SIE Qbank Unit 8

Which of the following statements would describe the Fourth Market? A) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers B) These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals C) These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely as principals D) The after-hours market

A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers

Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is A) a clearing agent. B) an executing for commissions only. C) a fully disclosed broker-dealer. D) a market maker.

a market maker. Broker-dealers who incorporate proprietary trading into their business model are known as market makers. As a market maker the broker-dealer trades in their own account attempting to profit. A firm making markets may be a carrying firm or a fully disclosed firm. Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.

An individual who purchases securities for a personal account is called A) a market maker. B) an institutional investor. C) an accredited investor. D) a retail investor.

a retail investor An individual who makes investments such as the purchase of securities for his account rather than for an organization is a retail investor. This investor may be accredited, but there is no way to know for sure given the limited information.

The transfer agent for a corporation is responsible for each of the following except A) acting as an intermediary between the buy and sell sides of a transaction. B) maintaining records of ownership. C) canceling old and issuing new certificates. D) ensuring that its securities are issued in the correct owner's name.

acting as an intermediary between the buy and sell sides of a transaction. The transfer agent (often a bank) for a corporation is responsible for ensuring that its securities are issued in the correct owner's name, canceling old and issuing new certificates, maintaining records of ownership, and handling problems relating to lost, stolen, or destroyed certificates. Acting as an intermediary in a trade is the function of the clearing corporation.

All of the following are associated with being a carrying firm except A) being able to clear customer transactions. B) accepting customer securities. C) being a fully disclosed firm. D) accepting customer funds.

being a fully disclosed firm A carrying firm has the capability to do trade executions, clear and settle transactions, and take custody of customer funds and securities. A fully disclosed firm is one that introduces its customer business to another firm for the purpose of clearing and settling transactions.

A clearing corporation agent or depository for securities transactions A) can be a bank or corporation only if they are also a broker-dealer. B) can never be a corporation. C) must be a broker-dealer. D) can be a commercial bank.

can be a commercial bank. A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities.

When investors buy and sell securities to and from one another, these transactions occur A) on exchanges only. B) in the over-the-counter (OTC) market only. C) in the primary market. D) in the secondary market.

in the secondary market. Primary market transactions involve the issuer or someone acting on behalf of the issuer, such as an underwriter. Secondary markets are where investors can buy and sell securities to and from one another. The secondary market includes exchanges and the OTC market.

A fully disclosed broker-dealer A) is also known as a full-service clearing agent able to process and clear transactions. B) is like a clearing agent in that it can take custody of funds and securities. C) is one that introduces its business to a carrying firm to clear transactions. D) clears all of its retail customer transactions and those of other broker-dealers.

is one that introduces its business to a carrying firm to clear transactions.

A market in which exchange-listed securities are traded in the over-the-counter (OTC) market would best be described as A) the First Market. B) the Fourth Market. C) the Second Market. D) the Third Market.

the Third Market.

Electronic market centers designed primarily for institutional investors describes A) the OTC market. B) the fourth market. C) the third market. D) the exchanges.

the fourth market. The market centers that operate through electronic communication networks are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces the transparency of trading activity by these organizations and allows them to trade more efficiently.

A market maker A) trades in a customer's account standing ready to buy or sell at their own discretion. B) can only be an institution doing proprietary trading. C) trades in a proprietary account to facilitate trading of a security and provide liquidity. D) acts as an agent to buy and sell for public customers who will hold their own securities.

trades in a proprietary account to facilitate trading of a security and provide liquidity. Any entity, individual or institution, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security is known as a market maker or trader.

A market maker A) trades in a customer's account standing ready to buy or sell at their own discretion. B) trades in a proprietary account to facilitate trading of a security and provide liquidity. C) acts as an agent to buy and sell for public customers who will hold their own securities. D) can only be an institution doing proprietary trading.

trades in a proprietary account to facilitate trading of a security and provide liquidity. Any entity, individual or institution, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security is known as a market maker or trader.

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) an underwriter. B) a market maker. C) an agent. D) an investment banker.

a market maker. When a broker-dealer buys and sells securities into and out of its own account as for the purpose of making a profit it is engaged in proprietary trading and is acting as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Agents act on behalf of others in the marketplace, such as a broker-dealer buying or selling for one of its customers.

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Introducing B) Self-clearing C) Fully disclosed D) Market maker

Self-clearing A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents.

A central, physical, marketplace where securities are traded through a designated market maker is A) the OTC. B) the third market. C) an exchange. D) the pit.

an exchange.

Great Plains Securities, an OTC market maker, holds inventory and provides liquidity for Modulux Homes, an NYSE listed company. This is an example of A) the force market. B) the primary market. C) the third market. D) the fourth market.

the third market. When an exchange-listed security trades in the OTC market, it is being traded in the third market. The fourth market is composed of electronic communication networks and is primarily used by institutional investors. Primary markets are for raising capital.

A market maker A) can only be an institution doing proprietary trading. B) trades in a proprietary account to facilitate trading of a security and provide liquidity. C) acts as an agent to buy and sell for public customers who will hold their own securities. D) trades in a customer's account standing ready to buy or sell at their own discretion.

trades in a proprietary account to facilitate trading of a security and provide liquidity. Any entity, individual or institution, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security is known as a market maker or trader.

Which of the following is not part of the secondary markets? A) Third market B) The exchanges C) Over-the-counter market D) Mutual fund market

Mutual fund market Mutual funds, as open-end investment companies, do not trade in the secondary markets.

Which of these broker-dealers would most likely have correspondent firms? A) A market maker B) A fully disclosed broker-dealer C) An introducing broker-dealer D) A self-clearing firm

A self-clearing firm A self-clearing (or carrying) firm holds funds and securities of the fully-disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms, for whom the carrying firm performs those services, are known as its correspondents.

An institutional investor selects a single Financial Industry Regulatory Authority (FINRA)/NYSE member firm to provide for financing and custody of securities while orders to buy or sell are placed with executing brokers. This is an example of A) an investment advisory account. B) an omnibus clearing arrangement. C) a prime brokerage account. D) a managed account.

a prime brokerage account. A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.

An institutional investor selects a single Financial Industry Regulatory Authority (FINRA)/NYSE member firm to provide for financing and custody of securities while orders to buy or sell are placed with executing brokers. This is an example of A) an omnibus clearing arrangement. B) a managed account. C) an investment advisory account. D) a prime brokerage account.

a prime brokerage account. A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.

The transfer agent for a corporation is responsible for each of the following except A) ensuring that its securities are issued in the correct owner's name. B) canceling old and issuing new certificates. C) maintaining records of ownership. D) acting as an intermediary between the buy and sell sides of a transaction.

acting as an intermediary between the buy and sell sides of a transaction.

It is expected that financial markets A) be limited to stocks and bonds and not include derivatives like options. B) have securities prices determined by a board of directors. C) be nonregulated to allow for free trade. D) have transparent pricing for assets.

have transparent pricing for assets.

Which of the following would be a secondary market transaction? A) A broker-dealer arranges for a customer to purchase an APO B) A broker-dealer arranges for a customer's order to be executed on the NYSE C) A broker-dealer arranges for a customer to purchase mutual fund shares D) A broker-dealer arranges for a customer to purchase an IPO

A broker-dealer arranges for a customer's order to be executed on the NYSE IPOs, APOs, and mutual fund transactions involve the issuer selling to the public, which are primary market transactions. Secondary market transactions are between investors (which is what takes place on the NYSE as well as other exchanges and the OTC market).

A market in which exchange-listed securities are traded in the over-the-counter (OTC) market would best be described as A) the First Market. B) the Fourth Market. C) the Second Market. D) the Third Market.

the Third Market Broker-dealers registered as OTC market makers in exchange-listed securities may execute transactions in the Third Market. All securities listed on the NYSE and most securities listed on the regional exchanges are eligible for OTC trading as long as the trades are reported to the Consolidated Tape within 10 seconds of execution.

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A) Introducing/fully disclosed B) Market making C) Clearing/carrying D) Prime/executing

Introducing/fully disclosed A fully disclosed introducing broker-dealer is what the word implies—it introduces its customers to a clearing firm. Clearing firms (often referred to as carrying firms) hold their customer's funds and securities as well as those of their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office. Because the risk associated with holding customer funds and securities is not present, net capital requirements are much lower for introducing firms than they are for self-clearing or carrying broker-dealers.

A fully disclosed broker-dealer A) clears all of its retail customer transactions and those of other broker-dealers. B) is also known as a full-service clearing agent able to process and clear transactions. C) is one that introduces its business to a carrying firm to clear transactions. D) is like a clearing agent in that it can take custody of funds and securities.

is one that introduces its business to a carrying firm to clear transactions. A fully disclosed broker-dealer is also known as an introducing broker-dealer because it introduces its business to a carrying firm that can clear and process transactions for it. Unable to clear transactions themselves, they are not a clearing agent or carrying firm and therefore cannot take custody of funds and securities.

For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) made by the introducing broker-dealer. B) never permitted. C) made by the clearing firm. D) made by the customer.

made by the clearing firm. Broker-dealers who are self-clearing will make their own extension requests. For those that are not self-clearing, known as introducing broker-dealers, the extension request must be made by the clearing firm.

All of the following are benefits of using a prime broker except A) research. B) multiple executing brokers. C) cost savings. D) consolidation of records.

research. An institutional investor may select one firm (the prime broker) to provide custody and financing of securities while other firms, called executing brokers, handle all trades placed by the customer. It is not unusual for large companies to use dozens of executing broker-dealers. Trade confirmations from the many executing broker-dealers are consolidated and are provided along with account statements by the prime broker. Prime brokerage is efficient and saves the customer time and money. Research is not associated with prime brokerage accounts.

Secondary market transactions would include all of the following except A) sale of $10 million of corporate stock by a broker-dealer acting as a market maker. B) sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker. C) sale of $10 million of municipal bonds by a broker-dealer acting as a market maker. D) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter.

sale of $10 million of corporate bond by a broker-dealer acting as an underwriter Market makers are broker-dealer who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.