SIE Chapter 1

The OTC Bulletin Board (OTCBB) is BEST defined as: A A quotation system for securities that are not listed on either the NYSE or Nasdaq B An exchange for securities that are not listed on either the NYSE or Nasdaq C An execution system for securities that are not listed on either the NYSE or Nasdaq D A quotation system for securities that are listed on the NYSE or Nasdaq and traded in the OTC market

A

A customer has an account with a discount broker-dealer that specializes in online trading. If the customer is being charged a commission, the firm is MOST likely acting in which of the following capacities? A Agent B Principal C Market marker D Underwriter

A A broker-dealer who charges customers a commission is acting as an agent or broker. A broker-dealer who charges customers a markup or markdown is acting as a principal or dealer.

If ABC Brokerage (a broker-dealer) purchases 600 shares of stock from a customer and places the securities into its inventory, it likely acted as a(n): A Dealer B Designated market maker C Agent D Underwriter

A When a broker-dealer buys a security from a customer using its own funds and places the securities into its inventory, it is acting as a dealer (principal).

When trading equity securities, the term dark pool is BEST defined as trading: APrior to an exchange's normal market hours B Between investors, allowing them to buy and sell securities anonymously without quotes being displayed CAfter an exchange ends its normal market hours DBetween investors, allowing them to buy and sell securities anonymously with quotes being displayed

B

Which of the following statements is NOT TRUE concerning a clearing corporation? A It provides trade comparison and reporting services. B It is responsible for automated book-entry changes in the ownership of securities. C It assists broker-dealers in transferring assets in a customer account to another broker-dealer. D It offers customers the ability to have real-time trade matching.

B The responsibility for automated book-entry changes in the ownership of securities is a function of a depository facility (e.g., the DTC), not a clearing corporation. Each of the other choices are functions of a clearing system, such as the National Securities Clearing Corporation (NSCC).

The third market is concerned with: A Securities listed on an exchange that are traded directly between institutional investors B Securities listed on an exchange, but traded in the OTC market C Listed securities trading on an exchange D OTC equity securities trading on an exchange

B The third market is concerned with securities that are listed on an exchange (e.g., the NYSE or Nasdaq) that are traded in the OTC market. The fourth market refers to direct institution-to-institution trading and does not involve the public markets or exchanges.

A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records? A The clearing broker-dealer. B The introducing broker-dealer. C The broker-dealer appointed by FINRA to prepare the records D Both the clearing and introducing broker-dea lers

B When a firm clears trades for another firm but is not given specific information regarding the introducing firm's clients, the account is said to be an omnibus account. Introducing firms are required to establish and maintain records for omnibus accounts.

A broker-dealer acting in an agency capacity will charge customers a: A Markup B Markdown C Commission D Fee

C When acting in an agency capacity, the broker-dealer will normally charge the customer a commission. A broker-dealer that is always willing to buy and/or sell a security is considered a market maker. A market maker will normally act in a principal capacity and charge the customer a markdown when buying stock from a customer and charge a markup when selling stock to a customer.

A customer sells 500 shares of stock to a broker-dealer that makes a market in the stock. The broker-dealer acted in a(n): A Agency capacity and charged the customer a commission B Principal capacity and charged the customer a commission C Agency capacity and charged the customer a markup D Principal capacity and charged the customer a markdown

D A broker-dealer that's always willing to buy and/or sell shares of stock is considered a market maker. A market maker will normally act in a principal capacity and charge a customer a markdown when buying the stock from the customer and a markup when selling the stock to the customer. When acting in an agency capacity, the broker-dealer will not take the other side of the trade and normally charges the customer a commission.