3- Unit 8 Trading Securities Practice

Which of the following is a third-market trade? A) 10,000 shares of XYZ, a stock listed on the New York Stock Exchange, are sold on the Chicago Stock Exchange floor. B) 10,000 shares of LMNO, a stock listed on Nasdaq, are traded between two financial institutions via an electronic communications network (ECN). C) 12,000 shares of PQ, a stock listed on the Philadelphia Stock Exchange are sold on the Chicago Stock Exchange floor. D) 12,000 shares of XYZ, a stock listed on the New York Stock Exchange, are sold over the counter.

Your answer, 10,000 shares of LMNO, a stock listed on Nasdaq, are traded between two financial institutions via an electronic communications network (ECN)., was incorrect. The correct answer was: 12,000 shares of XYZ, a stock listed on the New York Stock Exchange, are sold over the counter. A third-market trade occurs when exchange-listed securities are traded over the counter. Reference: 8.2.1.3 in the License Exam Manual.

The Three Contact Rule does NOT apply to the purchase or sale of a non-Nasdaq security provided there is at least: A) 2 priced quotations available electronically . B) 4 priced quotations available electronically . C) 1 priced quotation available electronically. D) 3 priced quotations available electronically .

Your answer, 3 priced quotations available electronically ., was incorrect. The correct answer was: 2 priced quotations available electronically . Provided there are at least 2 priced quotations available electronically, the Three Contact Rule does not apply. Reference: 8.9.2.3 in the License Exam Manual.

After-hours trading in large blocks of stock by institutional investors can be accomplished through: A) any regional exchange. B) the intermarket. C) electronic communications networks (ECNs). D) Nasdaq.

Your answer, electronic communications networks (ECNs)., was correct!. Institutional investors can trade stock after hours through ECNs, which are open 24 hours per day. Reference: 8.2.1.4 in the License Exam Manual.

The secondary trading of securities is comprised of how many markets? A) 2 B) 5 C) 4 D) 3

Your answer, 4, was correct!. The secondary trading of securities takes place in four markets: the first market is listed securities traded on an exchange floor; the second market deals with unlisted securities; the third market is where listed securities trade over the counter; and the fourth market is where financial institutions trade directly with each other, utilizing electronic communications networks (ECNs). Reference: 8.2.1 in the License Exam Manual.

A customer sells short 100 shares of XYZ Corporation at $78 per share. The support and resistance levels for XYZ are at $70 and $80, respectively. If he wishes to protect his position, which of the following is the best place to put in a buy stop order? A) 80.1. B) 70.1. C) 69.85. D) 78.1.

Your answer, 78.1., was incorrect. The correct answer was: 80.1. The client will want to place a buy stop a little above the resistance level to protect himself against an upside breakout. Entering a buy stop order too close to the purchase price (78.10) would not afford the client an opportunity for gain. Reference: 8.4.2.4.1 in the License Exam Manual.

A customer entered an order to sell short 100 shares of ABC. The stock closed on Friday at 48.00. The stock will trade ex-dividend $.50 on Monday. At what price can the order be executed at the opening? A) 47.5. B) Any price. C) 47.51. D) 47.49.

Your answer, Any price., was correct!. The stock's price is adjusted for the dividend at its opening the next morning. The adjustment in the stock does not limit where the short sale can be executed. Reference: 8.4.4 in the License Exam Manual.

A significant increase in which of the following types of orders may cause a bull market to accelerate? A) Buy stops. B) Buy limits. C) Short sales. D) Sell stops.

Your answer, Buy limits., was incorrect. The correct answer was: Buy stops. If the market is rising, only those orders on the order book above the current market will be executed. Buy stops and sell limits are both entered above the prevailing market price. Of these two, only buy orders (in this case buy stops) will accelerate a rise in the market. Reference: 8.4.2.4.1 in the License Exam Manual.

The over-the-counter market could be characterized as what type of market? A) Auction. B) Dealer. C) First. D) Primary

Your answer, Dealer., was correct!. The OTC market is a dealer market. Reference: 8.2.1.2 in the License Exam Manual

Which of the following order types is permitted in Nasdaq markets but NOT in NYSE equity markets? A) Market. B) Fill or kill (FOK). C) Immediate or cancel (IOC). D) Limit.

Your answer, Fill or kill (FOK)., was correct!. Fill-or-kill (FOK) and all-or-none (AON) orders may no longer be entered in the NYSE equity market but are still accepted in both the bond market and Nasdaq. Reference: 8.4.3.5 in the License Exam Manual.

An immediate-or-cancel order (IOC): must be executed in its entirety. may be executed in part or in full. must be executed in one attempt. may be executed after several attempts. A) II and IV. B) II and III. C) I and III. D) I and IV.

Your answer, I and III., was incorrect. The correct answer was: II and III. In an immediate-or-cancel order, the firm handling the order has one attempt to fill the order but a partial execution is binding on the customer. Reference: 8.4.3.6 in the License Exam Manual.

Which of the following securities are eligible for inclusion on Nasdaq? Listed common stock. Unlisted common stock. Listed convertible bonds. Unlisted convertible bonds. A) II and IV. B) III and IV. C) I and III. D) I and II.

Your answer, I and III., was incorrect. The correct answer was: II and IV. Nasdaq includes OTC securities only, which means that unlisted securities including stocks and convertible bonds are eligible. Reference: 8.8.1 in the License Exam Manual.

If a customer places an order to sell 500 ABC at 46 stop limit, which of the following statements are TRUE? The order will be elected at 46 or lower. The order will be elected at 46 or higher. The order can be executed at 46 or higher. The order can be executed at 46 or lower. A) I and IV. B) II and IV. C) I and III. D) II and III.

Your answer, II and III., was incorrect. The correct answer was: I and III. Sell stop limits are placed below the current market and will be elected when the stock trades at or through (lower than) the stop price. Once elected, the order becomes a limit order to sell at 46 or better (higher). Reference: 8.4.2.4.3 in the License Exam Manual.

Where would an investor look for a quote on a penny stock? A) Consolidated Quotation System. B) Nasdaq Capital Market Issues list. C) Blue List. D) OTCBB.

Your answer, OTCBB., was correct!. A penny stock is a non-Nasdaq (OTCBB or electronic OTC Pink) stock trading at less than $5 per share. Reference: 8.9.2.3 in the License Exam Manual.

Which of the following orders on the order book would be reduced on the ex-date? A) Buy 100 XYZ at 60 stop. B) Buy 100 XYZ at 50 DNR. C) Sell 100 XYZ at 60. D) Sell 100 XYZ at 50 stop.

Your answer, Sell 100 XYZ at 60., was incorrect. The correct answer was: Sell 100 XYZ at 50 stop. Orders on the book adjusted on the ex-date for a cash dividend are those below the current market: buy limits and sell stops. The buy limit at 50 is marked DNR (do not reduce) so the only order reduced is the sell stop at 50. Reference: 8.4.2.6 in the License Exam Manual.

An OTC trader's quote of "60 to 63, work out," in response to a broker holding a customer order to sell a block of stock, indicates which of the following? A) The quote is firm and the customer can sell an unlimited amount of stock at 60 or buy at 63. B) The quote is tentative (nominal) merely suggesting a range in which the order is likely to be filled. C) The market maker guarantees that a customer buy order can be filled no higher than 60. D) The quote is firm but the market maker must be given discretion over when the transaction will take place.

Your answer, The quote is firm and the customer can sell an unlimited amount of stock at 60 or buy at 63., was incorrect. The correct answer was: The quote is tentative (nominal) merely suggesting a range in which the order is likely to be filled. The term "work out" means that the quote is approximate, or nominal. As with a subject quote, the OTC trader that supplied the quote will most likely negotiate with a number of market makers to get the customer's securities sold or bought. Reference: 8.9.1.4.1 in the License Exam Manual.

All of the following statements regarding a market not-held order are true EXCEPT: A) it may be filled a small portion at a time. B) it gives the floor broker discretion over the price or time of execution. C) it is given to a specialist (designated market maker). D) the order ticket must be marked not held.

Your answer, it gives the floor broker discretion over the price or time of execution., was incorrect. The correct answer was: it is given to a specialist (designated market maker). In a market not-held order, the client agrees not to hold the broker responsible if he cannot fill the complete order. Such an order allows the floor broker to use his judgment on the best execution strategy. Specialists (designated market makers) cannot accept market not-held orders. Reference: 8.4.3.4 in the License Exam Manual.

All of the following orders could be placed on the specialist (designated market maker) order display book EXCEPT: A) market orders. B) stop limit orders. C) stop orders. D) limit orders

Your answer, market orders., was correct!. Market orders are executed immediately. The order display book is for orders that are away from the current market, such as stop and limit orders. Reference: 8.4.2.5 in the License Exam Manual.

All of the following may be cited to justify a markup on a stock sold from a broker/dealer's inventory EXCEPT: A) the security's price. B) overall value of the transaction. C) dealer's cost. D) availability.

Your answer, overall value of the transaction., was incorrect. The correct answer was: dealer's cost. The dealer's cost is not a legitimate factor in determining the markup on a stock. Reference: 8.10.2.3 in the License Exam Manual.

Under NYSE rules, a not-held order: A) is good until canceled. B) is a limit order. C) is good for the day only. D) requires discretionary authority from the customer.

Your answer, requires discretionary authority from the customer., was incorrect. The correct answer was: is good for the day only. Under NYSE rules, a not-held order where a customer gives you authority over the price or timing of the order is good for that day only. Reference: 8.4.3.4 in the License Exam Manual.

A customer, concerned about a possible pull-back in XYZ stock, instructs his broker, to "Sell my XYZ stock if it falls to 40, but I don't want less than 39.75 for my shares." The broker should enter a: A) sell stop limit order. B) market order to sell. C) sell limit order. D) sell stop order.

Your answer, sell stop limit order., was correct!. A sell stop limit order would be appropriate (sell 100 XYZ 40 stop 39.75). Once the price of XYZ trades at or through (below) 40, the order is elected and becomes a limit order to sell at 39.75 or better (higher). Reference: 8.4.2.4.3 in the License Exam Manual.