1
Q
What is the Nasdaq Book?
A
An order display and execution system for Nasdaq-listed securities
It addresses market fragmentation and decimalization, creating greater market transparency.
2
Q
What does the Nasdaq Book display?
A
- Total trading interest at the best prices
- Four price levels away
- Aggregate trading interest at each level
It includes both attributable and nonattributable quotes/orders.
3
Q
What is an attributable order in the Nasdaq Book?
A
An order displayed next to the market participant’s unique identifier (MPID)
It shows the price and size of the order.
4
Q
What is a nonattributable order?
A
An order not displayed next to its MPID, aggregated under a special anonymous MPID, NSDQ
It allows the firm to remain anonymous until execution.
5
Q
What is the purpose of the NSDQ MPID?
A
To allow a firm’s quote to be displayed without revealing the firm’s MPID
It maintains anonymity until execution.
6
Q
Under the Manning Rule, what must a market maker do if it receives an order priced better than its quote?
A
Display that order
Nasdaq Book rules allow placing the order in NSDQ without updating the attributable quote.
7
Q
What are the three levels of service in the Nasdaq exchange?
A
- Level I: Real-time last sale and inside market
- Level II: Highest bid and lowest ask quotes with size
- Level III: Allows market makers to update quotes
Each level serves different market participants.
8
Q
What happens if a participant’s attributable interest is reduced to less than one round lot?
A
Nasdaq will zero out the exhausted side of the market for 30 seconds
The firm must update its quote during this period.
9
Q
What is a market maker peg order?
A
A one-sided, attributable limit order with an automatically adjusted price
It helps market makers comply with quotation requirements.
10
Q
Define nondirected orders.
A
Liability orders that create an obligation for the recipient to buy or sell
They must be market or marketable limit orders.
11
Q
What are preferenced orders?
A
Orders sent to a specific market participant at the inside market
They interact with the selected firm’s display and reserve size.
12
Q
What are directed orders?
A
Orders used to access a specific quote in the system
They can be liability or nonliability orders.
13
Q
What is the execution algorithm option of price/time?
A
Accesses the best price first, with subsequent executions based on time priority
It is one of three options for order interaction.
14
Q
What is a fill-or-kill order?
A
An order that must execute in its entirety immediately or be canceled
It ensures quick execution without partial fills.
15
Q
What is a sweep order?
A
An order delivered to multiple price levels for quick filling
It prioritizes filling an order over price.
16
Q
What are intermarket sweep orders?
A
Limit orders executed in a specific market despite better prices elsewhere
They are marked with the trade indicator ‘F’ and fulfill NMS order-protection obligations.
17
Q
What does Nasdaq’s price validation deviation process do?
A
Calculates when a limit order price is away from the inside market by a predetermined amount
It provides a warning message for orders exceeding allowable deviation.
18
Q
What is the allowable deviation for a limit order priced between $1 and $5?
A
0.375
This is part of Nasdaq’s price validation process.
19
Q
What is the allowable deviation for a price range of $1-$5?
A
0.375
This deviation is part of Nasdaq’s warning message for orders exceeding allowable limits.
20
Q
What is the acceptable limit range for a stock priced at $12.00-$12.10?
A
$11.50 to $12.60
Orders outside this range will receive a reject message unless overridden.
21
Q
At what time do Nasdaq Market Center (NMC) quotes go live?
A
9:25 am
Quotes are shown in time priority to prevent locked or crossed markets.
22
Q
What is the purpose of the order imbalance indicator displayed by Nasdaq?
A
To attract more buyers or sellers based on the current match price and imbalance size
This indicator is shown from 9:28 am until the market opens.
23
Q
What is the clearing price in the context of the opening cross?
A
The price set to maximize the number of orders filled
Orders are cleared at this price at 9:30 am.
24
Q
What types of orders are acceptable for the opening cross?
A
- Market orders
- Marketable limit orders
- Market on open orders (MOO)
- Limit on open orders (LOO)
- Imbalance only orders (IO)
These orders can be entered, canceled, and adjusted before 9:28 am.
25
What is the last time Nasdaq accepts **OC orders**?
3:55 pm
## Footnote
After this time, no entry, cancellation, or modification of OC orders is allowed.
26
What does the **order imbalance indicator** provide information on?
* Current reference price
* Number of paired shares at the reference price
* Number of unexecuted shares and side of the imbalance
## Footnote
This indicator is updated regularly until market close.
27
What is **ACES** in the context of Nasdaq?
An order routing system for quick and convenient routing of orders
## Footnote
It allows orders to be sent from an order entry firm's Nasdaq terminal.
28
What is a **market order**?
An order to buy or sell immediately at the best available price
## Footnote
These orders do not guarantee a price but ensure immediate execution.
29
What is a **limit order**?
An order to buy or sell at a specific price or better
## Footnote
Limit orders provide price control but do not guarantee immediate execution.
30
What is the **Manning Rule**?
Prohibits trading ahead of customer orders to ensure best execution
## Footnote
Applies to both NMS stock and OTC equity securities.
31
What are the exceptions to the **Manning Rule** for large orders?
* Orders from institutional accounts
* Noninstitutional orders of 10,000 shares or more
* Not-held or working orders
## Footnote
These exceptions allow trading ahead under specific conditions.
32
What is the **order priority method**?
A consistent methodology for executing multiple limit orders
## Footnote
Firms are not required to favor their own customer limit orders over others.
33
What must a firm do when it accepts a **limit order** that includes a commission?
Protect the limit order at its stated limit order price
## Footnote
This ensures the customer receives the agreed price.
34
What must a firm do when it accepts a **limit order** from a retail customer that includes a commission?
Protect the limit order at its stated limit order price
## Footnote
This includes ensuring the customer understands the net price after accounting for commissions or markups.
35
If a customer enters a limit order to buy at **$11 per share** with a **markup of $0.25**, what is the limit order price?
$10.75
## Footnote
The limit order price is calculated by subtracting the markup from the total cost requested.
36
True or false: A market maker's trades are affected by **ticket, clearing, or other charges**.
FALSE
## Footnote
Market maker trades are not affected by these charges when protecting customer limits.
37
What is the maximum price a customer with a limit order to pay **$20.00** for 500 shares, including a **$0.25 markup**, must be protected to?
$19.75
## Footnote
The protection must account for the markup included in the limit order.
38
What must a market maker do if it receives a customer buy order to pay **$30.10** for 400 shares while quoting **30-30.25**?
Update its Nasdaq quote to **30.10-30.25**
## Footnote
This must be done within 30 seconds of receiving the order.
39
What are some **exceptions** to the limit order display rule?
* De minimis size orders
* Customers requesting non-display
* Odd-lot limit orders
* All-or-none limit orders
* Block size orders (10,000 shares or more)
* Orders delivered to an eligible ECN
## Footnote
These exceptions allow certain orders to not be displayed while still requiring protection.
40
What is an **eligible ECN**?
A trading system where quotes are communicated to Nasdaq for public dissemination
## Footnote
This ensures that all market participants have access to the quotes.
41
What happens if a market maker enters a quote into an **ineligible ECN**?
It must update its Nasdaq quote
## Footnote
This is required if the quote is priced better than its current quote.
42
What is a **stop order**?
A resting order to buy or sell activated when the stock trades at or through the stop price
## Footnote
Once triggered, it becomes a market order.
43
What is the purpose of a **buy stop order**?
Protect a profit or limit a loss in a short stock position
## Footnote
It is entered above the current market price.
44
In a **sell stop order**, where is the order entered?
Below the current market
## Footnote
This protects a profit or limits a loss in a long stock position.
45
What is a **stop limit order**?
A stop order that becomes a limit order instead of a market order once triggered
## Footnote
This type of order carries the risk of missing execution if the market price leaps between the stop and limit price.
46
What happens to **buy limit and sell stop orders** on the ex-date?
They are reduced unless marked do not reduce (DNR)
## Footnote
This adjustment is necessary to reflect the upcoming cash dividend.
47
What is the **ex-dividend date**?
The date on which the stock begins to trade without the dividend
## Footnote
To receive the dividend, the stock must be bought before this date.
48
What is the order of dates involving **dividend distributions**?
Declaration, Ex, Record, Payable
## Footnote
Remembering this order can help in understanding dividend processes.
49
What is a **due bill**?
A document sent dealer to dealer when the wrong party receives the dividend
## Footnote
This occurs for trades executed before the ex-date that do not settle until after the record date.
50
What happens to opening quotes for a Nasdaq stock on the morning of the **regular way ex-date**?
They are adjusted downward to reflect the value of the upcoming cash dividend
## Footnote
This includes adjustments to buy limit orders.
51
What is the impact of a **cash dividend** that includes a fraction?
It is rounded up for ex-date reduction purposes
## Footnote
For example, a cash dividend of $0.065 would be rounded to $0.07.
52
What is the adjustment rule for **cash dividends** on orders?
Cash dividends are not adjusted for cash dividends
## Footnote
Orders on the books of market makers are adjusted for stock dividends and forward stock splits.
53
If a cash dividend includes a fraction, it is rounded up for ex-date reduction purposes. For example, if a cash dividend is ______, the subject stock is reduced by ______.
$.065, $.07
## Footnote
This rounding applies on the morning of the ex-date.
54
What are **reverse convertible bonds**?
Debt instruments with embedded put options allowing issuers to convert principal into shares of equity
## Footnote
Issuers exercise the option if shares fall below a set price.
55
Yields on **reverse convertible bonds** are higher than similar bonds because of what?
Additional risk assumed by the bondholder
## Footnote
This additional risk raises suitability concerns.
56
What is the main difference between **convertible bonds** and **reverse convertible bonds**?
Convertible bonds give shareholders the right to convert to equity; reverse convertible bonds give issuers the right to convert to equity
## Footnote
This results in bondholders receiving shares instead of cash.
57
What is the purpose of the **NYSE Rule 7.12**?
To restrain extraordinary market-wide volatility
## Footnote
It includes measures for coordinated cross-market trading halts.
58
What triggers a **cross-market trading halt**?
A steep market price decline exhausting liquidity
## Footnote
Triggered at three circuit breaker thresholds: 7%, 13%, and 20% declines.
59
What are the halt times for a **Level 1** market decline of 7%?
15 minutes
## Footnote
Trading continues unless there is a Level 3 halt at or after 3:25 pm.
60
What happens during a **trading halt**?
No member or AP may effect any transaction or publish a quotation
## Footnote
This includes providing unpriced indications of interest.
61
What is the **Limit Up-Limit Down (LULD)** rule designed to address?
Sudden and severe price movements
## Footnote
It prevents trades from occurring outside specified price bands.
62
What occurs if a security's price moves into the limit state and fails to move back within 15 seconds?
A five-minute trading pause is issued
## Footnote
The primary listing exchange will re-open with an auction.
63
What is the goal of the **Short Sale Price Test Circuit Breaker (Rule 201)**?
To restrict short selling if a covered security declines intraday by 10% or more
## Footnote
This allows long sellers to sell before short sellers.
64
What is the duration of the price test restriction after a circuit breaker is triggered?
Remainder of the trading day and the following day
## Footnote
Applies to short sale orders in that security.
65
What does **Nasdaq MarketWatch** do?
Uses automated systems to scan for irregular trading activity
## Footnote
It refers suspected violations to FINRA for further review.
66
What is a **temporary trading halt**?
A halt administered to allow for even dissemination of material news
## Footnote
Trading normally restarts about 30 minutes after the press release.
67
Nasdaq-listed companies must notify MarketWatch at least ______ minutes before the release of material news.
10
## Footnote
This applies during Nasdaq/MarketWatch market hours.
68
What is prohibited during a trading halt according to FINRA Rule 5260?
Trading during the halt
## Footnote
This includes interdealer or customer transactions.
69
What is the **code** for a trading halt pending the release of material news?
Tl
## Footnote
This code indicates that trading is halted while waiting for important news to be released.
70
What does the **T2** code signify in trading halts?
Halt-News released
## Footnote
This indicates that the news has begun the dissemination process.
71
What is indicated by the **T3** trading halt code?
Halt-Resumption times
## Footnote
This means that the news has been fully disseminated and trading can resume.
72
What does the **TS** code represent?
Single stock trading pause in effect
## Footnote
This indicates that trading is paused due to a significant price move.
73
True or false: Trading can occur in a security where a trading halt is currently in effect.
FALSE
## Footnote
It is impermissible to effect any transaction or publish a quotation in such securities.
74
What is the **best execution** in customer transactions?
* Favorable price
* Execution quality
* Speed of execution
* Fill rates
* Price improvement
## Footnote
Best execution means more than just the best price; it includes overall execution quality.
75
What are the **minimum listing requirements** for a company's equity securities on the Global Select Market?
* Bid price of $4 per share for initial inclusion
* At least three market makers for initial inclusion
* Two market makers for continued listing
## Footnote
These requirements ensure that only qualified companies are listed on the Nasdaq.
76
What is the **Nasdaq DOT strategy**?
A method of designating an order to go to the NYSE or NYSE American for participation in the opening and closing
## Footnote
This strategy helps market participants access liquidity.
77
What happens if a market maker fails to enter quotes within five business days after registration?
The firm will be involuntarily terminated as a market maker in that security
## Footnote
Timely quoting is crucial for maintaining market maker status.
78
What is a **nonregulatory trading halt**?
A halt due to a significant order imbalance
## Footnote
This allows market participants to adjust and disseminate information about the price range for resumption.
79
What is the **H4** code in trading halts?
Halt-Noncompliance
## Footnote
This indicates that trading is halted due to a company's failure to comply with Nasdaq listing requirements.
80
What is required for a firm to register as a **Nasdaq market maker**?
* Membership in Nasdaq
* Application with FINRA
* Compliance with net capital and operational rules
## Footnote
Registration involves a thorough review of the firm's qualifications.
81
What does **interpositioning** refer to in customer order handling?
Placing a third party between the firm and the best available market
## Footnote
This practice can lead to less favorable prices for customers.
82
What is the **maximum duration** for an excused withdrawal granted to a market maker?
Generally no more than five business days
## Footnote
In certain legal situations, it can extend up to 60 calendar days.
83
What is the **T6** code for trading halts?
Halt-Extraordinary market activity
## Footnote
This indicates that trading is halted due to unusual market conditions.
84
What is the **H9** code in trading halts?
Halt-Not current
## Footnote
This indicates that trading is halted because the company is not current in its required filings.
85
What is the **Hll** code for trading halts?
Halt-Regulatory concern
## Footnote
This indicates that trading is halted for regulatory reasons in conjunction with another exchange.
86
Seeking an **excused withdrawal** due to a sudden influx of orders is permitted.
FALSE
## Footnote
Excused withdrawals are not allowed under FINRA rules.
87
If a market maker fails to enter quotes within five business days after registration, what happens?
Involuntarily terminated as a market maker
## Footnote
This applies to the specific security for which they registered.
88
What is the **Nasdaq Quotation Dissemination Service (NQDS)** used for?
To display quotes and interact with market participants
## Footnote
It connects market makers, members, and the investing public.
89
What does the **inside market** refer to?
The highest bid and the lowest asked price
## Footnote
It represents the best available prices for buyers and sellers.
90
What are the **three levels of Nasdaq service** available to subscribers?
* Level 1
* Level 2
* Level 3
## Footnote
Each level provides different information and capabilities.
91
What does **Level 1 service** provide?
* Bid and ask quotes
* Last sale information
* Share volume statistics
## Footnote
It is for registered representatives and individual investors.
92
What does **Level 2 service** display?
* Bid and ask quotes with size for each market maker
* Last sale information
* Market participant depth
## Footnote
It is for OTC traders and financial institutions.
93
What is a **principal quote**?
A market maker's quote to buy and sell for its own account
## Footnote
It can also represent customer limit orders.
94
What is a **protected bid or protected offer**?
A quotation displayed by an automated trading center that is the best bid or best offer
## Footnote
It applies to NMS stocks.
95
In the **over-the-counter market**, a member can act as either a broker or a dealer, but not both in the same transaction.
TRUE
## Footnote
This distinction is crucial for regulatory compliance.
96
What is a **riskless principal transaction**?
A transaction where a firm buys from a market maker to fill a customer order and charges a markup
## Footnote
It is considered an agency transaction for regulatory purposes.
97
During the hours of 8:00 am to 6:30 pm ET, market makers are prohibited from displaying a bid that either locks or crosses the market.
TRUE
## Footnote
A locked market has the same inside bid and offer, while a crossed market has the inside bid higher than the inside offer.
98
What is **manipulative trading**?
Activities intended to induce investors to take actions they otherwise would not take
## Footnote
Examples include painting the tape and marking the close.
99
What does **market timing** refer to?
Buying or selling securities based on predictions of market price movements after U.S. market closes
## Footnote
It is not illegal but can lead to unethical behavior.
100
What are **information barriers**?
Barriers placed between departments to prevent the sharing of non-public information
## Footnote
They are crucial for maintaining compliance and preventing conflicts of interest.
101
What is a **block notice** in the context of fund policies?
A prohibition against market timing that raises overall expenses for the fund
## Footnote
It affects long-term investors due to rapid in-and-out trades of fund shares.
102
What is the purpose of **information barriers** in trading firms?
To prevent information regarding customer limit orders from reaching proprietary trading desks
## Footnote
This ensures compliance with FINRA rules and protects customer interests.
103
True or false: A non-market-making desk can trade ahead of a customer limit order if information barriers are in place.
TRUE
## Footnote
The desk would have no knowledge of the customer limit orders accepted by the trading department.
104
What is **price improvement** in trading?
The ability for a market maker to fill a customer order at a better price than the limit order
## Footnote
This occurs when the market maker quotes a better price than the limit order.
105
What are the minimum price improvement requirements for limit orders priced at $1 or more?
$.01
## Footnote
For limit orders priced under $1, the minimum is the lesser of $.01 or one-half the current inside spread.
106
What does the **SEC limit order display rule** require from market makers?
To publish and display the price and full size of each customer limit order that is priced better than its current quote
## Footnote
This must be done within 30 seconds of receiving the order.
107
Name one exception to the **limit order display rule**.
* Customer limit orders executed upon receipt
* Limit orders when customers request non-display
* Special orders, including odd lot orders
* Block-sized orders (at least 10,000 shares)
* Limit orders delivered immediately to an ECN
## Footnote
These exceptions allow for certain transactions to bypass the display requirements.
108
What is the **ECN display alternative**?
A requirement for market makers to update their Nasdaq quote to reflect a better price quoted on an ECN
## Footnote
This ensures transparency and access to better pricing.
109
What is a **single trade limit** in Nasdaq Risk Management?
A pre-established dollar amount for a single trade that requires review before clearing
## Footnote
This review period is 15 minutes.
110
What happens if a **correspondent's gross dollar threshold** is exceeded?
The clearing broker and TRF will be notified
## Footnote
This is part of the Nasdaq Risk Management system to monitor trading activity.
111
What information is required when **reporting transactions**?
* Stock symbol
* Number of shares
* Trade price
* Time of execution
* Action: buy, sell, short sell, cross
* Trade capacity: principal, agent, riskless principal, step-out, give-up
## Footnote
These details ensure accurate transaction records.
112
What are **exempt transactions** in Nasdaq?
* Trades resulting from exercise of options, warrants, and convertible securities
* Registered primary offerings
* Private placements
* Odd-lot transactions
* Transactions at agreed prices not reflecting the current market
## Footnote
These transactions do not require last sale information reporting.
113
What must a broker-dealer establish when providing **direct market access**?
Risk management controls
## Footnote
This is to prevent excessive financial exposure and ensure compliance with SEC regulations.
114
What is the consequence of **naked sponsored access**?
It is prohibited
## Footnote
Broker-dealers must have risk management controls in place for market access.
115
What is the **definition of a security** according to the U.S. Supreme Court's Howey decision?
An investment of money in a common enterprise with the expectation of profits derived primarily from the efforts of a third party
## Footnote
This definition outlines the primary characteristics that classify an instrument as a security.
116
List the types of **investment instruments** that can be classified as securities.
* Ownership in a corporation (common and preferred stock)
* Creditor relationship (bonds, notes)
* Access to enhanced terms of ownership (options, rights, warrants)
## Footnote
A key aspect of a security is the unpredictability of investment return.
117
True or false: **Index annuities** are considered securities under the Dodd-Frank Act.
FALSE
## Footnote
While index annuities are not considered securities, FINRA monitors their sale due to potential connections with security sales.
118
What is a **market center**?
A venue where traders can buy or sell securities
## Footnote
Examples include exchanges like the NYSE and Nasdaq.
119
What factors influence the selection of a **market center** for executing an order?
* Whether the security is listed on an exchange
* Type of security
* Eligibility for clearing through a national clearing agency
## Footnote
These factors determine where an order is routed for execution.
120
What does the **Securities Exchange Act of 1934** regulate?
Exchanges where traders can buy or sell securities
## Footnote
It ensures fair and equal access to all market participants.
121
What is the **National Best Bid and Offer (NBBO)**?
The best bid and offer for a round lot across all exchanges
## Footnote
The SIP combines all lit quotes to show the NBBO.
122
What is the historical definition of a **round lot** for stocks?
100 shares
## Footnote
Under Regulation NMS, the definition varies based on stock price.
123
What is the role of **off-exchange volume** in U.S. markets?
Adds to more than one third of all liquidity
## Footnote
Off-exchange trades do not provide quotes to the NBBO but are reported to the SIP.
124
What is a **market maker**?
A member firm that stands ready to buy or sell a stock at publicly quoted prices
## Footnote
Market makers may pay brokers for routing orders to them.
125
What is **payment for order flow**?
When market makers pay brokers for routing orders to them
## Footnote
This practice is used to attract orders from brokers.
126
What is an **electronic communications network (ECN)**?
A trading system that automatically matches buy and sell sides at specified prices
## Footnote
ECNs allow direct trading between brokerage firms and individual traders.
127
What is the risk associated with **after-hours trading**?
Higher volatility and wider spreads
## Footnote
After-hours volume is lower, leading to larger price fluctuations.
128
What is the **maker-taker model** in trading?
A model where liquidity providers (makers) receive rebates and liquidity takers pay fees
## Footnote
Makers add liquidity by placing limit orders, while takers remove liquidity by placing market orders.
129
What is **internalization** in trading?
Filling orders from a firm's inventory instead of routing them to an exchange
## Footnote
This allows firms to profit from the spread between buying and selling prices.
130
What is an **over-the-counter (OTC) equity security**?
A security that is ineligible to be a National Market System stock
## Footnote
OTC securities often lack the liquidity and transparency of exchange-listed stocks.
131
What is the **Pink Open Market**?
A quotation service for OTC equity securities with no financial standards or disclosure requirements
## Footnote
It is known for quoting distressed and delinquent companies.
132
What is required for a broker-dealer to act as a **market maker**?
Must file Form 211 with FINRA and demonstrate compliance with SEC regulations
## Footnote
This includes showing financial due diligence and operational capability.
133
What does the **piggyback exception** allow a broker-dealer to do?
Publish or submit a quote if there is an existing quote for the security
## Footnote
It requires public availability of current issuer information.
134
What is the **piggyback exception** in trading?
Allows a broker-dealer to publish or submit a quote if there is an existing quote for the security under certain conditions
## Footnote
Conditions include public availability of current issuer information and no SEC trading suspension within the prior 60 days.
135
List the **criteria** for issuer information to be considered current and publicly available under the piggyback exception.
* Annual report and periodic reports filed (e.g., 10-K, 10-Q, 8-K)
* Annual report filed pursuant to Regulation A
* Annual report filed pursuant to Regulation Crowdfunding
## Footnote
These criteria ensure that the information is up-to-date for market participants.
136
What is the **grace period** in the context of publishing quotes?
A broker-dealer may continue publishing quotes for a security for a grace period if certain conditions are met
## Footnote
Conditions include a determination of delinquency by a qualified IDQS or registered national securities association within four business days.
137
True or false: A firm can enter a qualified interdealer quotation system (IDQS) without filing if the quote represents unsolicited customer interest.
TRUE
## Footnote
Once that interest is filled, the firm must withdraw or file Form 211 to continue.
138
What must every **quotation entry** include?
* Phone number of the market maker's trading desk
* Geographic indicator if multiple trading locations exist
## Footnote
This ensures transparency and accessibility for subscribers.
139
What are the **minimum quote sizes** for different price ranges?
* $0.0001-$0.0999: 10,000 shares
* $0.10-$0.1999: 5,000 shares
* $0.20-$0.5099: 2,500 shares
* $0.51-$0.9999: 1,000 shares
* $1.00-$174.99: 100 shares
* $175.00+: 1 share
## Footnote
These sizes apply to any interdealer quotation system (IDQS) that permits real-time updates.
140
What is the **firm quote rule**?
Market makers are obligated to execute orders at a price at least as favorable as their published quote
## Footnote
This obligation begins when the order is presented, ensuring fair trading practices.
141
Define **ghosting** in trading.
An illegal practice where multiple market makers collude to influence the price of a stock
## Footnote
Ghosting is subject to severe penalties as it disrupts fair competition.
142
What is a **market maker**?
A member firm that publishes quotes in a stock and stands ready to buy or sell a given number of shares continuously
## Footnote
Market makers must maintain firm quotes and cannot back away from them.
143
What is **payment for order flow**?
A practice where market makers pay other member firms for routing customer orders to them
## Footnote
This can help small firms manage large order volumes and is subject to SEC disclosure requirements.
144
What is the **third market**?
The market for listed stocks that trade over-the-counter (OTC)
## Footnote
This development was facilitated by the Securities Acts Amendments of 1975, which removed barriers to competition.
145
What is **trade shredding**?
The practice of splitting customer orders into multiple smaller orders to maximize payment for order flow
## Footnote
Trade shredding is prohibited as it manipulates order flow for financial gain.
146
What is the difference between **trading ahead** and **front running**?
Trading ahead concerns research reports; front running involves placing an order before a customer order
## Footnote
Both practices are prohibited to protect the investing public.
147
What is the **character of quotations** for market makers?
Market makers must maintain a firm two-sided quote for the size displayed and cannot back away from it
## Footnote
Failure to do so without a valid reason can lead to sanctions.
148
What types of securities are **quoted** through the CQS?
* Common stock
* Preferred stock
* ADRs
* Warrants
* Rights
## Footnote
Debt securities, straight or convertible, are not quoted.
149
True or false: A NYSE member firm that is also a member of the NYSE Arca Equities must have supervisory procedures that incorporate rules of both exchanges.
TRUE
## Footnote
This ensures compliance with regulations across both trading platforms.
150
What determines the **ranking for execution purposes** of orders or quotes?
The **time stamp** upon receipt
## Footnote
Orders at the same price level are executed on a first in, first out basis.
151
What is **decrementation** in the context of trading?
Quote size reduction resulting from executions
## Footnote
Upon execution, an order is reduced by an amount equal to the size of that execution.
152
In the over-the-counter market, a member firm may act as either a **broker** or a **dealer**. What is the difference?
* Broker: Acts on behalf of the customer
* Dealer: Trades from its own inventory
## Footnote
A dealer marks up when a customer buys and marks down when a customer sells.
153
What is the **primary function** of floor brokers on the NYSE?
Handle the order flow received from buy-side customers
## Footnote
They have privileges not available to nonmember investors.
154
What is a **Designated Market Maker (DMM)** responsible for?
Setting the opening quote and maintaining liquidity
## Footnote
DMMs are accountable for maintaining a fair and orderly market.
155
What is the role of **Supplemental Liquidity Providers (SLPs)**?
Compete with DMMs by maintaining bids or offers at the National Best Bid or Offer
## Footnote
They are rewarded with rebates for adding liquidity to the market.
156
What does the **Retail Liquidity Program** aim to provide for individual investors?
Price improvement on retail order flow
## Footnote
It competes with dark pools by offering transparency and cost savings.
157
What is a **dark pool**?
Trading volume offered away from a trading platform
## Footnote
It allows large institutions to trade anonymously with low market impact.
158
What is the **Variable Weighted Average Price (VWAP)** algorithm used for?
Measuring execution quality of large orders
## Footnote
VWAP accounts for higher volume trades having a greater impact on the average price.
159
What are **parent orders** and **child orders** in trading?
* Parent order: A block of shares
* Child orders: Smaller lots divided from the parent order
## Footnote
This is often used in algorithmic trading strategies.
160
What is a **parent order** in trading?
A parent order is a larger order that may be sliced into smaller lots, known as child orders
## Footnote
It is often used in algorithmic trading strategies to structure a trade.
161
What is the purpose of a **VWAP algorithm**?
To divide the parent order into child orders with varying sizes based on historical average volume
## Footnote
VWAP stands for Volume Weighted Average Price.
162
Fill in the blank: A **time weighted average price** (1WAP) algorithm slices a parent order into child orders executed with specified time intervals over _______.
hours or days
## Footnote
This method allows for more controlled execution of large orders.
163
True or false: Working competing orders on behalf of a customer by two floor brokers of the same firm is a **violation**.
TRUE
## Footnote
This practice can lead to sanctions against the firm.
164
What must NYSE trading firms ensure regarding **open child orders**?
They must cancel any open child orders before sending further orders of the same parent
## Footnote
Failure to do so can result in violations if multiple brokers submit competing orders.
165
What is prohibited regarding orders sent to **more than one floor broker**?
No member may send orders that may execute at the same price of the same stock for the same person's account
## Footnote
This rule is in place to prevent competing orders from being executed.
166
What must firms have concerning orders with **more than one broker**?
Supervisory procedures
## Footnote
These procedures are necessary to manage the risk of competing orders.
Series 24 Flashcard
flashcards
Decks in class (25)
# Cards
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Series 24--Chapter 2118
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Series 24--Chapter 3321
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Series 24--Chapter 464
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Series 24--Chapter 5/Chapter 6136
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Series 24--Chapter 795
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Series 24--Chapter 889
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Series 24--Chapter 959
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Series 24--chapter 10158
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Series 24--Chapter 11287
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Series 24--upload-chapter 1112
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Series 24--Chapter 1--Manual--GPT66
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Series 24--Chapter 2--GPT43
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Series 24--chapter 3--GPT48
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Series 24--Chapter 2--upload75
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Chapter 3--upload220
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series 24--chapter 4 upload54
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Chapter 5 upload0
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chapter 6 upload74
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chapter 7 upload59
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chapter 8 upload88
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chapter 9 upload58
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chapter 10 upload166
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chapter 11 upload0
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Test Geek Info74
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Test Geek Sample Questions0
