Series 7 Trading Markets Section 3 (Nasdaq/otc Market)

Front 1

What are OTC stocks and provide examples.

Back 1

-OTC stocks are those that cannot meet NASDAQ listing standards,
-Quoted in "display facilities"
EX:
1. Corp. bonds not listed on exchange
2. Municipal bonds
3. U.S. Gov't and agency debt
4. Money Market
5. Many bank and insurance comp. issues
6. ADRs

Front 2

Are Mutual Funds traded?

Back 2

No. they are sold as NEW issues OTC, but do not trade

Front 3

What are the names of the OTC Equity Markets?

Back 3

-OTCBB
-Pink Sheets

Front 4

Where are NASDAQ issues reported and when?

Back 4

Reported on NETWORK C TAPE by the 'sell side'
-Within 30 seconds of execution

Front 5

Who regulates the OTC equities market?

Back 5

FINRA

Front 6

How many Levels of the NASDAQ are there and describe them.

Back 6

2 levels.
Level 1: summary of market intended for use by registred reps
Level 2: lists all market makers and thier quotes (trader's terminal)

Front 7

What does the NASDAQ SINGLEBOOK provide?

Back 7

-incorporates SuperMontage system that allows for the automated execution of NASDAQ trades, along with a central limit order
-SuperMontage - the ability to aggregate orders from all market participants and display them in one place
---transparancy

Front 8

what are the types of NASDAQ securities?

Back 8

Global Market and Capital market

Front 9

what is the MPID?

Back 9

MPID = market participant ID

the market participant that enders the order in the single book
-orders can round or odd (not just round like NYSE)

Front 10

What is NSDQ MPID?

Back 10

Anonymous quote orders

Front 11

What happens if the display size is reduced to less than 1 round lot?

Back 11

= <100
2 Options:
1. Reserve Size: if decremented to "0" a reserve quote will be provided the encompases at lease 100 shares
2. Automatic Quote Refresh: if sise is decremented to "0" the market maker's quote will eb automatically renewed ata price &/0r size specified by parket maker
---is no size or price specified, AQR will renew for 100 shares at $.25 lower for a bid; or $.25 higher for a ask

Front 12

what is the maximum order size for NASDAQ AND what orders does the system accept or not accept?

Back 12

max order size = 999,999
accepts: Market, limit and marketable limit orders (ones placed inside market prices)
NOT accept: Stop orders

Front 13

What is OATS and what does it do?

Back 13

OATS = Order Audit Trail Systems - OATS

-allows the electronic capture of ORDER INFORMATION for NASDAQ equitities
-the reporting member must record in OATS
-details any order modification, cancellation or execution
-rules applies to all FINRA members
-Info used to MATCH order details to trade execution that results via the Automated Confirmation of Trade System

Front 14

What is ACT?

Back 14

-ACT = Automated confirmation Transaction Service
-proves reporting of LAST SALE INFORMATION on all Equity and equity-related issues (including convert. bonds) traded OTC
-TRADES in NASDAQ, Third Market, OTCBB, or Pink Sheet issues must be reported w/in 30 sec.

Front 15

What is TRF? and what does it do?

Back 15

ACT/TRF = Trade reporting facility. (operates as part of ACT platform
-NASDAQ TRF: reports completed trades of NASDAQ issues
-NYSE TRF: reports completed trades of NYSE issues occurring OTC btw 2 Third Market Makers

Front 16

What facility reports for OTCBB & Pink Sheets?

Back 16

ORF = over the counter reporting facility

Front 17

What Facility reports for NASDAQ & NYSE issues the occur on ECNs and ATSs? (alternative trading systems?)

Back 17

ADF/TRACS (trade reporting and comparison service). NOT. NYSE/NASDAQ TRF
-

Front 18

What are Dark Pools?

Back 18

-allows institutions to buy/sell very large blocks w/o displaying their orders in the ADF or in a display system
-operated by larger Broker dealers
-avoids problem that could occur if the very large order were displayed. because it could move market.

Front 19

Define Firm Quote

Back 19

means the dealer will honor the quote for the states size. if no states size, it defaults to 100

Front 20

Unfirm Quote

Back 20

subject to negotiation

Front 21

Bids wanted

Back 21

dealer wanting to sell a position and is looking for a buyer

Front 22

offer wanted

Back 22

dealer wanting to buy a position and is looking for a seller

Front 23

subject quote

Back 23

-quote is subject to confirmation
-quote is approx price and can be changed

Front 24

nominal quote

Back 24

dealer's guess at current price, but hes's not willing to trade at the quote

Front 25

workout quote

Back 25

approx quote - dealer has to work out exact price at which he'll trade

Front 26

define arbitrage

Back 26

simultaneosly buying and selling short same security with different market makers to lock in a temporary price differential

Front 27

Trading ahead of Research

Back 27

if firm's research will be issuing a report on a company that is liekly to impact the market price of theat stock, the firm's market making desk can not change its inventory before the research comes out

Front 28

Trade Shredding

Back 28

splitting a larger order into multiple smaller ones inorder to get more money from the multiple trade commissions. -not allowed

Front 29

Trading pools

Back 29

investors group together and "trade" stock to move up prices without actually changing ownership of stock

Front 30

wash trades

Back 30

buying and selling to creat the "appearance" of a trade
-ie. "painting the tape"/ "prearranged trade"

Front 31

Marking the open/close

Back 31

falsely reporting trades at open/close in order to affect the opening/closing price

Front 32

What are the NASDAQ hours?

Back 32

9:30 ET- 4:30 ET