S7 UNIT 17 Quizzes (Processing Transactions)
Which of the following describes Nasdaq Level 3 service? A) It displays the representative bid and ask quotations on a security in which a minimum of two market makers exist. B) It allows market makers to enter quotations into the system for a security in which they are registered. C) It displays the representative bid and ask quotations on a security in which a minimum of three market makers exist. D) It shows the quotations from all registered market makers entering quotes into the system.
B) It allows market makers to enter quotations into the system for a security in which they are registered. Explanation Nasdaq Level 3 service allows market makers to enter and update quotations on securities in which the market makers are registered with FINRA. LO 17.a
A stock or bond power represents which of the following? A) Power to accept dividends and interest B) Limited power of assignment and substitution C) Limited power of attorney to vote a stock if no contest exists D) Appreciation potential in a stock with a high EPS
B) Limited power of assignment and substitution Explanation Stock powers are substitute forms for signatures on the back of actual certificates. A person can sign this separate document to satisfy transfer rules. LO 17.c
A customer of a FINRA member firm submits an order to sell 100 shares of a stock at a price of $43 per share. The customer receives a trade report indicating that all 100 shares were sold at $42.95 per share. What should the registered representative handling the account do? A) Wait for the customer to file an official complaint. B) Report the error immediately to the designated principal. C) Remedy the problem by crediting $5 to the customer's account. D) Explain to the customer that you were able to obtain a five cent per share improvement.
B) Report the error immediately to the designated principal. Explanation The customer's price limit was $43 per share. That is the minimum acceptable price, and $42.95 is below that limit. That means an error has occurred. FINRA rules require that a record of any errors be reported to the person designated to receive such error reports by the firm. The report must be made immediately in writing. LO 17.a
A properly signed and guaranteed stock or bond power is A) a legal right of the owner or proxy to vote stock as he chooses. B) a document that can be attached to a certificate, authorizing transfer of ownership to another party or when a security is hypothecated. C) an authorization delegating voting power to another person. D) a legal power of attorney authorizing the bulk transfer of variable annuities, whose separate accounts are invested in more than 75% equity or debt, to a new custodian.
B) a document that can be attached to a certificate, authorizing transfer of ownership to another party or when a security is hypothecated. Explanation A stock or bond power is an instrument separate from the certificate by which an owner indicates the intent to transfer ownership or pledge the securities as collateral for a loan. LO 17.c
One of your customers purchased 1,000 shares of PKZ stock on the day preceding the ex-dividend date. Her account instructions are to have all purchases registered in her name. Several weeks after the payable date, she contacts you with the news that she did not receive the dividend from the issuer. The proper procedure is A) to have your broker-dealer send a DK notice to the firm representing the seller. B) to have your broker-dealer send a due bill to the firm representing the seller. C) to commence the reclamation process. D) to explain to your customer that she purchased the PKZ too late to be entitled to the dividend.
B) to have your broker-dealer send a due bill to the firm representing the seller. Explanation The ex-dividend date is the first day on and after which purchasers of a stock are not entitled to a previously declared dividend. The ex means without. This customer purchased before the ex-date, so she is entitled to the dividend; the seller of the stock is not. Broker-dealers use a due bill when the incorrect party receives a distribution from the issuer. Therefore, your firm would send a due bill to the broker-dealer representing the seller, who is the party obligated to remit the dividend amount. A DK (don't know) notice is used when a broker-dealer receives a confirmation for a trade that it has no record of (the firm does not know of the trade). Reclamation is used when a FINRA member firm has accepted certificates thinking they were in proper deliverable form. Sometime later, the firm discovered those certificates are not good delivery and sends a reclamation notice demanding acceptable replacements. LO 17.b
One of your out-of-state customers has a certificate for 400 shares of the common stock of the GZL Corporation. She has held the stock for a number of years and has decided it is time to sell and enjoy the profit she has made. When told that she must sign the back of the certificate and have the signature properly guaranteed, she exhibits concern that she will be sending a negotiable instrument through the mail. What could you suggest that is simple and would allay her fears? A) Pay a visit to your office, and everything can be signed and guaranteed there. B) Send an electronic copy of the certificate with the medallion stamp clearly visible. C) Obtain a stock power, have the signature guaranteed on that, and send the power and the certificate in different envelopes. D) When signing the back of the certificate, put "for deposit only," and that will protect it similar to protecting a check.
C) Obtain a stock power, have the signature guaranteed on that, and send the power and the certificate in different envelopes. Explanation The simplest way to deliver securities is to have the guaranteed signature on a stock power (or bond power for bonds) and keep that separate from the unsigned certificate. Because this is an out-of-state customer, asking her to make the drive (when it could be done so much easier with the stock power) is not a good solution. Stock certificates are not like checks. There is nothing being deposited, so "for deposit only" would make no sense. Although electronic signatures are acceptable for many things, when a customer has a physical certificate, that actual certificate must be received by the member firm. LO 17.c
Which of the following forms of soft-dollar compensation paid by a broker-dealer to an investment adviser is not allowable under the safe harbor provisions of Section 28(e)? A) Research reports B) Registration fees to attend an investment seminar C) Reimbursement for meal expenses incurred while attending an investment seminar D) Financial planning software
C) Reimbursement for meal expenses incurred while attending an investment seminar Explanation Payment for travel expenses, furniture, or equipment is not allowable under Section 28(e) of the Securities Exchange Act of 1934. Payment for seminars, research, and financial planning software are permissible under the safe harbor provisions of Section 28(e). LO 17.a
An instrument that illustrates the transfer of title to any dividend, interest, or right that pertains to securities that are contracted for is called A) a warrant. B) a right. C) a due bill. D) a power of attorney.
C) a due bill. Explanation A due bill is an assignment of a forthcoming distribution from the seller to the new owner. LO 17.b
The Nasdaq quotation system offers three different levels of service depending on the needs of the user. The information generally available to the retail investor is found on Level 1, and the quote represents A) a firm quote. B) the outside market. C) the inside market. D) the most recent trade.
C) the inside market. Explanation The Nasdaq Level 1 service shows the inside market. That quote is the highest bid and the lowest offer of all of the current market makers in the stock. Traders generally refer to that as the NBBO (national best bid and offer). Firm quotes are only available on Levels 2 and 3. Level 1 will display the most recent trade, but that is not a quote because it only shows one side, not a bid and ask. LO 17.a
Which of the following can you find on the Level 1 service of Nasdaq? A) The names of firms making markets B) Firm bids and offers C) Markups D) Inside bids and offers
D) Inside bids and offers Explanation No Nasdaq service displays markups. Levels 2 and 3 display firm bids and offers and the names of the market makers. Level 1 only indicates the highest bid and the lowest offer, known as an inside quote. LO 17.a
Which of the following items appears on the confirmation statement for a when-issued trade of municipal bonds? A) Settlement date B) Accrued interest C) Total contract price D) Principal or agency trade
D) Principal or agency trade Explanation The capacity of the firm, principal or agent, must be disclosed on all confirms. The settlement date, accrued interest, and total price would not appear on a when-issued confirm. LO 17.b
A customer's market order to sell 1,000 shares was reported as executed at $559.62 per share. Later it was discovered that the report was an error; the trade was executed at $559.31 per share. Which of the following is true? A) The member firm must pay the $310 out of its errors account B) The customer may choose to cancel the order. C) The customer must receive the reported $559,620 D) The customer must accept the sale for $559,310.
D) The customer must accept the sale for $559,310. Explanation A market order means the customer states that he is willing to accept the best price at the time of execution. A mistake made in reporting does not alter that fact. "Stuff happens" and sometimes, in the rush to furnish customers with trade information, an incorrect report is made. Invariably, there is a statement in the new account agreement informing customers that the actual transaction, not the reported one is what counts. This can go both ways. The customer certainly would not complain if the initial report was at $559.31 and it was later confirmed for $310 additional. LO 17.a
Which of the following statements regarding TRACE is correct? A) Municipal securities that are TRACE-eligible must report within 15 minutes of execution. B) TRACE-eligible securities include corporate bonds but exclude U.S. government and agency securities. C) The participant representing the selling side of the transaction reports within 5 minutes of trade execution. D) To ensure proper audit trail requirements, trades are reported by both sides of the transaction.
D) To ensure proper audit trail requirements, trades are reported by both sides of the transaction. Explanation The Trade Reporting and Compliance Engine (TRACE) requires both the reporting party as buyer and the reporting party as seller to enter the trade information into the system. This is done to ensure that a proper audit trail is established for the entry. TRACE-eligible securities include corporate bonds, treasury securities and CMOs, but do not include municipal securities. During market hours, trades are reported within 15 minutes of execution.
Level 1 Nasdaq service provides subscribers with all of the following information except A) volume information. B) the inside market. C) last-sale information. D) bid and ask quotes for each market maker.
D) bid and ask quotes for each market maker. Explanation Level 1 Nasdaq service provides subscribers with information on the inside market, last sale, and volume. The bid and ask quotes of each market maker in a particular security are shown over Level 2. LO 17.a
Sell order tickets must be A) marked only if they are long sales. B) executed in accordance with the appropriate rules but not necessarily marked. C) marked only if they are short sales. D) marked as either long or short.
D) marked as either long or short. Explanation Every sell order must be marked as either long or short. LO 17.a
Every transaction made by a registered representative for a customer's account A) is subject to FINRA approval. B) must be based on a written order from the customer. C) is subject to cancellation by either party. D) must be reviewed by a principal of a FINRA member firm.
D) must be reviewed by a principal of a FINRA member firm. Explanation FINRA does not approve transactions, and requiring customers to provide written instructions for each trade would be impractical. Transactions represent verbal contracts not subject to cancellation. A principal must review and approve every order, either by signature or initials. LO 17.a
A client places a sell stop order good for the day only. Under NYSE rules, you must A) partially write an order ticket and complete only upon execution. B) partially write an order ticket and complete the ticket before market close. C) write an order ticket only if the order is executed. D) write an order ticket upon receipt of the order.
D) write an order ticket upon receipt of the order. Explanation Order tickets must be written and time stamped upon receipt of the order. LO 17.a
