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Unit Questions > Unit 8: Trading Securities > Flashcards

Unit 8: Trading Securities Flashcards

1
Q

Trading of securities in the secondary market is regulated by the

A

The Securities Act of 1934.

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2
Q

The Act of 1934 created the _________and gave it authority to regulate securities exchanges and the OTC market.

A

Securities and Exchange Commission (SEC)

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3
Q

The Securities Act of 1933 regulates_______ issues of securities

A

primary

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4
Q

The Securities Act of 1934 (aka Exchange Act) regulates_______ trading

A

secondary

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5
Q

The Exchange Market is the ________Market

A

Auction Market

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6
Q

The Over-the-Counter (OTC) Market is the ________ Market

A

Second Market

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7
Q

The_______ Market (OTC Listed) is the Nasdaq Intermarket, where exchange listed securities are traded in the OTC

A

Third

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8
Q

The ______ Market is for institutional investors; transactions are through ECNs

A

Fourth

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9
Q

A_______ cannot act as both a broker and a dealer in the same transaction.

A

firm

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10
Q

A _______:

  • acts as an agent transacting orders on the client’s behalf
  • charges a commission
  • is not a market maker
  • must disclose its role to the client and the amount of its commissions
A

Broker

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11
Q

A ________:

  • acts as a principal, dealing in securities for its own account and at its own risk
  • charges a markup or markdown
  • may make markets and take positions (long or short) in securities
  • must disclose its role to the client and the markup or markdown if a Nasdaq security.
A

Dealer

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12
Q

Securities traded on the NYSE, known as ______ securities, must satisfy the exchanges listing requirements.

A

listed

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13
Q

They are both agent and principal. They facilitate trading in specific stocks and their chief function is to maintain a fair and orderly market in those stocks. They also minimize price disparities that may occur at the opening of daily trading.

A

Specialist or Designated Market Maker (DMM)

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14
Q

Exchange securities are bought and sold in an ______ market. Exchange markets are also referred to as a double auction market because both buyers and sellers call out their best bids and offers in an attempt to transact business.

A

auction

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15
Q

Orders places are by:
_______ – first order in
_______ – largest order of those submitted
_______ – random drawing

A

Priority;
Precedence;
Parity

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16
Q

Volatile Market Conditions
Level 1 Halt – _____ Decline (3:25pm)
Level 2 Halt – _____ Decline (3:25pm)
Level 3 Halt - ______ Decline (at any time) Trading shall halt and not resume

A

Level 1 Halt – 7% Decline
Level 2 Halt – 13% Decline (3:25pm)
Level 3 Halt - 20% Decline

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17
Q

The type of order that you execute immediately at the market price

A

Market Orders

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18
Q

The type of order that limits the amount paid or received for a security

A

Limit Orders

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19
Q

This type of order becomes a market order if the stock reaches or goes through the ______ (trigger or election) price

A

Stop Orders;

stop

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20
Q

This type of order is entered as a stop order and changed to a ______ order if the stock hits or goes through the stop (trigger or election) price.

A

Stop Limit;

limit

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21
Q

Short Sale Rules – the ________ prohibits directors, officers and principal stockholders (insiders) from selling short stock in their own companies.

A

Securities Exchange Act of 1934

22
Q

_______ Exchanges – tend to focus on the securities of companies within their regions. (DUAL LISTING if securities are also listed on the NYSE).

A

Regional Exchanges

23
Q

A large percentage of the orders the NYSE receives each day are processed through a computerized trading and execution system known as ___________.

A

Super Display Book (SDBK)

24
Q

The ______ tape receives, validates and sequences the last sale price and size of all equity transactions in listed securities from all U.S. Stock Exchanges and FINRA.

A

The consolidation tape

25
Q

The _______ is the largest securities market

A

OTC

26
Q

Current ______ is the highest price at which the dealer will buy

A

bid

27
Q

The current _______ is the lowest price at which the dealer will sell

A

offer

28
Q

A quote will often be given with________, intended to allow the broker-dealer to back away if market conditions change.

A

qualifiers

29
Q

A _______ quote is an approx figure used to provide the buyer or seller with an indication of price, but not a firm quote.

A

workout

30
Q

A _______ quote is someone’s assessment of where a stock might trade

A

nominal

31
Q

The difference between a security’s bid and offer (ask) price, is known as the _______.

A

spread

32
Q

The ___% _______ policy was adopted to ensure that the investing public receives fair treatment and pays reasonable rates for brokerage services in both exchanges and OTC markets.

A

5% markup policy

33
Q

The 5% markup policy does not apply to mutual funds, variable annuity contracts or securities sold in public offering, all of which are sold by a ________, nor does it apply to _______ securities.

A

prospectus;

municipal

34
Q

Nasdaq Level ____ – available to registered representatives. Displays the inside market only, the highest bids and the lowest asks for securities included in the system.

A

Nasdaq Level 1

35
Q

Nasdaq Level ___ – available to approved subscribers only

A

Nasdaq Level 2

36
Q

Nasdaq Level ____ – provides subscribers with all of the services of level 1 and 2 and allows registered market makers to input and update their quotes on any securities in which they make a market.

A

Nasdaq Level 3

37
Q

The difference between bid and ask

A

Spread

38
Q

Agents that arrange trades for clients and charge commissions

A

Brokers

39
Q

The people buy and sell securities for their own accounts.

A

Dealers (or principals)

40
Q

Difference between the current interdealer offering price and the actual price charged to the client. When a price to a client includes a dealer’s______, it is called a net price.

A

Markup

41
Q

A trading strategy that specialized traders (called arbitrageurs) use to profit from temporary price different between market and securities.

A

Arbitrage

42
Q

_____ Quote: the price is tentative, subject to reconfirmation by the market makers.

A

Subject quote

43
Q

During a market halt, while no trading can occur, investors can still cancel ________ (open) orders that had been entered previously.

A

existing

44
Q

_______orders stand in time priority. There may be multiple orders to buy stock at a particular price. Once the stock begins trading at that price, those limit orders that were entered first will be filled first.

A

Limit

45
Q

You are likely to be asked which orders are reduced for cash dividends. Only those placed ______ the market price are automatically reduced.

A

below

Remember that BLISS (buy limits and sells stops) orders are placed below the market price and are reduced for cash dividend distributions. All orders are adjusted for stock dividends and stock splits, whether placed above or below the market.

46
Q

OTC trading is regulated by both the _____ and ______

A

the SEC and FINRA (the SRO of the OTC).

47
Q

Backing away from a firm quote is a _______ of trading rules.

A

violation

48
Q

A ______% policy applies to markups, markdowns and commissions.

A

5%

49
Q

Markups and markdowns are charged when a market maker is acting as a _______ (dealing from inventory with financial risk).

A

principal

50
Q

_______ quotes can be given for informational purposes, and can be printed only if clearly labeled as such.

A

Nominal

51
Q

A relatively______ spread indicates a thin trading market for the security.

A

wide

52
Q

THE 5% MARKUP POLICY IS PECULIARLY NAMED FOR TWO REASONS:

A
  1. It applies to markups, markdowns, and commissions, meaning it is applicable to principal and agency transactions.
  2. Five percent is not the limit. A transaction charge of more than 5% might be fine if it is reasonably based on the circumstances of the trade.

Unit Questions (18 decks)

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