Series 7 Trading Markets Section 4 (Options And Other Markets)

Front 1

what is the largest options exchange?

Back 1

CBOE, almost no trading in OTC

Front 2

Who must approve option contracts on equities?

Back 2

the SEC

Front 3

What are the requirements to list options?

Back 3

-issuer must be actively traded on the NYSE, AMEX or NASDAQ markets
-if the issuer is de-listed from its market, its options are too
---if this happens no new issues, but existing ones can trade
-if stock stops trading on principle exchange, the option stops as well

Front 4

Who executes transactions on CBOE and what do they do?

Back 4

-FLOOR BROKER
-trades with another floor broker, a market maker or an Order Book Official
-earns a fee per transaction
-DO NOT HOLD INVENTORY
-CAN cross orders (buy an options contract at market and sell equivalent contract at market. if it first requests bids and offers from trading crowd

Front 5

What is the increment a Floor Broker can bid at?

Back 5

$.05 ABOVE Highest Bid, or $.05 BELOW lowest offer

Front 6

Who are MARKET MAKERS and what do they do?

Back 6

Market makers are individuals that trade for thier own account in a security which they've registered.
-do not trade with public
-only trade with floor brokers
*not allowed to act as floor broker in same security

Front 7

what is the minimum quote size for Market makers and where does their profit lie?

Back 7

Min quote size = 10 contracts;
profit is the spread btw bid and ask

Front 8

What are ROTs?

Back 8

Registered Options Traders, that are market makers on exchanges OTHER THAN CBOE

Front 9

What happens if a Floor broker receives a order but it can not be executed at current market price?

Back 9

Order will then be given to OBO (order book official)
-OBO is an exchange employee who assists Board Broker in handling trades
-works on a salary basis
-accept limit orders
-accept market orders BEFORE opening
*-NOT ACCEPT: "stop orders", "stop limit orders" or spread or straddle orders

Front 10

What is a DPM and what do they do?

Back 10

DPM = Designated Primary Market Maker
-similar to DMM
-appointed by CBOE for given classes of options and acts -as market maker, floor broker and order book official
**Unlike DMM, THERE ARE COMPETING OPTIONS MARKET MAKERS ON THE FLOOR**

Front 11

Order Priority

Back 11

-public orders have priority if all entries are at same price
-Bids and asks displayed by Board Broker or Order Book Official take priority (as they show public orders)

Front 12

Describe how a Trading Rotation Works

Back 12

- a trading rotation must occur before market is open to trading all series
-for each stock there may be 2030 option series (each series has different expiration and strike price)
-to open allseries in orderly manner, Board Broker or OBO conducts Opening rotation, calling for bids and offeres for each series to establish opening price
-after all series have gone through rotation, market is open to trade all series

Front 13

"P" symbolizes which exchange?

Back 13

Pacific Exchange (ArcaEx)

Front 14

"B" symbolizes which exchange?

Back 14

Boston stock exchange

Front 15

"M" symbolizes which exchange?

Back 15

Midwest (Chicago) Exchange

Front 16

"C" symbolizes which exchange?

Back 16

Cincinnati Exchange

Front 17

"T" symbolizes which exchange?

Back 17

NADAQ

Front 18

"O" symbolizes which exchange?

Back 18

Instinet