Unit 8 SIE

BuyStuff, Inc., common stock is listed on the NYSE. Great Plains Securities is an over-the-counter market maker and has a posted quote for BuyStuff common of 250.10–255.50. If Great Plains wants to enter a new quote, the smallest incremental change is

$0.01

Distinguishing between a sell stop order and a sell stop limit order, which of the following are true?

1. The sell stop limit order becomes a sell limit once triggered.

2. The sell stop order becomes a sell limit order once triggered.

3. The sell stop limit order becomes an order to sell at the market when triggered.

4. The sell stop order becomes an order to sell at the market when triggered.

1 and 4

Under the Uniform Practice Code, regular-way transactions for common stock settle on

the first business day following the trade date.

Which of the following transactions has the most risk?

selling short

A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is

clearing agent

A customer purchases 100 American depositary receipts (ADRs) of a London-based company. When does the trade settle?

One business day following the trade date

ABC Securities is a FINRA member broker-dealer that maintains an inventory in BigTech Computing stock. When transacting business in BigTech stock, ABC is most likely acting in what capacity?

Market Maker

Regular way settlement for Treasury notes is

t+1

A cash settlement trade settles

the same day as the trade

It is expected that financial markets

have transparent pricing for assets.

An investor sold MJS stock, a stock not currently owned in her portfolio. This is

a bearish position

ABC Corp stock is trading at BID 75.32, ask 75.35 5 x 12. What is the spread?

$0.03

A customer is given a quote for ABC as: 17.00 – 17.25 6 × 12. This quote indicates the customer can

sell 600 shares for $17 per share.

A customer's confirmation shows that they paid a commission of $74 on a purchase of 100 shares of a $35 stock. The broker-dealer is acting in what capacity?

agency

Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following?

carrying firm

All of the following are associated with being a carrying firm except

being a fully disclosed firm

Things associated with being a carrying firm

• being able to clear customer transactions

• accepting customer securities

• accepting customer funds

Fully Disclosed Firm

A fully disclosed firm is one that introduces its customer business to another firm for the purpose of clearing and settling transactions.

A customer placed an order to purchase 100 shares of Sierra Verde Corp. common stock. The broker-dealer sourced the shares from another broker-dealer that maintains an inventory in the stock. The customer's firm acted as

an agent

When investors open a position by going long the security, they can close the position by

selling the security

An institutional customer, such as a hedge fund, utilizes the services of a broker-dealer who provides custody of securities, as well as other back-office functions, while allowing the customer to establish relationships with other broker-dealers for the purpose of executing orders. This account would be known as a

prime account

A quote for Seabird Airlines (SBRD) is 17 B 17 ½ A 5 x 5. A customer would be able to sell how many shares and at what price?

500 shares at $17 a share

An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33.

The order would be executed and the investor would receive a price of

31

The market for Dizzy Rides Inc., is at $52 per share. Your customer would like to sell his shares for $55, and believes the stock will climb to that level in the next two to three weeks. What order should he place?

Sell Limit 55 GTC

Your client, Jane Anderson, has owned QRS for a few years but has now turned bearish on QRS. What transaction would you recommend?

Sell QRS to close

Your customer, Ellesha, places a sell stop at 50 on DEZ stock while it is trading at $53 per share. After the order is elected, Ellesha may sell her shares at which of the following prices?

1. $48

2. $49

3. $50

4. $51

1,2,3,4

Your investor is short 300 shares of Seabird Airlines common stock. In order to close this position the investor would enter which of the following orders?

Buy 300 shares of Seabird Airlines

Shares held in electronic form at a clearing house under a broker-dealers account are

held in street name

Your client is purchasing XYZ corporate bonds and wants to know when regular way settlement is. You should tell her

trade date plus 1 business day.

ABC Brokers, a FINRA member firm, filled a customer's buy order for DEF common stock and did not charge a commission. The firm most likely acted in what capacity?

Market Maker

Under Regulation T, when must a corporate stock transaction be paid for in full in a cash account?

No later than regular way settlement plus 2 business days

An investor sold MJS stock, a stock not currently owned in her portfolio. This is

a bearish position

A document that substitutes for the owners signatures on the back of a stock or bond certificate is called a

stock or bond power

Which of the following would most likely indicate shares of stock were held in electronic form?

held in street name

Seacoast Securities, a member firm, filled a customer's sell order for BigTech Computers common stock and did not charge a commission. The firm most likely acted in what capacity?

Dealer

An investor receives a quote of 22–22.15 for BuyStuff, Inc. common stock. Which of these is correct?

1. Purchasing the stock will cost $22 per share.

2. Purchasing the stock will cost $22.15 per share.

3. The spread is $0.15.

4. The investor will receive $22.15 per share if selling.

2 & 3

To fill a customer buy order, over-the-counter, your broker-dealer requests a quote from a market maker for 800 shares. The response is 15 bid, and ask 15.25. If the order is placed, the market maker must sell

800 shares at $15.25 per share.

A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is

a clearing agent

ABC currently has the following quotes:

Market Maker	Bid	Ask	Size
MM1	10.00	10.50	3 × 2
MM2	10.20	10.45	4 × 3
MM3	10.25	10.60	3 × 2

The inside bid is good for

300 shares

Your customer purchased a revenue bond issued by the Metropolitan Water District of Los Angeles in the secondary market at a price of 102.5. When is the investor required to deliver the funds to complete this transaction?

the next business day

Ron buys 522 shares of Narcissus, Inc., common stock in a cash account on Monday, March 19. He deposits cash in the account sufficient to cover the trade on March 20. How soon would he be able to withdraw those shares?

Tuesday March 20

What is the spread in a stock quotation?

The difference between the bid price and the ask price

A client entering a sell limit order at 43 would accept which of these trades?

44

Secondary markets exist to do all of these except

decrease liquidity in the national markets.

How are quotes for exchange-listed stocks generated?

Based on the highest buy limit and the lowest sell limit orders

A business entity that performs the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction is called a

clearing agency.

An investor is transferring physical stock certificates to another party. Which of the following is required to ensure good delivery of the certificates?

The stock certificates must be signed exactly as the name appears on the certificate.

Seacoast Securities, a broker-dealer member firm, maintains an inventory of SFT common stock. The firm assists a customer with a purchase of SFT common stock and charges a commission for the service. Seacoast is acting in what capacity?

As a broker

What is the primary characteristic of a market order?

It is executed immediately at the best available price.

What are the primary characteristics of the third market?

Exchange-listed securities traded OTC

Which of the following investors is most likely to make multiple trades within a single day, often closing all positions by the end of the trading day?

day trader

A customer believes the price of XYZ stock will decline in the near future and wants to profit from this. What type of order should the customer place, and what is the market sentiment?

Sell short; bearish

Which type of order remains valid until executed or canceled by the investor?

Good-til-canceled (GTC) order

Which of the following is a distinguishing characteristic of institutional investors compared to retail investors?

Institutional investors typically execute larger trades and have more access to advanced trading strategies.

Which of the following best describes the role of a Designated Market Maker (DMM) on an exchange?

A Designated Market Maker maintains a fair and orderly market by facilitating trades and managing imbalances

A broker-dealer that concentrated its business efforts on proprietary trading would most likely be functioning as

a market maker

An order that when triggered becomes a limit order is called a

stop limit order

Your customer is quite nervous about the stock market but expresses his belief that equities are still the place to save for retirement over the long term. He places a trade for 500 shares of an equity index fund. Overall your customer is likely

a bull

A customer purchases 500 shares of ABC Corporation at $30 per share and holds onto the shares for a year, hoping that the value will increase. What type of position does the customer hold, and what is the customer's market sentiment?

Long position; bullish

ABC Broker-Dealer maintains an inventory of MMNO common stock. They transact purchases and sales with customers using this inventory. In this example, ABC is acting as what?

A market maker