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Ser 7 > Ch 12 - Roles, Transactions, Spreads > Flashcards

Ch 12 - Roles, Transactions, Spreads Flashcards

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1
Q

Traders

A

Buy and sell securities for clients
Typically work on behalf of large portfolios (e.g. mutual funds, hedge funds)

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2
Q

Broker-dealers

A

Buy and sell securities for clients
May act in an agency or principal capacity but not at the same time, in any given trade

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3
Q

Market makers

A

Buy and sell securities with the public
Acts only in a principal capacity

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4
Q

Agency capacity

A

Firms match buyers & sellers
Commission earned
Associated terms
-Brokers
-Agents

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5
Q

Principal capacity

A

Firms buying and selling with inventory
Mark-ups and mark-downs earned
Associated terms:
-Dealer
-Market maker

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6
Q

Bid/ask spreads

A

Maintained by market makers
Provide best buy & sell prices

-Market makers buy at the bid
-Customers sell at the bid

-Market makers sell at the ask
-Customers buy at the ask

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7
Q

Bid

A

Market makers buy at the bid
Customers sell at the bid

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8
Q

Ask

A

Market makers sell at the ask
Customers buy at the ask

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9
Q

Round lot

A

100 shares of stock

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10
Q

Efficient market

A

A large number of market participants
Small spreads and active trading

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11
Q

New York Stock Exchange

A

Auction market
DMM acts as the NYSE auctioneer
All trades occur in the first market

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12
Q

Designated market maker (DMM)

A

Facilitates trading in NYSE stocks
May act in an agency or principal capacity

-if trading from DMM own account, cannot step in front of public orders (bid and ask)
-that means, must buy at price higher than the bid and sell at a price lower than the ask
-

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13
Q

Super Display Book

A

Order routing system of the NYSE
Universal Trading Platform is the modern system

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14
Q

DMM’s book

A

Holds limit orders currently away from the market
Market orders from other investors matched against the book

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15
Q

Floor brokers

A

Employees of financial firms operating on the exchange floor
Obtain the best execution for the firm’s large customer orders

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16
Q

Stopping stock

A

DMM freezes a stock price for a short amount of time
Must be for a public customer

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17
Q

Circuit breakers

A

Shuts market down in event of quick and large market decline
Thresholds:
7% decline - 15-minute halt
13% decline - 15-minute halt
20% decline - rest of day halt

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18
Q

Price discovery

A

DMMs analyze market data to determine a stock’s opening price

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19
Q

Dual-listed stock

A

Listed on a national and regional exchange

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20
Q

Consolidated Quotation System

A

Provides the consolidated tape
Displays quotes on securities across multiple markets
Combines first and third market quotes

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21
Q

market capitalization

A

outstanding common shares * market price of common stock

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22
Q

NASDAQ

A

Negotiated market
Made up of numerous market makers
Considered an OTC market (does not take place at a physical exchange)
Normal operating hours from 9:30am - 4:00pm ET

Does have pre-market 9-9:30AM ET & post-market 4-8pm ET
-fewr trades, inc liquidity risk, isden the inside market (highest bid and lowest ask) spread
-if allowing investor to trades, BD must provide with additional risk disclosures

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23
Q

Level 1 quote

A

Shows the inside market

Displays the highest bid and lowest ask

(only one quote)

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24
Q

Level 2 quote

A

Shows all market maker quotes on A specific secuirty

(multiple quotes)

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25
Level 3 quote
Like level 2, but interactive Only market makers have access
26
NASDAQ Market Center Execution System
Trade routing system used by NASDAQ Accepts quotes for up to 999,999 shares
27
Self-regulatory organizations (SROs)
Granted the power to regulate markets
28
FINRA
A self-regulatory organization (SRO) Regulates financial professionals
29
OTC Markets Group
OTC market trading non-listed stocks Made of three sub-markets: -OTCQX -OTCQB -OTC Pink Market
30
OTCQX
Highest listing standards of OTC Markets Group Financial and reporting requirements exist
31
OTCQB
Also known as a venture market The trading market for smaller developing companies
32
OTC Pink Market
Least prestigious of OTC Markets Group No listing or financial requirements Market for bankrupt and distressed companies
33
What trades solely on OTC
US gov bond, municipal bond, penny stocks all SOLELY TRADES OTC common stock NOT, they trade on EXchange
34
Designated Primary Market Maker (DPM)
Facilitates options trading on CBOE Helps create a fair and orderly market' can act as agency or principle role Similar to DMM on NYSE
35
Chicago Board Options Exchange(CBOE)
Primary options trading exchange SRO with regulatory abilities in the options markets --Protocols of assignment (exercise) --Options contract adjustment rules --Position & exercise limits there are DPM and floor brokers floor brokers stays in contact with DPM to fill order on behalf of customers floor brokers work typically with large BD ensure customer orders are fulfilled, act on agency basis
36
Securities Exchange Act of 1934
created SEC Regulates the secondary market Applies to non-exempt securities Applies to market participants Required broker-dealers to provide (semi-annually) -Balance sheets -Net capital computations
37
Anti-fraud rule
Part of the Securities Exchange Act of 1934 Applies to all securities Applies to all market participants
38
Insider (affiliate) rules
Cannot sell short company stock Must return short swing profits
39
Short swing profit
profit made on a security held for six months or less required to return the profit back to the issuer (their company).
40
Penny stock
Non-listed stock trading for less than $5 Investors must receive: -Risk disclosure document -Monthly statements
41
Penny stock suitability statement
-Required for solicitations -Not required for established customers -Established customer: ---Account open for 1+ year ---3 unsolicited penny stock trades
42
SEC enforces reporting requirements
requires non-excepmt issuers to periodically create publi reports on their securities gove isuers (us gov and municipalities) are exempt from this rule
43
Market orders
Transaction request at the next possible price Guarantees execution, not price Always day orders
44
Day orders
Cancelled at end of the day if not executed
45
GTC orders
Good Till Cancelled Cancelled when customer requests
46
Limit orders
Seek better prices for investors Guarantee price, but not execution Day or GTC orders
47
Buy limit orders
Execute when the price falls to or below the limit price
48
Sell limit orders
Execute when the price rises to or above the limit price
49
Stop orders
Typically utilized to “stop losses” on stock Do not guarantee price or execution Trigger (elect) first, then execute Become market orders after trigger Day or GTC orders
50
Sell stop orders
Trigger when the price falls to or below the stop price， stop price triggers/elects, execute at the next price
51
Buy stop orders
Trigger when the price rises to or above the stop price stop price triggers/elects, execute at the next price
52
Stop limit orders
Normal stop orders up until the trigger After the trigger, becomes a limit order Day or GTC orders buy @ $ stop limit -- meaning will trigger buy when price go beyond $, but will only "execute" if goes below $ sell # $1 stop $2 limit -will trigger sell when price go below $ but will only execute if price goes above $2
53
Orders placed above current market
Sell limits Buy stops Not adjusted for cash dividends
54
Orders placed below current market
Buy limits Sell stops Adjusted for cash dividends
55
Cash dividend adjustments
Orders below the market adjusted downward by the amount of the dividend
56
DNR (do not reduce) orders
Never adjusted for cash dividends
57
SLOBS” / “BLISS
Sell Limit and Buy Stop are above $ Buy Limit and Sell Stop are below $
58
All or none (AON)
Fill all shares or none at all Multiple attempts allowed
59
Immediate or cancel (IOC)
Fill as many shares as possible One attempt allowed
60
Fill or kill (FOK)
Fill all shares immediately One attempt allowed
61
Market on open (MOO) orders
Market order that fills at market open
62
Market on close (MOC) orders
Market order that fills at market close
63
Not held (NH) orders
Trade request without a price and/or time specifications Floor brokers determine the best price or time Must be day orders or require a POA - meaning must be filled same day or else becomes discretionary, which requires POA
64
Proceeds transactions
Sell a security and use proceeds to buy another security
65
Order tickets
Must be prepared before order entry Promptly reviewed by principals Changes subject to principal approval
66
Order ticket components
Customer identifier Cash or margin account Registered representative identifier Long or short sale Security identifier (symbol or CUSIP) Number of shares or units Order type Date and time Solicited or unsolicited order If order is discretionary discretionary=a type of principal transaction where financial professional is making decision on behalf of customer regarding asset, action, amount (not time or price) - may or may not take place in a wrap account
67
Unsuitable customer orders
Must be placed if the customer insists Marked unsolicited Should note interaction in the customer file
68
Name changes
Any name changes made to account must be approved by principal Approval must be made before any trade execution
69
Trade error
A misplaced trade that is the fault of the firm or its representative(s) Firm must make the customer whole Mistakenly purchased securities placed in firm’s error account
70
Regulation SHO
Short sale regulation Enforces the locate requirement Firms may use easy to borrow list to streamline short sales
71
The 5% rule
Firms generally cannot charge more than 5% for transaction fees Does not apply to exempt securities or new issues
72
Proceeds transaction
Sell a security and uses the proceeds to buy a new one
73
Riskless transaction
Type of principal transaction Request to purchase a security the firm does not hold in inventory Security bought into inventory from the market, then sold to customer
74
Fiduciary accounts
custodial accounts, trust accounts, and guardianship accounts
75
Discretionary trades must be more frequently suprevised
principle / supervisors must approve discretionary trades PROMPTLY after order entry
76
custodial accounts trades with causion
avoid aggressive investments, margin, and most option strategies
77
trading authorization
means POA on discretionary accounts required if choosing the security , order size, and action
78
Uniform Prudent Investor Act (UPIA)
governs overall apprach to investing that fiduciaries must follow

Ser 7 (16 decks)

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