UNIT 22 series 65 trading securities
A client of your broker-dealer, currently long 1,000 shares of DEF Corporation common stock, wishes to liquidate the position. Based on the following market maker quotes, it would be expected that the firm's trader would direct a market order to A) MMB: 9.65 - 9.75, 10 x 10. B) MMD: 9.75 - 9.90, 5 x 10. C) MMA: 9.65 - 9.85, 5 x 5. D) MMC: 9.75 - 9.85, 20 x 20
D
For individual public investors, dark pools of liquidity A) prevent them from having their own orders entered on exchanges for execution B) allow them to enter orders that are sent directly to the trading floors of stock exchanges C) allow them to give an order to their broker/dealer to buy or sell securities while only referencing an account known by a number and not their name D) lessen the transparency of the overall market as volume, quote and price information, and market participant identity is unknown
D
If a security trades in the over-the-counter (OTC) market, it means that A) the security cannot be purchased on margin B) the security is traded on multiple stock exchanges C) the security is available for sale only if the buyer picks it up in person D) the security trades anywhere other than on an exchange
D
In the securities industry, the term contra party refers to A) the person identified on the trade confirmation as a broker B) the person on the other side of a civil suit C) a securities regulator who begins an investigation against a securities professional D) the person on the other side of the trade
D
One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Buy limit B) Sell limit C) Buy stop D) Sell stop
D
The bulk of "dark liquidity" represents trades A) involving noninstitutional investors. B) engaged in by institutional traders and trading desks on the exchange markets. C) where the identity of the participants is disclosed. D) engaged in by institutional traders and trading desks away from the exchange markets.
D
Under the Securities Exchange Act of 1934, a market maker is A) a marketplace to bring together buyers and sellers of securities B) a security in high demand C) any person who buys and sells securities for his own account or for the accounts of others D) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price
D
Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange A) for 10 days, in its discretion B) only if it has cause to believe that such suspension is necessary to prevent criminal violations that are about to occur on the exchange C) under no circumstances D) only with prior notification to the president of the United States
D
When a security purchased on margin suffers a decline in market value, it may cause the equity in the account to fall to a level such that additional funds are required under the terms of the margin agreement between the client and the broker-dealer. The term that describes the request by a broker-dealer rather than an SRO for more money is A) margin call B) regulation T call C) sell-out D) house call
D
When discussing a stock exchange, a specialist is A) a floor broker on the New York Stock Exchange who only executes trades for other brokers in return for commissions B) an electronic brokerage concern that executes trades online and through specialized trading order executing services C) a trader who makes a market in OTC stocks and ADRs D) a member of the New York Stock Exchange who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks
D
Which of the following is an improper activity under the Uniform Securities Act? A) An investment adviser charges two customers two different fees for a similar service. B) An investment adviser collects a commission on the sale of insurance products that he recommended, disclosing that a commission would be earned. C) An investment adviser charges a customer a fee for advice leading to the sale of a security, receives a commission on the sale, and discloses the amount of the commission to the customer. D) A dealer charges commissions for securities it sells from its inventory and discloses the amount of the commission to the customer.
D
An investor has issued the following orders to her agent when GMB Corp. is trading at $29 and RML Corp. is trading at $17: Buy 200 shares of GMB if the price should increase to $31 Sell 400 shares of RML for at least $18 The investor has issued what types of orders? GMB RML A) Buy limit Sell limit B) Buy limit Sell stop C) Buy stop Sell stop D) Buy stop Sell limit
D An order to buy a stock when it goes up to a specified price is a buy stop order. An order to sell a stock where the investor gives the agent a minimum acceptable price is a sell limit order.
In a margin account, broker-dealers lend money to clients to enable them to leverage their investments. The account document that is evidence of the debtor-creditor relationship is A) the IOU agreement B) the loan consent agreement C) the hypothecation agreement D) the credit agreement
D The credit agreement, sometimes simply referred to as the margin agreement, is the written agreement between the client and the broker-dealer evidencing the loan. The loan consent agreement is the optional portion of the account documentation which allows the broker-dealer to lend out the client's margin securities. The hypothecation agreement allows the broker-dealer to re-pledge, (rehypothecate), the client's securities as collateral for the money it borrows at the broker call loan rate.
One of your clients currently holds a short position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Buy limit B) Sell limit C) Sell stop D) Buy stop
D to a short seller is to the upside (there is, at least theoretically, no limit as to how high the stock's price can go). To protect against an increase to the stock's price beyond the point the investor is willing to lose, it is wise to enter a buy stop order at that price. If the stock should reach that price, the order is triggered, a market order is entered, and the short position is closed out. This is why stop orders are usually referred to as stop loss orders; they keep you from losing any more money. DUPLICATE
A margin account could be opened for which of the following? A) Partnership B) IRA C) Coverdell ESA D) UTMA account
A
An investor purchased 100 shares of GRA stock at $100 per share in a margin account. Two years later, the GRA was sold for $120 per share. If the investor's account was charged $700 in margin interest, it would be proper to state that this is an example of A) positive margin. B) a long-term capital gain of $1,300. C) negative margin. D) a speculative investment.
A
Watson, a customer of Gibraltar Securities, wishes to place an order to buy 50 shares of a thinly traded stock priced at $8 per share. Because the stock is so thinly traded, Gibraltar Securities feels it needs to charge Watson a commission of $100 to justify the time it must spend locating a seller of the stock. Which of the following statements best describes this action? A) It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction, provided Gibraltar informed Watson of the $100 commission prior to the transaction and Watson chose to proceed with the trade. B) Gibraltar Securities is not required to disclose the amount of commission in advance to Watson. However, it must receive clearance from the Administrator before charging commission in amounts exceeding 10% of the value of the securities traded under the transaction. C) A commission of $100 on a transaction involving $400 worth of stock would generally not be deemed excessive. D) It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction.
A
When an agent submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT A) the current market price of the security B) the agent's name C) the details of the order D) the broker-dealer's name
A
The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket? A) Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order B) Customer name, execution price, time of order entry, and time of execution or cancellation C) Customer name, customer address, execution price, and time of execution or cancellation D) Account number, customer address, time of order entry, and terms and conditions of the order
A This is one of those questions where the best way to find the answer is by determining what is NOT correct. Customer name and/or address would never be on an order ticket and that knocks out three of the choices. The account number (not name), the execution price (once the order is completed), the time of entry and execution (or cancellation if it is a day order that is not executed), and the terms and conditions (limit, market, stop, etc.) are all on the order ticket.
An investor would enter a buy stop order to hedge against a loss in A) a short stock position B) a long stock position C) a margin account D) a variable annuity wrapper
A When an investor sells short, stock is borrowed and sold with the anticipation that it will later be replaced at a lower price. However, the investor will lose money if the stock goes up instead of down. Because there is no limit to how high the stock's price can go, one can protect against that unlimited loss by entering a buy stop order at a specified price above the current market. It is true that all short sales must be made in margin accounts, but that is not nearly a descriptive enough answer because there are both long and short margin accounts and a long position cannot be hedged with a buy stop order.
An agent of a broker-dealer has a client who lost her job but will be starting a new job in 3 weeks. The client is in need of $900 for the 3-week gap. Under what circumstances may the agent arrange a loan for the client? A) If the client has $5,000 in her brokerage account B) If the client is agent's niece C) If the loan is less than $1,000 D) If the loan is repaid within 30 days
A s may be made to clients if the person making the loan is in the lending business. Broker-dealers are permitted to lend money against securities held in client's portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.
A broker-dealer acting as a principal in a trade would A) must disclose to clients the amount of earnings he made on principal transactions in excess of the amount he would have made had he charged a commission B) add a markup to the offering price when selling shares to a client C) must always disclose the amount of markup on a client's confirmation statement D) add a markup to the bid price when offering shares to a client
B
One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm's margin agreement. This would be known as A) a Regulation T call B) a house call C) a sellout D) a margin call
B
Question ID: 1181411 It is often said that the backbone of the over-the-counter market is the market maker. A good description of a market maker would be A) an investment banker who participates in a firm underwriting B) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market C) an employee of a listed exchange D) a member of FINRA
B
The minimum size order that would be considered a block trade is A) 1,000 shares B) 10,000 shares C) 500 shares D) 100,000 shares
B
The term used to describe a broker-dealer contacting a margin account client with a demand for additional funds is A) Reg. T call B) maintenance margin C) margin call D) market call
B
Which of the following orders may be used to acquire a security at a specific price or better? A buy stop limit A buy limit A sell stop A sell limit A) I and III B) I and II C) II and IV D) II and III
B
Which of the following statements about short sales are true EXCEPT A) the potential loss to the investor is unlimited B) risks can be minimized by confining short sales to cash accounts rather than margin accounts. C) in a short sale, an investor sells securities she does not own. D) in a short sale, an investor hopes that the price of a security will go down.
B
You have a client with a margin account at your broker-dealer. If the market price of the securities in the client's account should fall to a point where your firm has to ask the client for additional funds, it is A) a margin call B) a maintenance margin call C) a market call D) a Regulation T call
B
nder the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities? A) The Comptroller of Currency B) The Federal Reserve Board C) The SEC D) The New York Stock Exchange
B
Which of the following has the power to close a stock exchange for up to 90 days? A) The Administrator in the state where that stock exchange is located B) The SEC C) The president of that stock exchange D) The president of the United States
B The Securities Exchange Act of 1934 granted the SEC the power to close any registered stock exchange for up to 90 days. All that is required is notice to the president of the United States.
The Securities Exchange Act of 1934 gives the SEC the power to do all of the following EXCEPT A) administer oaths B) set margin requirements C) refer evidence for prosecution D) subpoena witnesses
B The Securities Exchange Act of 1934 specifies that the Federal Reserve Board will have control over the issuance of credit when trading securities. The Securities Exchange Act of 1934 gives the SEC the power to make, amend, and rescind rules; issue cease and desist orders; administer oaths; conduct investigations; take evidence; and subpoena witnesses, books, and records. The Commission may seek temporary or permanent restraining orders (injunctions) from the courts, file civil suits, or refer evidence to the attorney general for criminal prosecution.
Margin is borrowing money from a broker-dealer to buy a stock using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock? A) The credit agreement B) The hypothecation agreement C) The securities pledge agreement D) The loan consent agreement
B The hypothecation agreement gives permission to the broker-dealer to pledge a customer's margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker-dealer on the basis of the loan value of these securities. The credit agreement contains the terms of the loan, including the method of computing interest on the borrowed money. The loan consent agreement, granting permission to the broker-dealer to lend out the customer's securities, is optional.
A Nasdaq market maker buys 1,000 shares of stock from a customer at its bid to satisfy a customer order. This is an example of A) an agency trade B) a market order C) a principal trade D) a block trade
C
Broker-dealers provide a bid and offer price when functioning as market makers. In this context, A) the bid and offer price refer to the price the market maker is willing to pay for the stock. B) the bid and offer prices refer to the market maker's buying and selling prices including commissions. C) the bid price represents the price the market maker is willing to pay for the stock and the offer price is the market maker's selling price. D) the bid price represents market maker's selling price and the offer price is the price the market maker is willing to pay for the stock.
C
One of your clients currently holds a short position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Sell limit B) Sell stop C) Buy stop D) Buy limit
C
One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm's margin agreement. This would be known as A) a margin call B) a sellout C) a house call D) a Regulation T call
C
Under the Securities Exchange Act of 1934, an exchange is A) a disposition of a security for value B) any transaction involving a security C) an organization that provides facilities for bringing together buyers and sellers of securities D) an organization of securities professionals designed to promote fair practices in doing business with the public
C
When a securities firm is position trading, it is acting A) as a broker B) on principle C) as a dealer D) unethically
C
Which of the following cannot be purchased on margin? A) A listed bond B) An NYSE-listed stock C) A long call option traded on the CBOE. D) A municipal bond
C
Which of the following is regulated by the Securities Exchange Act of 1934? A) Requirements for the provisions of a prospectus B) Registration of new issues of stock C) Regulation of exchanges D) Exemptions of new issues from registration requirements
C
Which of the following orders would be most likely to add fuel to a bullish stock market? A) Sell stop B) Sell limit C) Buy stop D) Buy limit
C
Which of the following statements is TRUE about sales of new issues under the Securities Exchange Act of 1934? A) Credit may be used in purchasing new issues. B) The SEC determines what issues may be purchased on margin. C) The use of credit to purchase new issues is prohibited for the first 30 days. D) Installment payments are allowed on purchases.
C
Which of the following securities can legally be purchased on margin? A) Preemptive rights to acquire shares of a stock traded on the New York Stock Exchange B) Put options where the underlying common stock is listed on the New York Stock Exchange C) Warrants exercisable into shares of a stock traded on the Nasdaq Stock Market D) Units of a variable annuity issued by an insurance company authorized to do business in the state
C Warrants, but not rights, may be purchased on margin if the underlying stock is traded on the NYSE or the Nasdaq. No insurance product is marginable and the same is true for options. LEAPS are option contracts that are marginable, but the question would have to specify that the contract was a LEAPS.
Question ID: 1180337 A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities." When the client asks you what this is about, you would respond that A) this is the loan consent agreement B) if the client does not sign the document, the account cannot be opened C) this is the hypothecation agreement D) this is the credit agreement
a No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is option
