Ch19: Markets, Orders, & Trade Execution

A market order executes

immediately

A limit order executes

at a specific price or better, or it won’t be executed

A stop order executes … then turns into …

executes if the exercise price is reached then turns into a market order (even if the next price isn’t in the right direction)

The order ticket is the

memo that says the client’s order instructions

Equity trades are reported within … of the trade

10 seconds

Debt trades are reported within … of the trade

15 minutes

Muni bonds are reported to the

RTRS, real time reporting service

Corporate bonds are reported to

TRACE

Stop orders consider “…”

direction in a movement to “fold into the market”

“Orders resting below the current market price are reduced” means that

orders at which the execution price is below the current market price will be reduced, includes BLISS: buy limit and stop sell

BLISS orders are

buy limits and sell stops

SLOBS includes

sell limits and buy stops

SLOB orders are ... the market price and do/don’t get adjusted

above the market, don’t get adjusted

What happens to resting orders in reverse stock splits?

the number of stocks get smaller, so the price of each stock increases, so all open orders are cancelled

On which date are order reductions for cash dividends executed?

the ex-date

Why do cash dividends reduce the prices of BLISS orders?

Because these orders are designed to trigger below the current market, and a cash dividend drops the stock price on the ex‑dividend date.

So the order prices must be adjusted downward to keep the order’s intent the same.
Example:
Buy limit at $50
Cash dividend = $1
New buy limit = $49

Same for sell stops.

The new price for a order reduction from a cash dividend is

Market price before cash div - dividend amount = new order price on ex-date

A market order will be filled by the … which is the …

best price, which is the lowest ask price

Reg NMS requires

orders to be filled at the best execution, or filled at the highest bid (by buyers) and lowest ask (by asking) on the exchange with the best price (ex. NYSE vs NASDAQ vs BATS)

What is size on the bid-ask spread?

the number of round lots (100 shares) available to trade at that price

Order duration determines if the order is for

immediate execution or put a time period during which it would remain valid then get cancelled

Order fill determines if the order would be taken

only if the full amount of shares can be filled or if partially filled is acceptable

Fill or kill is … execution and … fill

immediate execuation and full fill

Immediate or cancel is … execution and … fill

immediate execution and partial fill

All or none is … execution and … fill

remains valid for a period of time and full execution

Both the FOK and AON are no longer accepted on the exchanges themselves but

BDs will do just do it like that

Not held orders are when

BDs are “not held” to a particular time or price, they determine the best time

Market on open/on close are when

orders execite only at the open or close, and partial fill is ok

One cancels the other (OCO) orders is when

an order is placed for if the stock rallies and one for if the stock falls, linked with an OCO, the other order is cancelled

What is the order of documents →

Order ticket/memo to the client of the trade’s instructions, trade confirmation to the client after it is executed, and a trade report to the tape (market) when it is done

What can a rep and firm do to fix a mistake on an order they make?

do a cancel and correct, fixes order instructions

he order is corrected, but before execution, major bad news is released. What should the rep do?

nothing, execute as instructed

The trade report is the … and includes …

form submitted for reporting an equities trade within 10 seconds of execution and includes the price and number of shares, no fees

Which of the record must include whether an order was entered on a solicited, unsolicited, or discretionary basis?

order ticket/memorandum

The order memo will include

time of receipt, time of entry, time of execution, execution price,

The trade confirm will include

commissions and fees, settlement date

A client places an order that a rep believes is unsuitable and is flagged by the firm's trade surveillance system. The client insists on making the trade. What should the rep do?

Mark the order ticket unsolicited and enter the trade.

A rep records the wrong account number on a buy order ticket that has been entered but not yet filled. What recourse is available for the rep, the firm, and the client?

The rep can request a principal "cancel and correct" the ticket.

Quoting a price as “net” means it’s

cost per share, inclusive of all fees

Does regulators like net trades?

no since lacks visibilty of security price and fees

Regulation SHO is for …

short sales

Regulation SHO says that a rep needs … to accept a _ order

a locate on the shares to be delivered no later than the trade date to accept a short order, even if it’s on a hard to borrow list (never anything about the settlement date, just locatio before the trade date)

A definitive borrowing agreement is

when a rep has to locate shares to be delivered no later than the trade date, they make a contract with someone who owns the shares, plans to borrow those shares on their settlement date then pay them later (short sale)

An available securities list

is an internal list updated daily of the shares they have, like from other client’s marginable securities, to lend to other short sellers

Reg SHO says the rep has to locate … by either .. or ..

no later than the trade date by either a definitive borrowing agreement or the available securities list

A client is short 100 shares of XYZ when XYZ declares a $0.25 cash dividend. The registered rep on the account would inform the client that they owe who the cash dividend, and who actually receives the dividend?

a short seller owes the lender the amount of the cash dividend, and the buyer receives the actual dividend since they are the owner of record

Orders must be approved by a supervisor promptly

after execution

If a customer places an unsolicited order that is clearly unsuitable with a rep, the rep will:

execute

Orders received outside of market hours (e.g., golfing on Sunday) will be marked w/ the date… executed …

date received, exectued in market hours

For stocks priced below $1 in the NMS, what is the minimum quote increment?

The minimum quote increment for stocks priced below $1 is $0.0001.

By what time must a market-on-close (MOC) order be submitted for Nasdaq securities?

by 3:55 p.m.

During a trading halt, can a firm accept customer orders?

Yes, can accept but they will not execute until trading resumes

Spoofing is

prohibited market manipulation by placing a quote with no intent to execute to manipulate the appearance of supply/demand

Spinning is

a conflict of interest by allocating high-demand IPO shares to individuals who can direct future business to the underwriter.

What is a grey market trade, and when might it occur?.

trading a security not listed on an exchange or OTC Pink, often when a company is about to list but hasn’t been offically quoted yet or after an SEC suspension and the stock looses its quote

The buyer/seller/both parties of a corporate or agency debt transaction have reporting obligations within …

both parties, within 15 minutes of trade execution.

A sell stop limit order means …

when the price hits the stop price, then the limit order kicks in to sell the stock for that price or better

Market wide circuit breaks are

apply to the US equities market, haly all equity trading across all exchanges at once when there are broad equity market declines

If an investor things a stock has a support level (the stock price won’t drop from where it is), they would open a short position in the stock by placing a…

sell stop (thinks that if the support level breaks, the price will tumble, so will allow the trader to sell short if, and only if, the stock does fall below this floor, allowing them to profit on the short position) (think support level → sell stop order)

The official designation on an account is… and changes…

the legal identity of the account, and changes must be approved by a registered principal of the broker-dealer.

A … is a private alternative trading system (ATS), where large institutional transactions can occur, without drawing attention

dark pool

Nasdaq Level 1 displays the …, also referred to as the … for each security. The inside market is the … bid and … ask.

NBBO (national best bid/offer) or insider market, is the highest bid and lowest ask along with the single number that follows it _x_

The NASDAQ is best described as

A decentralized electronic stock exchange utilizing the participation of market makers to provide liquidity

When there is a delayed opening from material news coming out, it will usually be in effect…

until an appropriate balance in buy and sell orders is restored

When is naked short sale considered viable and effective?

never, naked short selling is the prohibited practice of selling stocks short without the shares' having been located and borrowed

Naked short selling is

the prohibited practice of selling stocks short without the shares' having been located and borrowed.

Financial criteria required for filing on the Nasdaq are

cash flow, revenue, and shareholder’s equity (NOT number of shareholders, could be tricked)

"Soft dollars" are

brokerage commissions that hedge funds, mutual funds and investment management firms channel to brokerage firms, to pay for services such as research

When a transaction is reported to a trade-reporting facility, the reported price does/does not include transactionfees or commissions

does not include any fees or commissions

If the client says to buy or sell (says the action) and the security, but NOT time or price, the order is/is not discretionary.

“If they say do this at whatever/whenever you think is best”…

it is not discretionary

Discretionary authority means the RR chooses any of the following:

asset, action, or amount

If the RR chooses _ or .. on a trade, the it is not discretionary, and it does/doesn’t require written authorization

time or price, does not require written authorization

The Act of ‘34 is for … and does/does not specifically define what information is material, and it does/doesn’t require a due diligence opinion.

antifraud, does not define material information, does not require diligence opinion

Reporting to EMMA for muni bonds is only the responsibility of … within …

the seller within 15 minutes

Reporting equity trades is done to the … by the … within …

equity trades reported to the TRF by the executing broker (seller) within 10 seconds

Reporting equity trades is done to the … by the … within …

Reporting treasury trades is done to the … by the … within …

treasury trades are reported to TRACE by the executing brotker within 15 minutes

Market wide circuit breakers are halts that are triggered by

declines in the S&P 500 during trading hours of the next day below the level at which the market closed the prior day

Circuit breakers do NOT trigger at the open, even if the market opens down 7%, 13%, or 20%.

They only trigger if the market falls through those thresholds after trading has begun.

Level 1 halt →

7% decline, 15‑minute halt, not triggered after 3:25 PM

Level 2 →

13% decline, 15‑minute halt, not triggered after 3:25 PM

Level 3 halt →

20% decline, closes market for the rest of the day

“Stock ahead" refers to the idea that there were

other limit orders on the book in front of the customer order, so the order may not have been executed owing to the shortage of stock at the customer's limit price.

If a customer limit order was not filled, even though the customer's price was reached during the trading day, it could be because there was

“stock ahead” of them in the books