SIE STC Ch. 12
If the bid price for a stock is 20.50 and the ask price is 20.60, a client who enters a market order to sell the stock will most likely receive: A$20.50 and plus a commission B$20.50 minus a commission C$20.60 plus a commission D$20.60 minus a commission
B. A client who enters a market order to sell stock will generally receive the bid price minus a commission
If a customer purchases shares of one stock and sells short shares of another stock, how can she settle these transactions? ABy executing both transactions in a margin account and depositing the required cash for both transactions. BBy depositing the required cash for both transactions in a cash account. CBy executing the purchase in a cash account and the short sale in a margin account, and using the proceeds of the short sale to pay for the purchase of the stock. DBy executing both trades in a margin account and using the proceeds of the short sale to pay for the purchase of the stock.
Payment must be made for both transactions. The purchase could be made in either a cash or margin account, but the short sale must be executed in a margin account. The proceeds of the short sale cannot be used to pay for the purchase of the stock.
A customer opens a new margin account and her initial transaction is a short sale of 100 shares of XYZ at $16. What is her minimum deposit requirement? A50% of the short market value B100% of the short market value C$2,000 D50% of the short market value plus $2,000
Short sales must be executed in a margin account since they involve borrowing securities. For the first short sale in a new margin account, the minimum deposit requirement is $2,000.
The 5% markup policy applies to a: ANew issue of common stock BMunicipal bond trade CPurchase of mutual fund shares DProceeds transaction
The 5% markup policy does not apply to any trade requiring a prospectus (new issues, registered secondaries, and mutual funds) or a transaction involving an exempt security (municipal bond). The 5% policy applies to secondary market trades, which include proceeds transactions (using sale proceeds to buy another security) and riskless or simultaneous transactions.
The 5% markup policy applies to: AMutual funds BNew issues CMunicipal bonds DNonexempt securities
The 5% markup policy does not apply to transactions requiring a prospectus (new issues, mutual funds, and registered secondaries) or transactions in certain exempt securities (such as municipal securities
Relative to the 5% markup policy, which of the following statements is TRUE? AA broker-dealer must charge less than a 5% markup BA broker-dealer may never charge more than a 5% markup CThe 5% markup policy applies only to principal transactions DThe 5% markup policy serves as a guideline when determining a broker-dealer's percentage markup
The 5% markup policy is a guideline, not a ceiling, and applies to both agency and principal transactions. According to industry rules, commissions and markups must be reasonable and justifiable.
A customer enters a sell stop-limit order for 100 XYZ at 25.50. XYZ trades occur as follows: 25.50, 25.25, 25.13, 25.45. The customer's order was: AExecuted at the market price after the order was entered BExecuted at 25.25 CExecuted at 25.45 DNot executed
The first trade listed at 25.50 touched the stop price of 25.50 and, therefore, the order became an active (triggered) order to sell 100 shares of XYZ at a limit price of 25.50 or better. For the order to be executed, the stock must be traded at 25.50 or higher. Since the stock remained below 25.50 after the order was triggered, the customer's order did not receive execution.
An over-the-counter trader, when talking about the spread, is referring to the: ADifference between the bid and asked price of a stock at the current market BDifference between his cost price and his selling price CAmount of his markup from his cost price D5% markup which is allowable under the Conduct Rules
The over-the-counter trader, when referring to the spread, is referring to the difference between the current bid and asked price of a stock.
If a client places an open (GTC) order for a stock listed on the NYSE, it will: ABe cancelled at the end of the day if it is not executed BBe cancelled if it is not executed at that day's opening price CBe cancelled if it is not executed within one week of being entered DRemain active until executed or cancelled, but must be renewed according to exchange rules
A good-'til-cancelled (GTC) order will remain active as long as it is properly renewed.
Difference between Stop, Limit, and Stop-Limit order?
A "limit order" is like a normal bid or offer, e.g. "I want to buy 100 XYZ at $50.00 or less" or "I want to sell 100 XYZ at $51.00 or higher" A "Stop order" or more precisely a "stop market order" is a market order that activates if certain market conditions are met, e.g. "If the stock trades at $49.00, I want to buy 100 XYZ at any price" A "Stop limit order" is a limit order that activates if certain market conditions are met, e.g. "If the stock trades at $49.00, I want to buy 100 XYZ at $50.00 or less"
The 5% Markup Policy applies when a member firm: AUnderwrites equity securities BUnderwrites debt securities CActs as a dealer in a transaction with a customer DSells a mutual fund to a customer
A broker is an agent who acts for someone else and receives a commission when a trade is executed. A dealer is a principal who acts for his own account and adds a markup on a purchase. In both cases, they must conform to the 5% Markup Policy, which is a guide broker-dealers must follow. The 5% Markup Policy covers all transactions except municipal bonds and those requiring a prospectus (i.e., the sale of a new issue, mutual fund, and registered secondary). If a member was acting as an underwriter, the firm would be involved in a new issue and, if acting as a sponsor would be involved in the sale of a mutual fund. Since these transactions require a prospectus, they would not be covered by the 5% Markup Policy.
When a broker-dealer sells a security to a client and charges a commission on the transaction, it is acting as the client's: AMarket maker BPrincipal CDesignated market maker DAgent
A broker-dealer that buys securities from or sells securities to a client without owning the securities is acting as the client's agent or broker. The broker-dealer does not have any risk and the client pays a commission on this type of transaction. When acting in a principal capacity, the client is charged a markup or markdown.
If a customer enters an order that is good for one month only, who is responsible for cancelling the order at the end of the month if the order is not executed? AThe designated market maker BThe customer CThe NYSE DThe brokerage firm that entered the order
A customer can enter an order good for a week, a month, or any specified time. If the order is not executed by the end of the specified time, the brokerage firm is responsible for cancelling the order
Which of the following statements is NOT TRUE concerning a customer who is short a security? AThe maximum gain is limited BThe maximum loss is limited CThe customer is bearish DIt is considered a speculative strategy
A customer executing a short sale is anticipating a decrease in the market value of a security. This is known as a bearish strategy, and the customer is hoping to buy back the security or cover the short sale at a lower price. The maximum loss is not limited, i.e., it is unlimited since the customer would have a loss if the market value of the security increased, and there is no limit as to how high the price can rise. Short selling is considered a speculative strategy. The maximum gain is limited since the price of the stock cannot fall below zero.
A type of order that becomes a market order when a round-lot trades at or through a particular price is called a: AMarket order BLimit order CStop order DStop-limit order
A type of order that becomes a market order when a round-lot trades at or through a particular price is called a stop order. A variation of a stop order is a stop-limit order, which is activated when a round-lot trades at or through a particular price, along with the requirement that the limit price be satisfied.
An order that becomes a market order when it sells at or below (or at or above) a particular price is called a: AMarket order BLimit order CStop order DStop-limit order
An order that becomes a market order when it sells at or below (or at or above) a particular price is called a stop order.
Relative to the 5% Markup Policy, which of the following statements is TRUE? AA broker-dealer must charge less than a 5% markup. BA broker-dealer may never charge more than a 5% markup. CIt is an SEC rule. DIt serves as a guideline when determining a broker-dealer's percentage markup.
FINRA members are not permitted to charge prices or commissions that are unfair or excessive. To assist members in determining the level of charges that are fair, FINRA has developed a markup policy, also known as the 5% Markup Policy. (Although stated in terms of markups, the policy applies to markups, markdowns, and commissions.) The rule applies to both exchange-listed and non-exchange-listed securities and applies whether the broker-dealer is acting in a principal or agency capacity. The 5% Markup Policy is a guideline, not a ceiling. According to industry rules, commissions and markups must be reasonable and justifiable.
A client is short stock that's trading at $35.00 and wants to buy, but only if he can buy at $34.00 or lower. He should place which of the following orders? AA buy stop BA buy stop-limit CA buy limit DA sell stop
He should place a limit order to buy, which can only be executed at a specified price or lower. A buy stop and/or buy stop-limit order is placed above a stock's current value and is used to protect the short position in case it rises in value. A sell stop and/or sell stop-limit is used to protect a long stock position in case it falls in value.
Which of the following statements about orders is TRUE? AA market order to sell is executed at a specified price or higher. BA limit order to buy can only be executed at a specified price or higher. CA market order to sell is executed immediately at the best available price. DA limit order to buy is executed immediately at the best available price.
Market orders are executed immediately at the best available price at the time they are entered (market orders don't specify a price). A limit order to buy can only be executed at a specified price or lower, while a limit order to sell can only be executed at a specified price or higher.
If investor wants to receive immediate execution, he should enter a: AMarket order BStop order CLimit order DStop limit order
Market orders provide immediate execution. On the other hand, limit orders, stop orders, and stop limit orders require a certain price to be reached before they are activated and/or executed. (17554)
In placing a stop-limit order, a customer should understand: AThe activating round-lot sale is also the execution price BThe order will become a market order as soon as it is activated CThe order can be activated but may or may not be executed DThe customer is guaranteed an execution at the limit price after the order is activated
With reference to stop-limit orders, the order can be activated but may or may not be executed. Unlike a stop order, a stop-limit order does not become a market order. Once it is activated, it must satisfy the limit price, which may never occur. All of the other choices are not true of a stop-limit order.
