Chapter 17 Mastery Progress Exam
A customer's initial trade in a margin account is the short sale of 500 shares of DEF stock at $20. After making the required deposit, the credit balance in the account is:
$15,000 The credit balance in a short margin account is determined by adding the short sale proceeds and the Reg T deposit. In this example, the short sale proceeds are $10,000 (500 shares x $20). The Reg T requirement is $5,000 ($10,000 x 50%). The credit balance is $15,000.
A Nasdaq market maker is quoting a stock as follows: Bid 23.50, Offer 23.70, 10 x 5. This means that the market maker will:
Buy 1,000 shares at 23.50 and sell 500 shares at 23.70
A customer is willing to accept a partial execution on an order to buy up to 800 shares of XYZ stock at 30. If the client does not want the unexecuted portion to be left open, this order should be entered as:
Buy 800 XYZ at 30 IOC
Which of the following securities is NOT quoted on the Consolidated Quotation System (CQS)?
A security on the Pink Sheets
An investor owns stock that has increased in value. Which of the following is the most suitable recommendation for an RR to make if the investor wants to protect her profit?
A sell stop order that's placed below the current market price or a long put position A sell stop order that's placed below the current market price can be used to protect a profit or limit a loss on an existing long position. The stop order will not be activated until the market declines to or below the stop price. By purchasing put options, the investor will have the right to sell his stock at a specific price (the strike price); thereby limiting any greater downside risk.
If a customer is short 1,000 shares of RST stock, the customer:
Can use a buy stop order to limit losses if the stock advances
Regulation NMS applies to which TWO of the following choices? I. Listed equity trades II. Listed debt trades III. Quotes available for manual execution IV. Quotes available for electronic execution
I and IV
Quotes for non-Nasdaq, over-the-counter-traded equities can be obtained from the: I. Third market II. OTC Pink Market III. Consolidated Quotation System IV. OTC Bulletin Board
II and IV only
To protect against a loss in a short sale, an investor can: I. Sell a call II. Enter a stop-loss order III. Buy a call IV. Buy a put
II or III only
A customer sells 500 shares of stock to a broker-dealer, a registered market maker in this stock. The broker-dealer acted in a(n):
Principal capacity and charged the customer a markdown
Which of the following statements is FALSE regarding a broker-dealer acting as a market maker in a stock?
It makes money by charging commissions for executing transactions
The stock that's borrowed by a customer to facilitate a short sale must be returned within:
No specified time period; however, the broker-dealer can demand that the shares be returned at any time
An investor purchased stock at $50 per share and the stock is now trading between $75 and $77. The investor doesn't want to eliminate the position unless the stock drops significantly. Which of the following orders is the MOST suitable for her to place?
Sell stop at $70
Kyle, a client at TLC brokerage firm, anticipates a decline in the earnings of LPOP. LPOP is a thinly traded issue. Which of the following statements BEST describes what the RR should disclose to Kyle?
The stock may be difficult to sell short because the shares may not be available to borrow
Which of the following statements is TRUE concerning Trade Reporting and Compliance Engine (TRACE) reports?
The system is used for corporate bonds
A market maker is quoting a stock as follows: Bid 23.50, Offer 23.70. This means that the market maker will:
Buy shares at 23.50 and sell shares at 23.70 The bid is the highest price at which a market maker is willing to buy stock, and the offer is the lowest price at which a market maker is willing to sell stock. Therefore, the client will buy from the market maker at the market maker's offer price and sell to the market maker at the market maker's bid price. The difference between the bid and offer is referred to as the spread. In this example, the market maker is obligated to buy shares at the bid price of 23.50 and sell shares at the offer price of 23.70.
Compared to selling short, buying a put option:
Does not require the client to arrange to borrow the stock
When a market maker gives a quote for a stock without qualification, the quote is a:
Firm quote for 100 shares
Buy-stop orders or sell-stop orders can provide all the following features, EXCEPT:
Give a broker discretion when the order is activated
If a stock is not listed on an exchange and not quoted in the OTC market, the stock is considered to be in the:
Grey market
A broker-dealer is acting as a principal in which of the following scenarios? I. Selling bonds from inventory to an individual II. Selling bonds from inventory to another broker-dealer III. Buying bonds from another broker-dealer for inventory IV. Buying 500 bonds to fill an insurance company's order for 250 bonds
I, II, III, and IV
Ms. Thomas calls her registered representative with an order to buy up to 2,000 shares of XYZ at $35 per share right now and do not leave the unexecuted portion as a day or open order. Ms. Thomas has entered a(n):
Immediate-or-cancel order
Level I of Nasdaq indicates the:
Inside market for the security listed
If an at-the-opening order is not executed:
It will be cancelled
When selling a security for a customer, all of the following items MUST be included on the sell order ticket, EXCEPT:
The customer's Social Security number
All of the following statements are TRUE concerning marketwide circuit breakers, EXCEPT:
The levels are calculated on a monthly basis
On the NYSE, an investor enters an order to buy 400 shares of HRJ at $56 per share. Which of the following statements is TRUE regarding this order?
The order may be partially filled Since the order specifies a price, it is a limit order. A limit order may be executed at the limit price or better. In this question, the investor is wants to buy HRJ at $56 or lower (i.e., the order is not required to be executed at exactly the limit price). Since the order does not indicate an all-or-none (AON) qualifier, a portion of the order may be filled. Also, since the order does not indicate an immediate-or-cancel (IOC) qualifier, it is not required to be executed immediately. As for the remaining choice (an order must be executed at $56 before this order can be executed), an order is not required to be executed at $56 for this order to receive execution.
A registered representative enters an order for a client. In error, the RR purchases shares of the wrong security. Which of the following statements is TRUE?
The shares must be placed in the broker-dealer's error account
A trader at your firm executes an order for a corporate bond. The trade must be reported to the:
Trade Reporting and Compliance Engine (TRACE)
A customer is short 100 ABC at $120. The market is moving up sharply and the customer decides to cover her short position. The customer instructs her registered representative to cover the short position at the market on the close. The order:
Will be executed as close as possible to the closing price (Market on Close MOC)
A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is:
18.50 After the order was activated by the round-lot sale of 18.25 (which is at or lower than 18.50), the order became a limit order to sell 100 shares at 18.50 or better. 18.50 is the first price that meets this requirement and is the execution price.
Use the following quote to answer this question. ABC 25.13 + .25 B 25 A 25.25 Excluding any markups, what price will a customer pay to purchase the security?
25.25
ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:
Agent
Which of the following lists assists a broker-dealer in making a reasonable determination that a security is available to be borrowed from another broker-dealer in order to effect a short sale transaction?
An Easy-to-Borrow List
Which of the following choices is a feature of the Nasdaq Level II System?
Firm quotes of all the market makers in a stock
Entering orders with the intent to cancel them just prior to execution is referred to as:
Spoofing
