SERIES 57
*Order Size
- answers-Normal Unit of Trading = round lot
Mixed lot = more than Normal unit requirement but not in round lot ex) 286 shares
Odd lot = less than a Normal unit ex) 12 shares
Allowable order size = 1 ~ 999,999 shares, odd-lot is allowed but not fractional
1,000 shares of an NMS stock are offered at a price of $0.70 per share. Under the NMS
Access Rule, the maximum fee that a trading center may charge for access may not
exceed
- answers-$2.10, The Access Rule limits fees that trading centers may charge for
access to no more than $0.003 per share for stocks quoted at $1 or more. For quotes
below $1, the limit is 0.3% of the quotation price per share. In this case: $0.70 x 0.3% x
1,000 shares = $2.10.
A "multi-day event" for clearly erroneous trades begins on Monday and ends on
Wednesday. If FINRA decides to cancel all transactions during the event, when must it
declare the event?
- answers-By the start of trading on Thursday. A FINRA officer may cancel all
transactions that occurred during the multi-day event by declaring such an event not
later than the start of trading on the day following the last identified transaction.
A bear call spread is established with two positions:
- answers-1. Selling a call with a low strike price, and 2. Buying a call with a higher
strike price It is also referred to as a "credit call spread." The market view of this position
is bearish.
A broker-dealer sells 400 shares of stock for a customer on Thursday, October 9. If the
shares aren't delivered by the settlement date, the sale must be closed out by the open
of trading on Tuesday, October 14. What type of sale is this?
- answers-A short sale.
Remember that the close-out requirement is the open of business on T+5 for long sales
of stock by anyone and also for short sales by market makers (in bona fide market-
making activity). However, the close-out requirement is the open of business on T+3 for
short sales of stock by anyone except a market maker engaged in bona fide market-
making activity.
,A company declares a dividend payable in either cash or securities, at the shareholder's
option. What adjustment must be made in the price of open orders?
Reduction by the value of cash
Reduction by the value of securities
Reduction on a pro rata basis for both cash and securities
Reduction by the value of cash or securities, whichever is greater
- answers-Reduction by the value of cash or securities, whichever is greater. In this
case, it is the shareholder's option to take either cash or securities. Presumably, the
shareholder will elect the option with the greater value. So, the open order price is
adjusted by the greater amount.
a credit spread, is a position that
- answers-delivers a net credit (or net cash inflow) when it is opened. This results when
the opening sale generates excess premium over the cost of the opening purchase.
Investors can open credit spreads that are bullish (short put spread) or bearish (short
call spread). Investors who open a short or credit spread want the position to narrow.
A customer owns 600 shares of stock originally purchased at $63 per share. The last
trade in the stock was $85. What order would the customer place to protect their current
appreciation in the stock?
- answers-Sell Stop order at or below $85. A sell stop order at or below the current
market price would be used to protect the investor's position. With the sell stop, if the
price hits $85 or below the order would be triggered and then become a market order to
immediately sell the position in order to lock in the investor's profit.
A market maker is currently quoting $35.60 - $35.80 20 x 34 and is holding, but not
displaying the following customer limit: Buy 50 shares at $35.60 and Buy 120 shares at
$35.60. Which of the following is the smallest customer limit order that would require the
market maker to update its displayed quote?
Buy 30 shares at $35.60
- answers-Buy 30 shares at $35.60, Firm must aggregate multiple, same-priced
customer limit orders to determine whether the de minimis standard has been
exceeded. Because the firm is holding, but not displaying orders to purchase 170
shares, once a new order is received for more than 30 shares, the aggregate customer
shares would exceed the 10% de minimis exception for the 20 displayed round lots and
the quote must be updated.
A market maker sells 900 shares of a stock as part of its bona fide market-making
activities. However, it is unable to deliver the securities sold by the settlement date and
is required to close out the fail by the fifth day after trade day (T+5). What type of trade
was this?
- answers-It could have either been a long or short sale. For market makers engaged in
bona fide market-making activities, the close out requirement is the open of business on
the fifth consecutive settlement day after trade date (T+5). It doesn't matter whether the
trade was long or short. For threshold securities, the close-out requirement is T+13.
, A put spread is
- answers-1) bearish and 2) a debit when the investor purchases a put contract with a
higher strike price and sells a put contract with a lower strike price.
A qualified institutional buyer (QIB) participates in a Rule 144A offering and is given
piggyback rights. What is the advantage of these rights to the QIB?
- answers-Ability to sell the shares later in the public market. Piggyback registration
rights are often used in connection with pre-IPO Rule 144A offerings, sold only to QIBs.
The QIB buys stock that can only be sold immediately to other QIBs. However, when
the issuer goes public, the shares purchased by the QIB will be registered and then can
be sold by the QIB to the public. The advantage, in a word, is eventual liquidity.
A System Order is passively displayed on the order book at one price. At the same time,
the trader seeks to access liquidity at a more aggressive price. It should be designated
a?
- answers-Discretionary Order, Discretionary Orders are passively displayed on the
book at one price while also seeking to access liquidity at a more aggressive price. The
discretionary portion of the order is not visible on the book, and only becomes active as
an IOC order when shares are available within the discretionary range.
A wealthy customer has asked ABC Securities, an NMS market maker, to help her sell
100,000 shares of a stock. The same customer is also using another market maker to
sell another large block of the same stock. The customer requests that her two market
makers work together to coordinate their quotes to ensure both blocks are executed
under the best possible circumstances. Under what circumstance may ABC honor her
request?
- answers-none, because it would be illegal quote rigging It is not permissible for market
makers to enter quotes purely for the purpose of creating a false appearance of market
activity or manipulating stock prices. This is called quote rigging. The SEC has taken
disciplinary action against market makers who worked together to coordinate the entry
of quotes.
ABC Securities makes a market in an NMS stock. Its quote is 200 shares bid at 32.04
and 300 shares offered at 32.09. If XYZ market maker enters an order to buy 500
shares at 32.09 and simultaneously there is market-moving news in the stock, can ABC
change its quote?
- answers-Yes, after filling 300 shares of XYZ order. Market makers can change their
quotes at any time, and they usually do change quotes based on market-moving news.
However, they must not back away from quotes. ABC has offered to sell up to 300
shares at 32.09, so 300 shares of XYZ's order must be filled at that price. After filling the
order, ABC can change its quote based on the news.
ABC stock is currently quoted 78.47-.52 with a last sale of 78.42. To repurchase shares
under the Rule 10b-18 safe harbor, ABC could bid?
- answers-$78.47 or lower. Rule 10b-18 provides a safe harbor for issuers repurchasing
*Order Size
- answers-Normal Unit of Trading = round lot
Mixed lot = more than Normal unit requirement but not in round lot ex) 286 shares
Odd lot = less than a Normal unit ex) 12 shares
Allowable order size = 1 ~ 999,999 shares, odd-lot is allowed but not fractional
1,000 shares of an NMS stock are offered at a price of $0.70 per share. Under the NMS
Access Rule, the maximum fee that a trading center may charge for access may not
exceed
- answers-$2.10, The Access Rule limits fees that trading centers may charge for
access to no more than $0.003 per share for stocks quoted at $1 or more. For quotes
below $1, the limit is 0.3% of the quotation price per share. In this case: $0.70 x 0.3% x
1,000 shares = $2.10.
A "multi-day event" for clearly erroneous trades begins on Monday and ends on
Wednesday. If FINRA decides to cancel all transactions during the event, when must it
declare the event?
- answers-By the start of trading on Thursday. A FINRA officer may cancel all
transactions that occurred during the multi-day event by declaring such an event not
later than the start of trading on the day following the last identified transaction.
A bear call spread is established with two positions:
- answers-1. Selling a call with a low strike price, and 2. Buying a call with a higher
strike price It is also referred to as a "credit call spread." The market view of this position
is bearish.
A broker-dealer sells 400 shares of stock for a customer on Thursday, October 9. If the
shares aren't delivered by the settlement date, the sale must be closed out by the open
of trading on Tuesday, October 14. What type of sale is this?
- answers-A short sale.
Remember that the close-out requirement is the open of business on T+5 for long sales
of stock by anyone and also for short sales by market makers (in bona fide market-
making activity). However, the close-out requirement is the open of business on T+3 for
short sales of stock by anyone except a market maker engaged in bona fide market-
making activity.
,A company declares a dividend payable in either cash or securities, at the shareholder's
option. What adjustment must be made in the price of open orders?
Reduction by the value of cash
Reduction by the value of securities
Reduction on a pro rata basis for both cash and securities
Reduction by the value of cash or securities, whichever is greater
- answers-Reduction by the value of cash or securities, whichever is greater. In this
case, it is the shareholder's option to take either cash or securities. Presumably, the
shareholder will elect the option with the greater value. So, the open order price is
adjusted by the greater amount.
a credit spread, is a position that
- answers-delivers a net credit (or net cash inflow) when it is opened. This results when
the opening sale generates excess premium over the cost of the opening purchase.
Investors can open credit spreads that are bullish (short put spread) or bearish (short
call spread). Investors who open a short or credit spread want the position to narrow.
A customer owns 600 shares of stock originally purchased at $63 per share. The last
trade in the stock was $85. What order would the customer place to protect their current
appreciation in the stock?
- answers-Sell Stop order at or below $85. A sell stop order at or below the current
market price would be used to protect the investor's position. With the sell stop, if the
price hits $85 or below the order would be triggered and then become a market order to
immediately sell the position in order to lock in the investor's profit.
A market maker is currently quoting $35.60 - $35.80 20 x 34 and is holding, but not
displaying the following customer limit: Buy 50 shares at $35.60 and Buy 120 shares at
$35.60. Which of the following is the smallest customer limit order that would require the
market maker to update its displayed quote?
Buy 30 shares at $35.60
- answers-Buy 30 shares at $35.60, Firm must aggregate multiple, same-priced
customer limit orders to determine whether the de minimis standard has been
exceeded. Because the firm is holding, but not displaying orders to purchase 170
shares, once a new order is received for more than 30 shares, the aggregate customer
shares would exceed the 10% de minimis exception for the 20 displayed round lots and
the quote must be updated.
A market maker sells 900 shares of a stock as part of its bona fide market-making
activities. However, it is unable to deliver the securities sold by the settlement date and
is required to close out the fail by the fifth day after trade day (T+5). What type of trade
was this?
- answers-It could have either been a long or short sale. For market makers engaged in
bona fide market-making activities, the close out requirement is the open of business on
the fifth consecutive settlement day after trade date (T+5). It doesn't matter whether the
trade was long or short. For threshold securities, the close-out requirement is T+13.
, A put spread is
- answers-1) bearish and 2) a debit when the investor purchases a put contract with a
higher strike price and sells a put contract with a lower strike price.
A qualified institutional buyer (QIB) participates in a Rule 144A offering and is given
piggyback rights. What is the advantage of these rights to the QIB?
- answers-Ability to sell the shares later in the public market. Piggyback registration
rights are often used in connection with pre-IPO Rule 144A offerings, sold only to QIBs.
The QIB buys stock that can only be sold immediately to other QIBs. However, when
the issuer goes public, the shares purchased by the QIB will be registered and then can
be sold by the QIB to the public. The advantage, in a word, is eventual liquidity.
A System Order is passively displayed on the order book at one price. At the same time,
the trader seeks to access liquidity at a more aggressive price. It should be designated
a?
- answers-Discretionary Order, Discretionary Orders are passively displayed on the
book at one price while also seeking to access liquidity at a more aggressive price. The
discretionary portion of the order is not visible on the book, and only becomes active as
an IOC order when shares are available within the discretionary range.
A wealthy customer has asked ABC Securities, an NMS market maker, to help her sell
100,000 shares of a stock. The same customer is also using another market maker to
sell another large block of the same stock. The customer requests that her two market
makers work together to coordinate their quotes to ensure both blocks are executed
under the best possible circumstances. Under what circumstance may ABC honor her
request?
- answers-none, because it would be illegal quote rigging It is not permissible for market
makers to enter quotes purely for the purpose of creating a false appearance of market
activity or manipulating stock prices. This is called quote rigging. The SEC has taken
disciplinary action against market makers who worked together to coordinate the entry
of quotes.
ABC Securities makes a market in an NMS stock. Its quote is 200 shares bid at 32.04
and 300 shares offered at 32.09. If XYZ market maker enters an order to buy 500
shares at 32.09 and simultaneously there is market-moving news in the stock, can ABC
change its quote?
- answers-Yes, after filling 300 shares of XYZ order. Market makers can change their
quotes at any time, and they usually do change quotes based on market-moving news.
However, they must not back away from quotes. ABC has offered to sell up to 300
shares at 32.09, so 300 shares of XYZ's order must be filled at that price. After filling the
order, ABC can change its quote based on the news.
ABC stock is currently quoted 78.47-.52 with a last sale of 78.42. To repurchase shares
under the Rule 10b-18 safe harbor, ABC could bid?
- answers-$78.47 or lower. Rule 10b-18 provides a safe harbor for issuers repurchasing
