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76 Cards in this Set

  • Front
  • Back

Listed Security

Any equity security that meet the standards for trading on a national exchange

OTC Equities

Any equity that is not listed on a physical or electronic exchange. These issues trade in non-exchange OTC venues such as the OTC Bulletion Board

Market Center

a place where orders are sent for execution, like NYSE

Market participant

any entity that uses the secondary trading markets to buy and sell securities

Lifecycle of an order


Order Entry: placing of a trade into the system


Execution: occurrence of the trade in the marketplace, such as Nasdaq


Clearing: agreement by firms on details of trade


Settlement: exchange of securities for funds that completes the txn between firms


Custody and Safekeeping: safeguarding of client/firm assets after settlement

Components of an Order Ticket

Whether order was purchase, long sale or short sale. Security name and quantity. Terms and Conditions of Order. Account Type (cash or margin). Discretionary or not. was order solicited? Special directions to override standing instructions. Client identifier. Trade date. RR responsible. Office from which the order originated.

Three Types of Equity Transactions


A purchase


A long sale


A short sale

Bid Price

The price at which the firm will purchase a security

Ask Price

The price at which the firm will sell the security

Size: What does 3x5 mean?
The bid is firm for three round lots (or 300 shares) while the ask is firm for 5 rounds lots (or 500 shares)

Spread of a stock

The difference between the bid and the ask

Market Order

The client does not specify a price but just wants the order executed whenever it reaches the market. Often used for liquid stocks where buying/selling is unlikely to disrupt the price

A Buy Limit Order

Order may only be executed at the limit price or lower. If the stock is at $31 the buyer can set a limit price at $30 so if the price drops the buyer will buy it

Sell Limit Order: Stock is trading at $22 but the buyer wants to wait until he makes a $10 profit. What does he do?

Place a Sell Limit Order at $32

Priority of Orders


Market orders have first priority


Limit Orders are ranked by price


Limit orders that are placed at the same price are ranked by time of entry

Sell Stop Order

An order which protects loss/profit by automatically selling at the next market position. Seller sets a sell stop order at $20, once the stock reaches $20 it is sold at the next market position (even if that is worse than 20)

Why is a buy stop order used?

Used to limit a loss or protect a profit on a short sale

What is the difference between a buy stop order and a buy stop-limit order?

A buy stop order will automatically buy once the stock reaches a certain price, regardless of where its position at next available trade. A buy stop-limit will trigger at the same point, but will only result in a purchase if the next position falls within the limit

If I place a limit order on a stock that has a forward stock split does it still go through?

Yes the order is updated to reflect the new shares. A reverse stock split will cancel the order, however.

Cash Dividend Adjustments

Only orders that are entered below the market will have their price reduced by the amount of the dividend

Day Order

Every order is a day order subject to market hours of 9:30 AM to 4 PM ET. If not executed the order is automatically cancelled at the end of the day

Extended Hours Exposure

If a client wants their order exposed to premarket/aftermarket trading sessions they must sign a risk disclosure agreement

Good-Till-Canceled Order

This is an order that remains in effect until it is executed or cancelled. The customer can enter the order for a week, month, etc.

At-The-Open Order

An order to buy or sell at the opening price. If not executed at opening it is automatically cancelled

Market on Close Order

Order to buy or sell at or near closing price

Limit on Close Order

Order to buy or sell at close, but only if the closing price is equal to or better than the preset limit price.

Not Held Order

The firm has discretion as to an order's time and or price. It must be filled by end of day or be cancelled

Immediate or Cancel Order

As much of the order as possible must be executed immediately. Any portion not immediately executed is cancelled.

Do not Reduce

All open orders are adjusted for stock splits and stock dividends unless the client specifically requests to not reduce the order

Processing Flow for a Transaction


Order Department (Wire Room): Transmits buy and sell orders


Purchase and Sales Department: Records the txn + compares trade details with the other side to reconcile discrepancies


Margin Department; Enforce customer account rules with regard to payment/delivery


Cashiering Department: Funds/securities are received and disbursed


Reorganization Dept: handles all post-settlement issues, such as dividends, stock splits, tenders

What is the difference between a B-D acting as an agent vs. a principal?

As agent the firm helps the client find the other half the trade while as a principal the firm buys/sells securities from its own inventory

Agency Cross

A B-D acting as an agent may have a client who wants to sell and a client who wants to buy the same shares. The firm can then just cross the shares

Market Maker

A dealer that is always ready to buy or sell a specific stock

What does a $20-$20.25 bid mean

The market maker is willing to buy the stock at $20 and sell at $20.25

How does a dealer (firm) make money?

They can markup the price of a share after buying it before they sell to a customer. If they are willing to sell it at $20.25, then they can mark it up to $20.31 before selling

What does the firm earn as an agent verus a dealer?

As an agent it earns a commission, as a dealer it earns a markup/markdown

Does a firm assume risk as an agent or a dealer?

A dealer

Riskless Principal

When a firm has a preexisting order ready and buys stock to fulfill the order. The firm must disclose this, and its markup) to the buyers

Net Basis

Same as riskless principal accept the firm sells the stock to buyers at a higher price than it paid, rather than a markup. The advantage of net basis is the profit in this case need not be disclosed

What does a company do if it wants to delist from the NYSE?


The issuer's audit committee + board of directors must approve the application.


Issuer must send a press release that announces proposed listing.


Must send written notice to 35 biggest shareholders

What is a designated market maker?

Responsible for buying/selling from own stock account to keep market orderly. Must be a buyer when no buyer and a seller when there is no seller

When does the DMM act as an agent?

Floor broker leaves a buy order with a DMM in case the stock falls to a price they want to buy at, rather than floor personnel waiting around for it

What is a fair and orderly market?

A market in which there is price continuity and reasonable depth. To accomplish this there needs to be a reasonable spread, so the DMM may have to act as a principal

Can a DMM compete for public orders?

No, a DMM can only bid for stock higher or lower than the prevailing market price to reduce the spread

What does it mean for a DMM to stop stock?

Stopping stock means that a DMM locks the stock from selling at a worse price for a customer. For instance, if the stock is at $25 the DMM can stop it, and then it can only sell for a better price to the customer

What is the difference between Nasdaq and the NYSE?

The NYSE employs single DMM per security while Nasdaq has competing market makers that maintain two-sided quotes

What is backing away?

When a firm quote is given, if a market maker receives an order based on the quote backing away would be not filling the order

Subject Quote

The quote is not firm but subject to confirm. For instance, 30 to 30.50 - subject, meaning the sale would need to be confirmed within that range

Workout Quote

If a firm gets a quote for stock that already had an interested buyer, the firm would provide a workout quote meaning they would need to check with the earlier client to see if they still have interest

When a dealer wants to sell securities and asks the buyer for a purchase price it is called a...

bid wanted

What are the three listing tiers for Nasdaq Issuers?


Nasdaq Capital Market (NCM)


Nasdaq Global Market (NGM)


Nadaq Global Select Market (NGSM)

What are the Nasdaq Levels?


Level I gives subscribers the highest bid and lowest offer for a security with at least two MM


Level II provides bids, offers, quotation sizes for all MM that enter quotes for a security


Level III is exclusive to MM in Nasdaq system and allows it to enter/update bids and offers for securities. These quotations show up immediately

What is the inside market?

It is the highest bid and lowest offer, in Nasdaq this can be made up of pieces from two separate offers

OTC Bulletin Board

Electronic quotation service that lists securities as long as they are periodically updating their financial information

What is the difference between the OTC Best Marketplace and Venture Marketplace?

The best marketplace is for estalished investor-focused US and global companies while the venture marketplace is for entrepreneurial and development stage US/int'l companies

What is the third market?

Exchange-listed securities being traded over the counter between B-D's and large institutional investors

What is the fourth market?

Direct institution to institution trading without a B-D. Typically this is done thought internal crosses between the two institutional accounts

Electronic Communication Networks (ECNs)

Market centers that allow for the quoting and trading of exchange-listed securites. Its objective is to bring buyers and sellers together

What is a dark pool?

A system that allows large institutional investors and high-frequency traders to buy and sell large blocks of stock anonymously

Consolidated Quotation System

The electronic service that provides quotations for listed securities that are traded in markets outside of the primary marketplace where the security is listed. For example, an NYSE security that also trades in OTC market

Regulation NMS

Provides customers with fair and liquid markets with Order Protection Rule. If security is listed cheaper on OTC market than on Nasdaq the security cannot be sold at Nasdaq rate

What are the four possible outcomes of an order?

Complete execution, partial execution, nothing done, cancelled

Regular Way Settlement

The typical settlement time to complete an order (such as with corporate securities T + 3)

Who is responsible if a customer fails to deliver stock after a sale?

The firm is responsible, and must buy the securites from the customer within 10 days

When would a Don't Know notice be sent?

When one party has not received a confirmation from the other broker that the sale went through

Who sets the margin requirements for broker-dealers and what regulation specifys the requirement?

The Federal Reserve Board sets it, and Regulation T gives them the power

What is a proxy contest?

Once company attempts to acquire another company by convincing its shareholders to vote out present management

What is painting the tape?

This is when two persons place matched orders to generate the false impression of increased sales volume

Capping/Pegging

Syndicates get together to try and prevent a stock from raising above (capping) or falling below (pegging) a certain price

How is an insider defined by the Securities Exchange Act of 1934?

Any director, officer or owner of more than 10% of voting stock of a corp and his immediate family. Within 10 days of becoming an insider Form 3 needs to be filed to the SEC

Short-swing profits

An insider cannot sell their stock at a profit within six months of acquisition

What does the Insider Trading and Securities Fraud Enforcement Act of 1988 require?

A B-D needs to establish, maintain and enforce policies and procedures designed to prevent the misuse of material, nonpublic information

SEC Regulation FD (Fair Disclosure)

If a senior company official discloses nonpublic, material information to analysts or investors the company is rquired to disclose the info to the public at large within 24 hours

Trigger Value for halting the markets:

Level 1 is at a 7% decline and stops for 15 minutes, Level 2 is a 13% decline and 15 min stop and Level 3 is a 20% decline and stops trading for the day. After 3:25 PM Level 1 and 2 don't apply

FINRA's rule on manipulative trading

No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance

What are two types of improper behavior a RR cannot do?

Front-running (buying stock for personal gain because of client knowledge) or Interpositioning (involving a third party to the detriment of the client)