UNIT 8 Checkpoint

On the order book, all of the following orders are reduced on the ex-date for a cash dividend EXCEPT A. buy stop B. sell stop C. sell stop limit D. buy limit

. A. Only orders placed below the market price are reduced for cash dividends on the order book. Buy limits and sell stops are entered below the market price. Buy stops are entered above the market price

ALFA Electronics has been trading around 70. A customer tells his registered representative that if 1,000 shares of the stock can be purchased in one attempt, the customer will take it. If not, the customer is not interested. How should the representative enter this order? A)1,000 ALFA FOK at 70 B)1,000 ALFA IOC at 70 C)1,000 ALFA AON at 70 D)1,000 ALFA at 70

. A. A fill-or-kill (FOK) order designates that the customer wants the order to be filled in its entirety in one attempt or be canceled. With an all-or-none (AON) order, the broker/dealer can make numerous attempts to fill the order in its entirety. With an immediate-or-cancel (IOC) order, the broker/dealer can make only one attempt to fill the order, but a partial fill is acceptable.

A client buys 100 shares of MCS at 20. If the stock rises to 30 and he wants to protect his gain, which of the following orders should be entered? A)Sell stop at 29 B)Sell stop at 30.15 C)Sell limit at 30.15 D)Sell limit at 30

. A. A sell limit order is used to sell out a long position at a higher price (when the market moves up). A sell stop order is used to sell out a long position at a lower price (when the market moves down). To protect the gain, a sell stop order would be placed just below where the stock is currently trading.

To narrow the spread between the bid and the asked price of one of his stocks, a specialist enters a bid to buy for his own account, acting in this transaction as a A. dealer (or principal) B. broker/dealer C. broker (or agent) D. floor broker

. A. A specialist (designated market maker) buying for his own account is operating as a dealer, which means he is acting as a principal in the transaction

When a broker/dealer makes a market, it acts as a(n) A. Principal B. Broker C. Agent D. Underwriter

. A. Making markets is a principal activity. The broker/dealer stands ready, willing, and able to buy or sell securities for its own account. A dealer acts as a principal when it owns the securities it trades. When the broker/dealer is not acting for its own account, it acts as a broker or an agent.

FINRA can initiate a trading halt for all of the following EXCEPT A. listed stocks trading on exchange B. listed stocks trading OTC C. NASDAQ D. Bulletin Board stocks

. A. Only the exchange or the SEC can initiate a trading halt for a listed security trading on an exchange floor.

A third-market trade involves A)listed stocks traded over the counter B)listed or unlisted stocks traded between institutional investors without the services of a brokerage firm C)the trading of unlisted stocks between institutional investors D)the trading of NYSE stocks on regional exchanges

. A. Third-market trades involve listed securities traded over the counter

Each of the following trades occurs in the secondary market EXCEPT A)a corporate bond syndicate selling new issues to the public B)a specialist (designated market maker)on the NYSE buying stock as principal C)an agent buying unlisted securities for a client D)an insurance company buying corporate bonds directly from another insurance company

. A. New issues sell in the primary market. Sales between investors are always in the secondary market.

All of the following statements regarding the short sale of a listed security are true EXCEPT A)the buyer must be advised that he is purchasing borrowed shares B)a short sale can be effected at any time in the trade sequence C)short sales may take place at the closing D)short sales may take place at the opening

. A. On an exchange floor, short sales can be effected at any time in the trade sequence. In addition, short sales may be effected at either the opening or closing. The buyer is never informed that shares being purchased represent borrowed shares.

If your client has sold 100 shares of GGZ short and places a buy stop order at 80, the order is activated when the price of GGZ A. rises above 80 B. rises to 80 or above C. falls to 80 or below D. falls below 80

. B. A buy stop order is always entered at a price above the current offering price. A buy stop order at 80 means that if the market price rises to 80 or above, the order becomes a market order to buy and is filled immediately.

A customer has placed an open order to buy 1,600 shares of GHI at $60. GHI declares a 25% stock dividend. On the ex-date, this order is considered a buy limit order for A. 2000 shares at $60 B. 2000 shares at $48 C. 1,600 shares at $45 D. 1,600 shares at $50

. B. The order is adjusted on the ex-date. The number of shares increases by the percentage of the stock dividend, and the specified price is reduced to compensate. In this case, the number of shares increased to 2,000 (1,600 + 25%), and the specified price is adjusted to $48 per share. To get the adjusted price, divide the total value of the original market order (1,600 × $60 = $96,000) by the new number of shares ($96,000 ÷ 2,000 = $48). The order's total market value, $96,000, remains the same.

A customer enters an order to buy 100 ABC at 47 stop GTC. After the order is elected, the order may be executed at A. above 47 only B. any price C. at 47 only D. below 47 only

. B. Once a stock trades at or through the stop price, the order is elected. Once elected (triggered), a stop order becomes a market order and is executed at the first opportunity, which could be any price.

The market wide circuit breaker (MWCB) rule uses which of the following as the pricing reference point to measure a market decline? A)The Wilshire index recalculated daily B)The S&P 500 index recalculated daily C)The S&P 100 index recalculated monthly D)The DJIA recalculated quarterly

. B. The market wide circuit breakers (MWCBs) use the S&P 500 recalculated daily as the pricing reference point to measure market declines for the purpose of triggering market circuit breakers to halt trading

Your broker/dealer has just negotiated a trade with another broker/dealer in a Nasdaq-listed stock. The automated system that will facilitate the reporting of the post-execution data electronically, such as price and volume, to FINRA is known as A)the Designated Market Maker (DMM) display book B)Trade Reporting Facility (TRF) C)Consolidate Tape System (CTS) D)Super Display Book (SDBK)

. B. Trade Reporting Facility TRF Broker/dealers acting in a dealer capacity (negotiating transactions with other broker dealers) in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor will have the post-execution data such as price and volume transmitted electronically to FINRA via the Trade Reporting Facility (TRF).

In a buy stop limit order, once the stop price is hit A)the order becomes a market order B)a purchase can only occur at the limit or above C)a purchase can occur only at the limit or below D)the order is immediately executed

. C. A buy stop limit order becomes a limit order when triggered. The execution occurs at a price that is at, or below, the stated limit price

Priority and precedence rules of bids and offers manage trading activity on the A. OTC Mkt B. NYSE and OTC C. NYSE D. Third Mkt

. C. The auction rules of priority, precedence, and parity allow for the efficient execution of orders when several bids or offers are made at the same price at a given time on the NYSE floor.

ABC corporation trading at $80 per share has just bid $50 per share for XYZ corporation, currently trading at $40 per share in a hostile takeover attempt. The most common risk or takeover arbitrage strategy would be to A)there can never be an arbitrage opportunity in a hostile takeover scenario B)buy shares of the aggressor company (ABC) C)buy shares of the target company (XYZ) and short shares of the aggressor (ABC) D)sell shares of the target company (XYZ)

. C. The most common form of risk or takeover arbitrage is to purchase the shares of the target company and short the shares of the aggressor, believing that the potential acquisition will raise the target company's share price and decrease the share price of the aggressor.

Maintaining a fair and orderly market on the NYSE trading floor is the responsibility of A. floor brokers B. order book official C. the specialist (dmm) D. the traders

. C. The specialist (designated market maker) maintains a fair and orderly market on the NYSE exchange floor.

If an OTC market maker provides a firm quote to another broker/dealer then refuses to buy or sell at the price quoted, the market maker is said to be A. freeriding B. crossing quotes C. backing away D. interpositioning

. C. backing away A dealer that does not honor its quote is said to be "backing away".

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

. D. Institutional investors can trade stock after hours through ECNs, which are open 24 hours per day.

A customer is long 300 shares of COD and simultaneously short 200 shares of COD. To sell the 300 shares held long, the order ticket must be marked A)short B)200 shares long and 100 shares short C)long D)100 shares long and 200 shares short

. D. The customer is long 300 shares and short 200 shares of the same stock. Therefore, the customer's net long position is 100 shares. The order ticket must be marked 100 long, 200 short. In other words, the customer is long only to the extent of his net long position

If an open-end investment company bought preferred stock directly from a bank through an electronic communication network (ECN), this trade took place in which of the following markets?

. Fourth The fourth market is where direct trades between institutions, pension funds, broker/dealers, and other financial entities occur, utilizing electronic communications networks (ECNs). In theory, there are no brokers involved in these transactions.

An all-or-none order (AON) I.must be executed in its entirety II.may be executed in part or in full III.must be executed in one attempt IV.may be executed after several attempts

. I and IV In an all-or-none order, the firm handling the order can make multiple attempts to fill the order in its entirety

Which of the following orders, if executed, guarantee a specific price or better? I.Buy limit II.Buy stop III.Sell stop IV.Sell limit

. I and IV While limit orders may or may not be filled, they guarantee that if a fill does occur, it will be executed at the stated price or better

All of the following are reasons for entering a stop order EXCEPT to A)protect unrealized gains on a long position B)protect profits in a short position C)guarantee execution at a specified price D)limit losses in a long position

C. A stop (loss) order is entered to protect a profit or to limit a loss. Execution at a specific price can never be guaranteed because a stop order becomes a market order when the stop price is hit.