FC Chapter 10 Flashcards
(126 cards)
1
Q
True or False: A firm may not report a trade without knowing, or having reason to believe, that it actually occurred.
A
True. A trade may not be reported based on a rumor.
2
Q
Orders to sell all exchange-listed and over-the-counter equities must be marked _____ or ______.
A
Orders to sell all exchange-listed and over-the-counter equities must be marked long or short.
3
Q
In a prime-brokerage arrangement, who is responsible for making affirmative determination under Regulation SHO?
A
The executing broker
4
Q
True or False: Market makers may accept payment from issuers for providing market-making services.
A
False
5
Q
What is the purpose of Regulation SHO?
A
To regulate the practice of selling short
6
Q
Fails-to-deliver in threshold securities that have existed for ___________________ settlement days must be closed-out.
A
Fails-to-deliver in threshold securities that have existed for 13 consecutive settlement days must be closed-out.
7
Q
What information must be included in a BD’s quarterly routing report?
A
The security (NYSE, AMEX, Nasdaq, or option) and the market center to which the orders are routed
8
Q
A BD holding a client’s buy limit order is required to fill the client’s order after doing what for its own account?
A
Buying at the same or lower price for the firm’s account
9
Q
Explain the Trade Ahead Exception to the Firm Quote Rule which allows a market maker (MM) to not honor presented orders.
A
An MM executes an order either before or at the time of presentation and revises its quote immediately upon completion
10
Q
True or False: A market maker publishing a firm quote is obligated to honor the price and the number of shares quoted?
A
True. A BD providing a firm quote is obligated to honor both the price and size displayed.
11
Q
The inside market for an NMS security is 12.56 - 12.62, 10 x 15. May a BD place a bid at $12.583?
A
No. If NMS stock is priced above $1.00, it may NOT be quoted in increments less than $0.01.
12
Q
True or False: Non-displayed orders are NOT subject to price protection rules.
A
False
13
Q
What rules must DMMs follow when trading for their own account?
A
DMMs may compete as market participants. The specialist, which preceded DMMs, could not compete.
14
Q
True or False: Under NMS Rule 611, the Order Protection Rule, a manual quotation on the NYSE floor is protected.
A
False. Protected quotes are those that may be immediately accessed through an automated system.
15
Q
True or False: The number of market makers for a security is a key consideration when determining best execution.
A
False
16
Q
Sell order tickets are marked long when clients have unconditional contracts to buy, but the trades have not ________.
A
Sell order tickets are marked long when clients have unconditional contracts to buy, but the trades have not settled.
17
Q
Market centers are required to create ________ reports disclosing the measures of the quality of order execution.
A
Market centers are required to create monthly reports disclosing the measures of the quality of order execution.
18
Q
A client who is long 500 shares of XYZ and short 600 shares of XYZ is net short ____ shares.
A
A client who is long 500 shares of XYZ and short 600 shares of XYZ is net short 100 shares.
19
Q
True or False: A sell order ticket may be marked long if the client or his agent has title to the security.
A
True. A BD must be in possession of a security or have reason to believe the client is long and will deliver promptly.
20
Q
True or False: Do-not-display requests may NOT be entered by clients.
A
False
21
Q
A BD sends its client orders to an exchange for execution and is rebated for executed trades. What is this practice?
A
Payment-for-order-flow
22
Q
A market maker quotes a stock at 14.50 - 15.00, 3 x 5. At what price would a customer’s market order to sell be filled?
A
Customer market orders to sell are filled at the bid price of 14.50.
23
Q
True or False: A market maker must immediately display any client order that improves its quote.
A
True
24
Q
True or False: SEC Rule 606 requires a BD’s quarterly order flow report to include Pink Sheets and OTCBB equities.
A
False. Pink Sheets and OTC equities are not included.
25
A market maker quotes a stock at 14.50 - 15.00, 3 x 5. At what price would a customer's market order to buy be filled?
Customer market orders to buy are filled at the ask price of 15.00.
26
A market maker is quoting ABC at 21.05 - 21.35, 15 x 10. What happens if it receives a client order to buy 300 at 21.10?
If the market maker's quote is improved, it must display the client's interest. Its quote is now 21.10 - 21.35, 3 x 10.
27
A firm's trading desk may buy at a price that would fill a client order of another desk if _____________________ exist.
A firm's trading desk may buy at a price that would fill a client order of another desk if information barriers exist.
28
In the Manning Rule, is an exception available for the following client order: Buy 10,000 shares for $12.50 per share?
Yes. Trade exceptions may apply for large orders (10,000 shares or more and a dollar value of at least $100,000).
29
What must a firm do if it holds Jim's order and buys for its own account at a price equal to or better than Jim's?
Fill the client's order at the same price that it received
30
Due to staff shortage, BD 1 gives a client order to BD 2 to execute with extra costs passed to the client. Acceptable?
No. This is interpositioning and is not advantageous to the client.
31
A market maker is quoting ABC at 21.05 - 21.35, 15 x 50. What happens if it accepts a client order to sell 500 at 21.35?
If client interest is 10% or less of the market maker's size (de minimis), no change is made (5,000 x 10% = 500 sh.).
32
True or False: The Order Protection Rule (NMS Rule 611) only applies during extended trading hours.
False. The Order Protection Rule applies during normal trading hours (9:30 a.m. to 4:00 p.m. ET).
33
What orders are exempt from the Limit Order Protection Rule?
Orders from institutional accounts and orders of 10,000 shares or more worth at least $100,000
34
The inside market for an NMS security is .90 - .95. At what price levels may a BD accept indications of interest?
If NMS stock is priced less than $1.00, it may be quoted in increments no less than one hundredth of a cent ($0.0001)
35
A BD's trading desk receives a client order to buy an NMS stock at $.956. May the order be accepted?
Yes. For NMS stocks that are priced less than $1.00, orders may be accepted at up to four decimal places.
36
When is a market maker's application considered effective?
When notified by FINRA (NOT Nasdaq)
37
Without causing a regulatory violation, why may a presented order not be honored by a market maker?
Either before or at the time of order presentation, the BD executes an order and will immediately revise its quote.
38
How often must BDs publish reports summarizing their order routing practices?
Quarterly
39
True or False: Under NMS Rule 610, a market center may charge participants a fee for accessing its quotations.
True; however, the fee must be reasonable.
40
List some of the factors considered when attempting to obtain best execution.
Size/type of transaction, number of markets checked, accessibility of quotes, terms/conditions of the order
41
When is interpositioning acceptable?
When the member firm is able to demonstrate that the execution was advantageous to the client
42
For NMS stocks priced at $1.00 or greater, what access fee may market centers charge market participants?
$0.003 per share
43
How often must market centers publish reports of the efficiency of executions?
Monthly
44
The inside market for an NMS security is 12.56 - 12.62, 10 x 15. May a BD place a bid at $12.65?
No, because a bid of $12.65 would cross the inside offer of $12.62.
45
When does the obligation to comply with the Customer Limit Order Protection Rule apply?
During both normal and extended trading hours and when orders are sent to an ECN (or other entity) for execution
46
For NMS stocks priced at less than $1.00, what access fee may market centers charge market participants?
0.3% of the dollar value of the quote
47
The inside market for an NMS security is 12.56 - 12.62, 10 x 15. May a BD place a bid at $12.58?
Yes. The BD's bid at $12.58 would serve to narrow the spread.
48
What does the Order Protection Rule (NMS Rule 611) prohibit?
A market center's ability to trade-through the best (protected) quote in an automated market
49
In order to effect a block at the clean-up price, what is a member firm required to do?
It must first trade with the best prices in the display book or from other floor participants.
50
What steps are required for a firm to obtain an exception from the Customer Limit Order Protection Rule to apply?
Before an order is accepted, it must obtain client consent and it must disclose that it may potentially trade ahead.
51
What are the two ways order tickets can be marked when selling securities?
Long (selling shares that are owned) or short (selling stock that is being borrowed)
52
A market maker is quoting ABC at 21.05 - 21.35, 15 x 10. What happens if it accepts a client order to sell 500 at 21.35?
Assuming the market maker is at the inside, it adds the client's interest to its displayed size (21.05-21.35, 15 x 15).
53
True or False: Trade confirmations must disclose details of trades effected through a payment-for-order-flow agreement.
True
54
True or False: A member firm is NOT required to inform the DMM of its intention to cross a block at a specified price.
False. The DMM must be informed by the member firm.
55
What does NYSE Rule 127 regulate?
The crossing of a block of stock at a specified price outside its current quotation on the NYSE
56
Related to the Order Protection Rule (NMS Rule 611), what is a protected quote?
Any quotation that is immediately accessible through an automated execution system
57
Sally converts her XYZ bonds and enters an order to sell XYZ stock. How would the sell order ticket be marked?
Since the tender for conversion has been entered prior to the sale, the order ticket may be marked long.
58
To be considered a threshold security, excessive fails-to-deliver must occur for ____ consecutive settlement days.
To be considered a threshold security, excessive fails-to-deliver must occur for 5 consecutive settlement days.
59
True or False: Clients must provide verbal or written consent to a BD concerning payment-for-order-flow arrangements.
False. BDs are, however, required to provide disclosure of the arrangement.
60
To comply with the Best Execution Rule, is a BD always required to obtain the best market price available for clients?
No. However, BDs are required to use reasonable diligence to obtain the best price possible.
61
When must a BD fill a client's limit order after executing a trade for its own account at the same or better price?
Immediately (within 60 seconds)
62
What does the Best Execution Rule require a member firm to do?
Use reasonable diligence to obtain the best price possible for a client
63
Large orders of ________shares or more, or $___________ or more, are exempt from the Limit Order Display Rule.
Large orders of 10,000 shares or more, or $200,000 or more, are exempt from the Limit Order Display Rule.
64
To not violate the Firm Quote Rule, when must a market maker have communicated a change to its quote (price or size)?
Prior to the presentation of an order
65
True or False: A volume-weighted average price (VWAP) order is usually placed by an institutional investor.
True
66
To enable them to compete with market makers, customer limit orders are subject to ________ rules.
To enable them to compete with market makers, customer limit orders are subject to display rules.
67
How often are the circuit breakers that are used to determine the triggering of a trading halt reset?
Quarterly
68
Describe payment-for-order-flow.
A BD practice of providing monetary incentive (cash, rebates, or discounts) for routing orders to a BD or exchange
69
True or False: A request to not display an order must be individually negotiated with the client.
True
70
If a BD receives a client order to sell 20,000 BBB at $54, when may its proprietary trader sell BBB at the same price?
When the firm implements a system to prevent the misuse of information regarding client orders (information barriers)
71
What are some exemptions to the Limit Order Display Rule?
Order immediately executed, order sent to a BD or ECN that complies, block order, or customer requests "do not display"
72
What activities are prohibited for NYSE members on the floor of the exchange?
Betting on the direction of the market, buying or selling dividends, buying or selling securities on the close
73
Under the Limit Order Display Rule, how quickly must orders that improves the market maker's quote be displayed?
Immediately, but no later than 30 seconds
74
How is the volume-weighted average price (VWAP) calculated?
By totaling the dollar value of each trade (shares x price) divided by total number of shares traded over a given period
75
A client who is long 500 shares of ABC enters a single order to sell 600 shares of ABC. Is this a short sale?
Yes. If entered on one ticket, the client is net short 100 shares.
76
A BD sends an order to Market Center A whose offer is $14.85, while Market Center B's offer is $14.83. Is this allowed?
No. The order should be routed to Market Center B, which is quoting the stock at a superior (lower) price.
77
_________________ means the DMM is guaranteeing a price on a public order for a floor broker.
Stopping stock means the DMM is guaranteeing a price on a public order for a floor broker.
78
A market maker is quoting stock at 14.50 - 15.00, 3 x 5. The firm must fill how many shares at the bid price?
The market maker is obligated to fill a minimum of 300 shares.
79
May widely circulated, but unsubstantiated, rumors be disseminated in a report created by an analyst?
Yes, provided disclosure is made regarding the source of the information and that the rumors are unsubstantiated.
80
Market center reports that identify the percentage of trades receiving price improvement, indicate market ___________.
Market center reports that identify the percentage of trades receiving price improvement, indicate market efficiency.
81
What is the violation for a market maker failing to honor its firm quote?
Backing away
82
On a quarterly basis, BDs must disclose their routing practices for ______________ orders in NMS securities.
On a quarterly basis, BDs must disclose their routing practices for non-directed orders in NMS securities.
83
Under NYSE Rule 127, what constitutes a block transaction?
10,000 shares or more, or a trade with a market value of $200,000 or more
84
A BD wants to buy 15,000 sh. at 32.10. Client sell limits at 32.08 and 32.09 are in the DMM's order book. What happens?
The member firm must buy the shares from the clients offering at better prices before completing the block at 32.10.
85
What must exist for the Manning Rule to not apply to other trading desks of a BD?
Information barriers
86
What securities are included in monthly market center reports?
Nasdaq and exchange securities for which information is sent through an automated quotation system
87
Though acting in good faith, a customer sells securities, but does not deliver. When must the BD close out the trade?
All fails-to-deliver must be closed out within 35 calendar days.
88
What is a threshold security?
A reporting company's stock that has substantial fail-to-deliver positions in existence for 5 consecutive business days
89
As defined in the Limit Order Display Rule, what is a block-sized order?
An order for at least 10,000 shares and with a value of at least $200,000
90
A client who is long 500 shares of ABC and short 400 shares of ABC is only net long ____ shares.
A client who is long 500 shares of ABC and short 400 shares of ABC is only net long 100 shares.
91
For short against the box transactions, the sell order ticket is marked ______.
For short against the box transactions, the sell order ticket is marked short.
92
Between 10:00 a.m. and 11:00 a.m., 6,700 shares traded with a total value of $268,536. Calculate the VWAP.
$268,536 ÷ 6,700 shares = $40.08
93
To be a threshold security, how many shares must be in a failing position?
10,000 shares or more
94
True or False: Market makers are exempt from the borrowing requirement of Regulation SHO.
False
95
True or False: Firm at the inside market receives a client limit order equal to the firm's quote must add to its size.
True. It must increase the size of its quote, unless de minimis (order size is 10% or less of MM's current size).
96
If client consent is obtained, a firm may trade along with a client at the same price with what types of client orders?
Orders designated as not-held for institutions or with large orders (10,000 sh. or more with value of at least $100,000)
97
A BD holds a client order to sell 500 shares at $21. What would trigger an obligation to fill the client's order?
The BD selling from its own account at $21 or higher
98
What is calculated between a beginning and ending period, based on an average of trades executed during that period?
The volume-weighted average price (VWAP)
99
Where is a BD required to post its order routing information?
On its Web site, free of charge and accessible to the public
100
In order to sell short, Regulation SHO requires that securities be easy or hard to borrow?
Easy to borrow (called the locate requirement)
101
Describe a non-directed order.
An order that does not have a specific market center designated by the client and is chosen by the BD
102
A client with a futures contract has decided to sell stock. When may the sell order ticket be marked long?
When, before the sale, the client is notified that the futures contract will be settled resulting in delivery of shares
103
True or False: A customer selling stock is considered long if she owns options, rights, or warrants in the stock.
False. She must have EXERCISED the options, rights, or warrants.
104
Market maker's quote: 17.40-17.45 8 x 7. Will the quote change upon receipt of client order to buy 300 shares at 17.42?
Yes, it changes to 17.42 - 17.45 3 x 7. A client's buy limit order competes with BD bid prices in the market.
105
According to the Locate Requirement of Regulation SHO, BDs may use an easy-to-borrow list less than _________ old.
According to the Locate Requirement of Regulation SHO, BDs may use an easy-to-borrow list less than 24 hours old.
106
When a client designates a specific market center to which her order is routed, it is a _________ order.
When a client designates a specific market center to which her order is routed, it is a directed order.
107
True or False: Market makers are prohibited from trading ahead of customer limit orders.
True
108
Rather than displaying an order, what alternatives are available to firms?
Execute it upon receipt or deliver it to an ECN or another firm that is complying with the Limit Order Display Rule
109
True or False: The Locate Requirement of Regulation SHO applies when a sell order ticket is marked long or short.
False. The Locate Requirement only applies when a sell order ticket is marked short.
110
A client who is long ABC call options enters an order to sell 1,000 shares of ABC stock. Is this a short sale?
Yes. For the sale to be marked long, the options would need to be exercised prior to the sale of the stock.
111
True or False: Order-routing disclosure requirements apply to all reporting parties.
True. Both market makers and order-entry firms must provide disclosures.
112
Who publishes a list of all threshold securities?
A self-regulatory organization (SRO)
113
NMS Rule 612 generally prohibits market participants from displaying orders in pricing increments of less than ________.
NMS Rule 612 generally prohibits market participants from displaying orders in pricing increments of less than one cent.
114
What step is required if a fail-to-deliver position has been open for 13 consecutive settlement (business) days?
Mandatory close-out
115
True or False: Executing a client's trade outside of the U.S. would be an acceptable use of interpositioning.
True
116
Is interpositioning an acceptable practice?
No, it is generally prohibited.
117
To mark a sell order ticket long, any options, warrants, or rights owned must have been __________ before the sale.
To mark a sell order ticket long, any options, warrants, or rights owned must have been exercised before the sale.
118
To whom and when must the routing firm disclose details of any payment-for-order-flow practices?
Clients must be informed in writing at the opening of an account and annually thereafter.
119
Under the Customer Limit Order Protection Rule, what is considered a large order?
10,000 shares or more unless the dollar value is less than $100,000
120
True or False: Customers selling stock are considered long if they own a preferred or bond convertible into the stock.
False, the convertibles must already have been TENDERED for conversion.
121
To what does the Manning Rule relate?
Customer limit order protection
122
A BD holds a client order to buy 500 shares at $15. What would trigger an obligation to fill the client's order?
The BD purchasing for its own account at $15 or lower
123
What does Regulation SHO regulate?
Short sales
124
A market maker is quoting ABC at 21.05 - 21.35, 15 x 10. What happens if it accepts a client order to sell 700 at 21.30?
If the market maker's quote is improved, it must display the client's interest. Its quote is now 21.10 - 21.30, 15 x 7.
125
How does NMS Rule 611, the Order Protection Rule, seek to prohibit the trade-through practice?
By requiring a market center to route orders to the automated market displaying the best price
126
When is a VWAP order entered?
Prior to the determination of the actual price; therefore, the BD guarantees the VWAP as of a certain period.
