Unit 8 - Trading Securities

Front 1

uptick rule

Back 1

- also called plus tick rule
- no short sale may be executed at a price below the price of the last sale
- short sales can only be taken on upticks
- zero tick - stays same
- down tick - goes down

Front 2

exchange market

Back 2

- auction market
- NYSE etc.
- trades listed securities
- must have a rep on the floor and have a seat at the exchange
- best price wins
- trading symbols of 3 letters or less identifies as listed security

Front 3

OTC

Back 3

- trades unlisted securities
- secondary market
- traded between BDs of their own inventory or their clients
- negotiated market

Front 4

third market

Back 4

- nasdaq intermarket
- listed securities traded OTC

Front 5

fourth market

Back 5

- blocks of stock sold - listed and unlisted
- institutions trade b/w themselves through electronic communication networks ECN

Front 6

role of BD

Back 6

- as broker - agent - orders for clients - charges commission - not a market maker
- as dealer - principal - dealing for its own account - charges markup or markdown - market maker
- bd must disclose its role to its clients

Front 7

exchange members

Back 7

- transact business on the floor
- floor broker - execute order for firm
- 2 dollar broker - given overflow of orders from teh broker
- registered floor trades - trade for own accounts
- specialist - maintains fair and orderly market - acts as auctioner and BD

Front 8

Orders - flow of the order on the exchange

Back 8

- customer to BD to floor broker - to post - to execution report - to super dot (computerized trading and execution system - executes trades within 90 seconds)

Front 9

specialist awards the trades in teh following order on the exchange

Back 9

- priority - fifo
- precendence - largest order first
- parity - random drawing

Front 10

stop orders

Back 10

- become market orders when elected (triggered)
- executed at the next tick after the trigger
- no fee for stop orders
- buy stop orders or sell stop orders

Front 11

price restricted orders

Back 11

- market - executed immediately at MP
- limit - limits the amt paid or received for securities
- stop - becomes market order if the stock reaches or goes throught eh trigger - sell stops in long position and buy stops in short position
- stop limit - entered as a stop order and changed to a limit order if hits trigger

Front 12

stop limit order

Back 12

- once it hits trigger it doesnt execute until it hits the limit
- if someone is buying or selling stock and doesn't want it to to too high or low you can put a limit on to how much you will spend

Front 13

time sensitive orders

Back 13

- good till cancelled - GTC - valid until executed or canceled - "good for the week" or "good for the month"
- Not held orders - customer doesnt' hold the floor broker to a particular time and price
- fill or kill - no partial executions - fill immediately at price or better
- immediate or cancel orders - partial executions allowed and remainder is cancelled
- all or none - wait until all avalilable - no urgency like the FTK

Front 14

specialists book

Back 14

- contains limits, stops, adjustments for dividends or splits, determines quote and size on limits

Front 15

earnings per share calculation

Back 15

- CMV divided by PE (price earnings ratio) equals the earnins per share

Front 16

OTC quotes

Back 16

- NASDAQ
- Supermontage
- non-nasdaq - quotes on pinksheets - nominal quotes
- corporate bonds - quoted on yellow sheets

Front 17

nasd markup policy

Back 17

- NASD ensures that the investors receive fair treatment by allowing no more than a 5% markup, markdown, or commissions charges
- does not apply to mutual funds, variable annuitie, municipal securities, prospectus offerings, exchange offerings and government securities
- a transaction charge of more than 5% might be allowed if it is reasonable based on the circumstances of the trade

Front 18

Nasdaq levels

Back 18

- level 1 - inside quote - reg. reps only access at level 1
- level 2 - actual quotes of all market makers
- level 3 - market makers input - changes to bid and ask price allowed