Trades Flashcards
(25 cards)
Net Basis Capacity
A dealer holding a customer’s order to buy acquires the stock on a principal basis and executes the customer’s order at a different price than the dealer’s acquisition price
Riskless Principal
A dealer holding a customer’s order to buy acquires the stock on a principal basis but executes the transaction at the same price and charges a markup
Discretion Not Exercised
Used when an RR has power of attorney in an account, makes a recommendation, and the client explicitly approves it
Delivery Versus Payment (DVP)
Dealer delivers securities to a bank in exchange for cash payment
Receipt Versus Payment (RVP)
Dealer receives securities from a bank and makes a cash payment to the bank
Intraday trading is the same as…
…day trading
Good-‘Til-Cancelled (GTC) or Open Order
This is an order that remains in effect on the DMM’s order book until it’s executed or cancelled. Any firm that accepts GTC orders should periodically update them with the DMM. GTC orders must also be updated due to any partial fills. A customer may enter an order that’s good for a week, a month, or any specified time. If the order is not executed by the end of the specified time, the brokerage firm is responsible for cancelling it.
Day Order
Unless otherwise specified, every order is a day order and will be subject to market exposure from 9:30 a.m. to 4:00 p.m. Eastern Time (ET). If not executed, the order is automatically cancelled at the end of the day.
Riskless Principal
When a firm buys a security and brings it into its inventory to fill preexisting customer orders, its capacity is considered to be a riskless principal. For instance, in quick succession, if a dealer receives 10 customer market orders to purchase 100 shares of stock that the dealer doesn’t maintain in its inventory, the firm may choose to buy 1,000 shares as principal from another dealer and then resell the securities to its customers at the same price with a markup included. In this case, the firm must disclose its capacity as a riskless principal, since the purchase by the firm and sale to the customers doesn’t expose the dealer to price risk. The firm’s profit (markup) must be disclosed.
Net Basis
In the previous example, if the dealer had sold the securities to the customers at a different price than it paid, the executions are described as occurring on a net basis. In a net-basis trade, rather than charging a markup, the dealer profits by charging a different price for the securities. Any dealers that execute net-basis trades with customers are subject to both disclosure and consent requirements. In a net basis trade, a firm’s profit is not disclosed on the customer’s confirmation; however, in a riskless principal trade, the markup must be disclosed.
Order Ticket Components
• Whether the order was a purchase, a long sale, or a short sale
• Security name (or symbol) and quantity
• Terms and conditions of the order (e.g., market, limit, day order, etc.)
• Account type (e.g., cash or margin)
• Whether discretion was exercised and whether the order was solicited or unsolicited
• Special directions to override standing instructions
• Client identifier
• Trade date
• Registered representative responsible for the account and the office from which the order originated
OTCQX Best Marketplace
This is for established investor-focused U.S. and global companies that are distinguished by the integrity of their operations and diligence with which they convey their qualifications. To qualify, the companies must create audited financial statements, file financial reports with the SEC, and be current in their disclosures.
OTCQB Venture Marketplace
This is for entrepreneurial and development stage U.S. and international companies that are unable to qualify for OTCQX. To be eligible, the companies must be current in their SEC reporting and undergo an annual verification and management certification process.
OTC Pink Open Market
This offers trading in a wide spectrum of equity securities through any broker-dealer. This marketplace is for all types of companies and their equities are included in this tier by reasons of default, distress, or design. These issuers are not required to register with the SEC.
At-the-Open Order
This is an order to buy or sell at the opening price. If the order is not executed at the opening, it will be cancelled.
Limit on Close (LOC) Order
This is an order to buy or sell at the close, but only if the closing price is equal to or better than the preset limit price.
Immediate-or-Cancel (IOC) Order
This qualifier indicates that as much of the order as possible must be executed immediately. Any portion of the order that’s not immediately executed is cancelled.
Fill or Kill (FOK) Order
This qualifier indicates that an entire order must be executed immediately. However, if the order cannot be immediately executed, it’s cancelled.
All-or-None (AON) Order
This qualifier indicates that an entire order must be executed, but not necessarily immediately. If the order cannot be executed in full, it’s typically cancelled at the end of the
Stop (Loss) Orders
Customers who enter either market or limit orders want to receive execution; however, stop orders are often used by customers who are trying to prevent a large loss or protect a profit on an existing stock
Buy Stop-Limit Order
As with a buy stop order, a buy stop-limit order is placed above the current market price of the security and is used to limit the loss (or protect a profit) on a short position. However, once activated, the buy stop-limit order becomes a buy limit order and, therefore, execution will only occur if the stock can be purchased at the limit price or lower.
Sell Stop-Limit Order
As with a sell stop order, a sell stop-limit order is placed below the current market price of the security and is used to limit the loss (or protect a profit) on a long position. However, once activated, the sell stop-limit order becomes a sell limit order and, therefore, execution will only occur if the stock can be sold at the limit price or higher.
Buy Stop Order
A buy stop order is always placed above the current market price of the security and is used to limit a loss or protect a profit on a short sale. Remember, short sellers anticipate that the security will fall in value, but they will lose money if the position appreciates.
Sell Stop Order
A sell stop order is always placed below the current market price of the security and is used to limit a loss or protect a profit on a long stock position.
