Trading Markets: NYSE Trading
Under the provisions of Regulation SHO, before a security can be "sold short," it must be determined that the security: A can be borrowed and delivered by settlement B has been traded on an + tick or a 0+ tick C is not on the threshold list D is subject to the short interest reporting rule
A. Regulation SHO (as in SHOrt sale rule) requires that, prior to effecting a short sale for a customer, it must be affirmatively determined that the security can be borrowed and delivered on settlement. This "locate" requirement must be documented. Under Regulation SHO, any securities that are sold short that are on the "threshold" list of hard-to-borrow securities on trade date, if not delivered on settlement, must be bought-in no later than "13 consecutive settlement days" from trade date.
The Master Manufacturing Company has just announced a tender offer for its own common stock. Master is offering to buy up to 100% of the company's stock at $20 per share contingent on at least 64% of the outstanding shares being tendered. After the announcement of the offer, the stock closed on the NYSE up 2.50 at $18.75. If a customer were to tender 100 shares held long, the customer is assured of receiving: A $0 B $250 C $1,875 D $2,000
A. Since the offer is contingent on 64% of the shares being tendered, the customer has no assurance of being paid for the shares if he decides to tender.
A customer owns 100 shares of an NYSE listed preferred stock and notices that the typical daily trading volume in the issue is less than 1,000 shares. The customer wants to sell the stock and asks his broker what will happen if there is no ready buyer for the stock. The broker should respond that the Specialist (DMM) on the NYSE floor: A is obligated to buy the stock at the current market B is obligated to buy the stock at the limit price, if one is specified by the customer C must look for a buyer for the shares on the NYSE floor D is not obligated to buy the stock at the market
A. Specialist/DMMs (Designated Market Makers) are obligated, under NYSE rules, to make a continuous market in the assigned stock. Thus, on the NYSE floor, a customer is always assured that the trade will be executed - however the price at which the trade is executed is always subject to market conditions.
Referring to the order to buy 100 shares for DW at $50.02, if a trade is not effected on this day, which statement is TRUE? A The order will be canceled by the Specialist/DMM B The order will be canceled by DW Securities C The order remains open on the Specialist's/DMM's book for one more day D The order remains open on the Specialist/DMM's book until canceled
A. This order was entered as a day order. If it is not executed this day, it will be canceled by the Specialist/DMM. Note that the Specialist is now called the DMM - Designated Market Maker.
Under NYSE rules, a company moving its listing from another market must meet which requirements?
A. Under NYSE rules, the numerical standards for a company wishing to move its listing from another market include 2,200 or more shareholders, with an average monthly trading volume of 100,000 shares for the past 6 months. Also, there must be a national interest in trading the stock and the company must agree to distribute proxies to be listed.
Orders on the Specialist/DMM's book are filled on a: A Last In, First Out basis B First In, First Out basis C First In, Last Out basis D Random Selection basis
B. Orders on the book are handled on a FIFO basis - first in-first out. If an order is canceled and resubmitted as a different order (i.e., change the order from "Buy 100 shares at $50" to "Buy 200 shares at $50"), the new order goes to "last place" on the book.
All of the following statements are true about the NYSE automated trading system EXCEPT: A completed trades are reported electronically without the use of floor generated execution tickets B any size order can be accommodated on the system C orders are routed directly to the Specialist (DMM) for execution D use of the system eliminates floor brokerage fees
B. The Super Display Book system can only handle orders up to specified maximum sizes. The system routes orders directly to the Specialist's (now renamed the DMM - Designated Market Maker's) post for execution, and execution reports are returned directly to the originating firm through the computer system, without the use of hand generated floor trading tickets. The system avoids floor brokerage fees, and so is both faster and cheaper to use. Review
Third Market Makers that trade NYSE-listed issues OTC: A are not required to report their trades B must report each trade within 10 seconds C must report each trade within 60 seconds D must report each trade within 90 seconds
B. Third market makers are over-the-counter firms who trade exchange listed stocks in competition with the exchange Specialists (now renamed DMMs - Designated Market Makers).Equity trade reporting rules are consistent for all markets - trades must be reported by the executing member within 10 seconds of execution during regular market hours.
To handle increased trading volume in its stocks, the NYSE introduced the: A NASDAQ System B Super Display Book system C Order Support System D Specialist System
B. To handle the greatly increased trading volume that occurred in the 1980s following deregulation of commissions, the NYSE introduced the SuperDOT system - an automated order routing and execution system, which was replaced in late 2009 by the Super Display Book system.
The Master Manufacturing Company has just announced a tender offer for its own common stock. Which of the following customers would be allowed to tender 100 shares? I Customer whose account is long 100 shares of Master stock and short 100 shares of Master stock II Customer whose account is long 100 Master warrants who has exercised those warrants III Customer whose account is long 5 Master convertible bonds, convertible at 20:1
B. Under the "short tender" rule, a customer is prohibited from tendering unless he has a net long position in the stock. In the first choice, the customer is long 100 shares and short 100 shares for a net position of 0. The customer cannot tender because he doesn't have a net long position. In the second example, the customer is considered long the 100 shares once the warrants have been exercised. Since the stock is in the process of being delivered, he is long 100 shares and can tender. In the third example, the customer who owns convertible bonds is not considered to be long the stock until irrevocable instructions are given by the customer to convert.
What happens in a regulatory halt? Non-regulatory halt?
C. A "regulatory halt" is one imposed by either a regulator (the SEC stops trading in a stock) or one that occurs because the "circuit breaker" (7% drop in the S&P 500 Index) was tripped. If there is a regulatory halt, all trading in that stock must stop in the U.S. in all markets; and if the circuit breaker is tripped, all stock markets in the U.S. must stop all trading. So what is a non-regulatory halt? An example is, back in the "good old days," when the NYSE would routinely delay the opening of trading in a stock if there was a large opening order imbalance (many more opening sell orders than buy orders). During the halt, the Specialist would attempt to round up matching buy orders, so that there could be an orderly opening. The NYSE learned that this was not such a great idea, because institutions that could not trade the stock on the NYSE simply went to regional exchanges, Third Market Makers and ECNs to do their trades instead. So each time the NYSE did this, they lost market share! Needless to say, they don't do this anymore - except in test questions of course!
Under Regulation SHO, a "threshold" security is one that: A cannot be sold short under any circumstances but long sales are permitted B can only be sold short at a price that is $.01 lower than the preceding trade C if sold short and not delivered within 13 business days of the trade, buy-in is required D if sold short on a down-tick, must be immediately bought-in on an up-tick
C. Regulation SHO (as in SHOrt sale rule) prohibits "naked" short selling. Before a short sale can be effected for a customer, the member must make an affirmative determination that the securities can be borrowed and delivered by settlement. If the security is "difficult to borrow," it is placed on the exchange's threshold list. If a security on the threshold list is sold short, and there is a "fail to deliver" on settlement, Regulation SHO requires that the member firm buy-in the position in no later than "13 consecutive settlement days" from trade date.
The Consolidated Quotations Service is open during the hours of: A 9:00 AM ET - 4:00 PM ET B 9:30 AM ET - 4:00 PM ET C 9:00 AM ET - 6:30 PM ET D 9:30 AM ET - 6:30 PM ET
C. The Consolidated Quotations Service ("CQS") presents bid and ask quotes for exchange listed stocks - for both NYSE and AMEX (NYSE American) listed issues. For NYSE listed issues, CQS shows the quote of the NYSE Specialist (now called the DMM - Designated Market Maker), regional exchange quotes where the stock is "dual listed," and third market maker quotes (remember, the third market is OTC trading of NYSE listed securities and currently accounts for about 40% of NYSE trading volume). CQS is open longer than the NYSE. The NYSE trades from 9:30 AM ET - 4:00 PM ET, however CQS is open from 9:00 AM to 6:30 PM. Much "third market" trading of NYSE listed issues happens before the NYSE opens or after it closes; and the longer hours of CQS helps facilitate third market trading. Also note that the NYSE is trying to expand its trading hours to compete, but has not yet done so.
A trade is considered to be a "block trade" if the amount is for a minimum of: A 100 shares B 1,000 shares C 10,000 shares D 100,000 shares
C. Once a trade hits 10,000 shares, it is considered a "block" trade. The full amount of the "block" is printed on the tape. Please note that as the NYSE continually expands the capabilities of Super Display Book, this definition is becoming obsolete - but may still be tested.
A customer places an order with a member firm that is "Good through the month." The person responsible for canceling the order if it remains unexecuted after the month is up is the: A customer B Specialist (DMM) C member firm D NYSE
C. Since the Specialist (now renamed the DMM or Designated Market Maker) only accepts "Day" orders on his book, if a customer wants an order canceled at the end of a month, this is the responsibility of the member firm that entered the order. An order with a "Time in Force" longer than that day is taken into the firm's internal order system and would be routed to the NYSE as a new "Day" order each day by the member. If the order is not executed by the end of the month, would be canceled by the member.
Which of the following actions were taken by the NYSE in response to large increases in trading activity experienced in the 1980s? A The establishment of more stringent listing requirements B The expansion of trading hours C The introduction of automated routing and execution systems D The admission of more specialist members
C. To handle the greatly increased trading volume that occurred in the 1980s, the NYSE introduced the SuperDOT system - an automated order routing and execution system, which was replaced in late 2009 by the Super Display Book system. The Exchange has kept its listing requirements at about the same levels as in the past; has forced the Specialist/DMM firms to merge to increase their capital so that they could take larger trading positions; and has considered expansion of trading hours but has not taken any action as of yet. Expansion of trading hours will occur because of increased global competition - not because of the Exchange's inability to handle large trading volumes. Currently, the Exchange can comfortably handle over 10 billion share trading days - well in excess of the 4 billion share daily trading average.
Under NYSE rules, every broker or dealer who communicates bids and offers on the exchange floor must comply with which of the following rules? I The highest bid and the lowest offer have precedence in all cases II Bids and offers must be publicly announced III Any bid or offer for less than the normal trading unit has no standing in the trading crowd IV Bids and offers must be set by floor officials A I and II only B III and IV only C I, II, III D I, II, III, IV
C. Under NYSE trading rules, bids and offers must be for the minimum 100 share size trading unit; the highest bid and lowest offer have priority (the same as NASDAQ's "inside market" - now renamed the NBBO - National Best Bid and Offer); and all bids and offers must be publicly announced (no secret bids and offers, or side deals allowed). Bids and offers are always set by market participants; they are not set by floor officials (the regulators) under any circumstances.
The "circuit breaker" on the domestic equities markets to reduce price volatility is INITIATED when the Standard and Poor's 500 Index falls by: A 1% B 2% C 5% D 7%
D. Under the circuit breaker rule, if the Standard and Poor's 500 Index moves down by 7% or more from the prior day's closing price, the listed equity markets will be shut down for 15 minutes. After reopening, if the index falls by a total of 13% or more from the prior day's closing price, the markets will close again for 15 minutes. This is intended to allow investors to calmly evaluate market conditions, so that a "domino effect" of panic selling does not occur. Finally, after reopening, if the index falls by a total of 20%, the markets will close until the next day. Also note that any 7% or 13% drop that occurs after 3:25 PM will not close the markets - they will stay open until the 4:00 PM close. This is the case because funds base their NAVs on closing prices, and it was felt that having a lack of pricing to investors would be overly disruptive. On the other hand, any 20% drop at any time will shut the markets until the next day, since such a dramatic price drop is usually caused by a major news event.
An NMS stock can only be sold short on an up bid if its price falls by at least: A 1% B 2% C 5% D 10%
D. If an NMS (National Market System stock - NYSE, NYSE American (AMEX), or NASDAQ listed) falls by 10% or more, it can only be sold short on an "up bid" for the remainder of that trading day and the entire next trading day. Thus, it can only be sold short into a rising market. This stops the relentless short selling of stocks with the intent of driving market prices down - a market manipulation.
Specialists (DMMs) on the New York Stock Exchange can perform all of the following functions EXCEPT: A act as a market maker B act as a broker's broker C handle odd lot transactions D act as an underwriter
D. Specialists (now called DMMs - Designated Market Makers) cannot deal with the public, so they cannot act as underwriters. They are wholesale members of the NYSE who deal only with other members. DMMs act as market makers and broker's brokers.
What is the size of the current market?
D. The "size" of the market refers to the highest bid and lowest ask currently on the book. The highest bid is 50.04, with 300 shares offered (100 from GS, 200 from DB); the lowest ask is 50.07, with 400 shares offered (from AB). The size of the market is 300 bid at 50.04 by 400 asked at 50.07.
The Consolidated Tape reports trades of NYSE listed issues that occur: A on the NYSE Floor B on Regional Exchanges C in the Third Market D all of the above
D. The Consolidated Tapes shows trades of NYSE listed issues, no matter where the trade occurred. It "consolidates" and reports trades of NYSE listed issues that took place on the NYSE floor; on regional stock exchanges for dual listed issues; and trades of NYSE listed issues that occurred over-the-counter in the Third Market.
All of the following trade securities on the New York Stock Exchange EXCEPT: A Two dollar broker B Floor brokers C Specialist (DMM) D Registered Representative
D. The Specialist (now renamed the DMM - Designated Market Maker) is the assigned market maker in a security on the NYSE floor. The Floor Broker handles orders as agent for retail member firms. The Two Dollar Broker executes orders for retail member firms, usually when its Floor Brokers are too busy. Registered representatives cannot trade securities - they can enter orders on behalf of customers to be executed by traders in the market.
The symbol "s" stands for?
The symbol "s" stands for a round lot of 100 shares
The symbol s/s stands for?
The symbol s/s stands for round lot units of 10. These are the infrequently traded "cabinet stocks" - so-called because the orders are kept in cabinets on the side of the exchange floor.
