier displayed over NASDAQ indicates that
a news announcement has been made
34
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
100 shares
35
Under rules, preferenced orders are sent to
a specific market maker at the inside market
36
OATS rules apply to
1. Global Market securities
2. Capital Market securities
3. NYSE listed securities
37
The open outcry of bids and offers characterizes most closely
NYSE trading
38
Order execution reports by market centers must be prepared
monthly
39
To review its trades to ensure best execution, an introducing firm can request which of the following from its clearing firm
Compliance Report Card
40
Member firms who are required to transmit trade reports to OATS may do so
Daily
41
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?
10 days
42
A confirmation for a when-issued contract includes all of the following
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
43
All of the following deliveries are subject to reclamation
1. a bearer bond delivered with missing coupons
2. a mutilated certificate
3. a bond certificate rejected by the transfer agent
44
In an interdealer trade of 600 shares, all of the following would be good delivery
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
45
For interdealer trades that are settled ex-clearing, paper confirmations must be sent
no later than T+1
46
The ex-date for stock dividends and/or splits that are valued at 25% or more of the subject security is 1 business day
after payable date
47
The ex-date for cash settlement transactions is 1 business day
after record date
48
Which of the following statements regarding the physical delivery of securities are true?
1. Delivery is made at the office of the buyer
2. Delivery expenses are borne by the seller
49
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
any time after settlement date
50
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
83 days
51
Accrued interest is
1. added to the buyer's confirmation
2. added to the seller's confirmation
52
The first day a stock trades without a due bill attached is the
ex-date
53
When one member borrows stock from another member, which if the following statements are true?
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
If securities delivered in an interdealer trade are refused byu the transfer agent, the time frame for reclamation is
30 months from delivery date
55
Under Uniform Practice Rules, a partial delivery of common stock in an interdealer trade is
acceptable as long as the amount remaining to be delivered does not include an odd lot
56
Securities transactions must be entered on the BD blotter no later than the
business day following the trade date
57
Minimum criteria for listing on the NYSE include number of shareholders, earning per share, earnings, and number of publicly hold shares. True or False?
False
no minimum requirements
58
Only a DMM may accept not held orders. True or False?
False
Floor brokers and two-dollar brokers may accept these orders
59
A DMM may not trade for tis own account. True or False?
False
DMM may trade own account
60
For initial listing as a Capital Market stock, an issue must have a minimum bid price of $4 per share. True or False?
True
61
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?
False
May also terminate if its in the public's interest
62
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?
False
Pending new announcement is not an acceptable reasons for an excused withdrawal
63
To voluntarily terminate its registration in a particular security, a market maker withdraws its quotes from NASDAQ
True
64
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.
True
65
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
protect the order
66
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
10.10
67
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
not execute the customer limit order
68
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
.01 above the bid
69
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
must be updated to 20.20-20.30, 5 x 10
70
Lowest asked price/highest bid price is
Active conpetitive
71
Contemporaneous sales to other dealers/contemporaneous purchases from other dealers
Inactive competitive
72
Cost/cost is
Dominated/controlled market
73
FINRA views a proceeds transaction as a single trade for markup/commission purposes. True or False?
True
74
FINRA may issue a trading halt on NASDAQ and non-NASDAQ securities. True or False?
True
75
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?
False
MM when selling to managed accounts may act in an agency capacity
76
A registered BD may undertake each of the following actions.
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
The penny stock rules apply to any OTC equity security with a price of less than $5 per share. True or False?
True
78
Established customers are exempt from the suitability requirements of the penny stock rules. True or False?
True
79
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?
False
no requirement to check with 5 dealers. Price must be fair and reasonable.
80
Convertible debt securities are quoted in the CQS system. True or False?
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
CQS operates from 9 am to 6:30 om ET. True or False?
True
82
After a voluntary withdrawal of quotes, a NASDAQ or ADF MM must wait 10 business days to reregister. True or False?
False
83
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?
ACES
84
If no execution option is specified at time of order entry, the Book will assume
price and time
85
GTC orders are available to display/execution until
4 pm each day
86
Reverse-pegged buy orders are priced at
.01 lower than the inside offer
87
If the current inside bid for WXYZ is $24, the threshold price for an unpriced sweep order to sell would be
$21.59
88
Once a price cap is reached, a pegged or reverse-pegged order becomes a
limit order
89
Unlinked, or ineligible ECNs display quotes on the
ADF
90
Day orders designated as X orders expire, if unexecuted, at
8 pm that day
91
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
30 seconds
92
OTC transactions must be reported within 10 seconds of execution. True or False?
True
93
Trades in OTC Equity Securities, gray market, are not reportable. True or False?
False
OTC equity securities are reported through the OTC Reporting Facility or ORF
94
In a transaction between 2 nonmarket makers, the buyer reports. True or False?
False
In a transaction between 2 nonmarket makers, the seller reports the TRF
95
The FINRA trade reporting facilities transmit last sale information. True or False?
True
96
Clearing brokers and correspondent executing brokers are the two types of participants that input trade reports, True or False?
False
Its the MM and order entry firms
97
Trade reports must be make within 10 seconds of trade execution, True or False?
True
98
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?
True
99
Price at which a principal trade of 100 shares at 22.10, which includes a markdown of .40, is reported
22.50
100
Price at which a principal trade of 100 shares at 22.10, which includes a markup of .35, is reported
21.75
101
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
22.10
102
Price at which a sale of 22.35 less commission of .35 is reported
22.35
103
A cash settlement trade reporting modifier
.C
104
A late trade report trade reporting modifier
.Z
105
An extended settlement trade reporting modifier
.SNN
106
A trade is effected outside of market hours but reported on the same day trade reporting modifier
.T
107
A trade is effected outside of market hours but reported on the next day trade reporting modifier
As-of
108
Type of security not subject to regulatory reporting requirements is
Pink Open Market
109
Example of a security that is reported to the NASDAQ/TRF is
OTCBB
110
The system that provides reports for corporate bond transactions is
TRACE
111
Modifier included when a trade performed outside of market hours is reported on the next business day
As/of
112
Modifier included when a trade performed outside of market hours is reported on the same business day
.T
113
Modifier included when a trade is not reported on time
.Z
114
The ex-date for most stock splits is the business day after the record date. True or False?
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
A securities buy-in can take place no sooner than the business day after the settlement date. True or False?
False
A security buy-in can take place no sooner tam 3 business days after the settlement date.
116
Notification of a dividend distribution must be made to the Exchange or FINRA at least 10 days before the record date. True or False?
True
117
Stock borrowed, dealer to dealer, requires the borrower to put up 50%. True or False?
False
The borrowing member must put up, in cash, an amount equal to the market value of the borrowed stock
118
Clearly erroneous trades must be reported to FINRA within 30 mins of the execution. True or False?
True
119
Bearer bonds must be delivered in denominations of $1000 or $5000. True or False?
True
120
Accrued interest payable to the seller includes the prior interest payment date but does not include the settlement date. True or False?
True
121
The time frame for reclamation of stole or counterfeit certificates is unlimited. True or False?
False
Reclamation of stolen or counterfeit certificates must be make within 30 months form the delivery date.
122
Sellouts cans be executed any time after settlement without prior written notice. True or False?
True
123
If a customer does not pay for a trade, sell out may be expected in T+5 business days. True or False?
True
