Unit 23 Review

B) a principal trade.

A Nasdaq market maker buys 1,000 shares of stock from a customer at its bid to satisfy a customer order. This is an example of A) an agency trade. B) a principal trade. C) a market order. D) a block trade.

D) a market maker

A broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter (OTC) market is a description of A) an investment banker B) an arbitrageur C) a specialist D) a market maker

C) the spread between bid and ask is likely to be larger than normal.

A client calls to tell you that he has inherited some stock from his grandmother and would like to sell it. After a bit of research, you discover that the stock is thinly traded on the OTC market. This means A) the spread between bid and ask is likely to be less than normal. B) the stock is probably worthless. C) the spread between bid and ask is likely to be larger than normal. D) the spread between bid and ask will be normal.

B) engaged in a short sale of the stock

A client of a broker-dealer is obligated to replace stock she sold after borrowing it from the broker-dealer. From this information, you can conclude that she A) took a short position in a put option B) engaged in a short sale of the stock C) took a short position in a call option D) was straddling a commingled arbitrage

A) MMA: 22.05 - 22.25, 10 x 8.

A client of your broker-dealer accepts your recommendation and turns in a market order to purchase 600 shares of MNOP Corporation common stock. Based on the following market maker quotes, it would be expected that the firm's trader would direct the market order to A) MMA: 22.05 - 22.25, 10 x 8. B) MMB: 22.08 - 22.25, 6 x 5. C) MMC: 22.10 - 22.28, 10 x 6. D) MMD: 22.11 - 22.30, 6 x 6.

B) MMC: 9.75 - 9.85, 20 x 20.

A client of your broker-dealer, currently long 1,000 shares of DEF Corporation common stock, wishes to liquidate the position. Based on the following market maker quotes, it would be expected that the firm's trader would direct a market order to A) MMA: 9.65 - 9.85, 5 x 5. B) MMC: 9.75 - 9.85, 20 x 20. C) MMD: 9.75 - 9.90, 5 x 10. D) MMB: 9.65 - 9.75, 10 x 10.

A) $9,000

A client owns 300 shares of BACH common stock in a margin account. The stock was originally purchased at a price of $40 per share and the Reg. T call was met. If the BACH is now selling for $50 per share, disregarding interest charges, the client's equity is now A) $9,000 B) $3,000 C) $6,000 D) $1,000

D) Buying the stock on margin

A client with a bullish outlook on a particular stock would be able to benefit most from taking which of the following actions? A) Entering a buy stop B) Selling the stock short C) Entering a sell limit order D) Buying the stock on margin

D) $17,000

A client's mixed margin account has the following positions: Long, 100 XYZ with a current market value of $5,000 Long, 300 ABC with a current market value of $16,000 Short, 200 DEF with a current market value of $10,000 Short, 100 GHI with a current market value of $8,000 The account has a debit balance of $8,000 and a credit balance of $22,000. What is the combined equity in the account? A) $11,000 B) $31,000 C) $9,000 D) $17,000

B) 52.20

A customer places an order to sell 100 MS 52.25 STOP. After placing the order, MS trades as follows: 53, 52.60, 52.20, 52.10, 52.25. Which trade triggers the order? A) 52.25 B) 52.20 C) 52.60 D) 52.10

A) The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.

A day order is entered to buy 500 LMN at 24.35. By the close, the firm has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome? A) The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close. B) The customer may demand that the firm deliver the remaining shares at 24.35. C) The customer may reject the incomplete order unless the remainder can be filled within 3 business days. D) The customer may reject the incomplete order unless the broker-dealer can guarantee filling the remainder by the end of the day.

A) high frequency trading.

A discussion of algorithmic trading is probably referring to A) high frequency trading. B) a highly sophisticated method of wash trades. C) trading done following the rhythms of the market. D) a trading program invented by Al Gore.

D) the market maker is willing to pay $76.10 for the stock.

A market maker is quoting ABC common stock at $76.10 - $76.31. That means A) the market maker is willing to pay $76.31 for the stock. B) the market maker's commission is $.21 per share. C) the spread is probably excessive. D) the market maker is willing to pay $76.10 for the stock.

A) explain that the firm acted as a principal and included a markup in the price.

A new customer of your broker-dealer calls after her first stock purchase. She comments that she did not see a commission charged on the trade confirmation and wants to thank you for the good deal. It would be incumbent on you to A) explain that the firm acted as a principal and included a markup in the price. B) report this to your supervisor promptly. C) explain that your firm does that on the first trade to help build the relationship. D) reply with a thank you and tell her you're looking forward to more trades.

B) the name of the individual who transmitted the order

A securities trade is made. Under normal circumstances, all of the following would be noted on the order ticket except A) the registered agent who accepted the order B) the name of the individual who transmitted the order C) the account number D) the time stamp of the time of order submission

C) losses are minimized

All of the following are advantages of a margin account except A) less cash is needed to purchase securities B) leveraging is possible C) losses are minimized D) money is borrowed

A) a dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks

An exchange specialist is A) a dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks B) a trader who makes a market in OTC stocks and ADRs C) an electronic brokerage concern that executes trades online and through specialized trading order executing services D) a floor broker on the New York Stock Exchange who only executes trades for other brokers in return for commissions

D) a market order.

An order to immediately buy or sell a security at the best available price is known as A) an immediate or cancel (IOC) order. B) a stop order. C) a limit order. D) a market order.

D) a market order

An order to sell securities where immediate execution is more important than price is called A) a discretionary order B) a limit order C) an unsolicited order D) a market order

D) 43-43.05

By viewing the bid and ask prices, which of the following OTC stocks is likely to be the most actively traded? A) 50-50.50 B) 17.95-18.25 C) 22-23 D) 43-43.05

C) must forward the complaint to the introducing firm.

If a clearing firm receives a customer's complaint regarding the activities of an associated person at one of its introducing broker-dealers, the clearing firm A) should tell the client to send the complaint to the introducing firm because it is their associated person. B) must notify the customer that the complaint was received and the clearing firm will deal with the complaint. C) must forward the complaint to the introducing firm. D) must forward the complaint to the Administrator.

C) forward the complaint to the SEC.

If a clearing firm receives a text message from a customer complaining about the activities of an associated person at one of its introducing broker-dealers, the clearing firm must do all of the following except A) follow the complaint procedure because a complaint through a text message is considered to be a written complaint. B) forward the complaint to the introducing firm. C) forward the complaint to the SEC. D) notify the customer that the complaint was received and forwarded.

B) trades anywhere other than on an exchange.

If a security trades in the over-the-counter (OTC) market, it means that the security A) is traded on multiple stock exchanges. B) trades anywhere other than on an exchange. C) is available for sale only if the buyer picks it up in person. D) cannot be purchased from a market maker.

D) the credit agreement.

In a margin account, broker-dealers lend money to clients to enable them to leverage their investments. The account document that is evidence of the debtor-creditor relationship is A) the loan consent agreement. B) the hypothecation agreement. C) the IOU agreement. D) the credit agreement.

B) 10,000 shares

In order to be considered a block trade, an order for common stock must be for at least A) 1,000 shares B) 10,000 shares C) 100,000 shares D) 100 shares

A) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market.

It is often said that the backbone of the over-the-counter (OTC) market is the market maker. A good description of a market maker would be A) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market. B) a member of FINRA. C) an employee of a listed exchange. D) an investment banker who participates in a firm underwriting.

A) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market

It is often said that the backbone of the over-the-counter market is the market maker. A good description of a market maker would be A) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market B) a member of FINRA C) an investment banker who participates in a firm underwriting D) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded on a listed exchange

D) I and IV

It would be correct to state that the specialist stands ready to buy or sell stock on the floor of an exchange in an effort to keep an orderly market the specialist stands ready to buy or sell stock on the over-the-counter market in an effort to keep an orderly market the market maker stands ready to buy or sell stock on the floor of an exchange in an effort to keep an orderly market the market maker stands ready to buy or sell stock on the over-the-counter market in an effort to keep an orderly market A) I and III B) II and III C) II and IV D) I and IV

C) the current market price of the security

Jimmy Merchant is an agent with FLATT securities, a registered broker-dealer. When Jimmy submits an order ticket to purchase securities for a client, all of the following would appear except A) the broker-dealer's name B) Jimmy's name C) the current market price of the security D) the account number

C) high frequency trading.

Large investors, such as hedge funds or institutions, using high-speed systems to monitor and submit large number of orders to the markets are engaging in A) market manipulation. B) market making. C) high frequency trading. D) front running.

A) The hypothecation agreement

Margin is borrowing money from a broker-dealer to buy a stock using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock? A) The hypothecation agreement B) The loan consent agreement C) The securities pledge agreement D) The credit agreement

A) A buy stop at 88

Mr. Berg has been charting DMF stock prices. The stock usually fluctuates between 71 and 86. The stock is currently at 84, and the increasing upside volume makes him believe that a breakout is possible. Which of the following would he most likely enter? A) A buy stop at 88 B) A sell limit at 88 C) A buy limit at 85 D) A sell stop at 70

A) Sell stop

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Sell stop B) Sell limit C) Buy stop D) Buy limit

B) The credit agreement

Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change? A) The loan consent agreement B) The credit agreement C) The interest computation agreement D) The hypothecation agreement

D) negotiation

Stock prices in the over-the-counter market are determined by A) the 5% markup policy B) a competitive bid C) an auction D) negotiation

D) 25% for a long account.

The SROs have instituted maintenance margin levels for those situations where the equity in a client's margin accounts is reduced to a dangerous level. Currently, those levels are A) 25% for a short account. B) 50% for a long account. C) 30% for a long account. D) 25% for a long account.

A) Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order

The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket? A) Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order B) Customer name, execution price, time of order entry, and time of execution or cancellation C) Account number, customer address, time of order entry, and terms and conditions of the order D) Customer name, customer address, execution price, and time of execution or cancellation

A) high-frequency trading.

The term algorithmic trading is most commonly associated with A) high-frequency trading. B) short selling. C) retail clients. D) securities with high latency.

D) 800 shares at $15.25 per share

To fill a customer buy order for 800 WXYZ shares, your firm requests a quote from a market maker. The response is "bid 15, ask 15.25." If the order is placed, the market maker must sell A) 100 shares at $15.25 per share B) 800 shares at no more than $15 per share C) 800 shares at $15 per share D) 800 shares at $15.25 per share

C) Advisory fees

Trading securities involves certain expenses. Which of the following is not considered to be one of them? A) Markups B) Markdowns C) Advisory fees D) Commissions

A) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price

Under the Securities Exchange Act of 1934, a market maker is A) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price B) any person who buys and sells securities for his own account or for the accounts of others C) a marketplace to bring together buyers and sellers of securities D) a security in high demand

D) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price

Under the Securities Exchange Act of 1934, a market maker is A) a marketplace to bring together buyers and sellers of securities B) any person who buys and sells securities for his own account or for the accounts of others C) a security in high demand D) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price

D) an organization that provides facilities for bringing together buyers and sellers of securities

Under the Securities Exchange Act of 1934, an exchange is A) a disposition of a security for value B) an organization of securities professionals designed to promote fair practices in doing business with the public C) any transaction involving a security D) an organization that provides facilities for bringing together buyers and sellers of securities

A) as a contra party to the trade

When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted A) as a contra party to the trade B) as an agent C) for the benefit of the client D) in an unethical manner

B) a principal, and charges a markup

When a brokerage firm sells stock from its own inventory, it is acting in the capacity of A) an agent, and charges a markup B) a principal, and charges a markup C) a principal, and charges a commission D) an agent, and charges a commission

C) as a dealer.

When a securities firm is position trading, it is acting A) unethically. B) as a broker. C) as a dealer. D) on principle.

C) house call.

When a security purchased on margin suffers a decline in market value, it may cause the equity in the account to fall to a level such that additional funds are required under the terms of the margin agreement between the client and the broker-dealer. The term that describes the request by a broker-dealer rather than an SRO for more money is A) sell-out. B) margin call. C) house call. D) Regulation T call.

A) the investor can lose more than his original capital in a margin account.

When comparing cash and margin accounts, it is important to note that A) the investor can lose more than his original capital in a margin account. B) IPOs must be purchased in margin accounts because of their higher risk. C) the interest charged on debit balances in cash accounts reduces the investor's returns. D) the investor will generally make more money by using margin.

B) a member of the New York Stock Exchange who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks

When discussing a stock exchange, a specialist is A) an electronic brokerage concern that executes trades online and through specialized trading order executing services B) a member of the New York Stock Exchange who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks C) a floor broker on the New York Stock Exchange who only executes trades for other brokers in return for commissions D) a trader who makes a market in OTC stocks and ADRs

D) I and IV

Which of the following are regulated under the Securities Exchange Act of 1934? Broker-dealers Investment advisers Pension plans OTC markets A) I and II B) II and III C) III and IV D) I and IV

A) I and IV

Which of the following are regulated under the Securities Exchange Act of 1934? Broker-dealers Investment advisers Pension plans OTC markets A) I and IV B) III and IV C) II and III D) I and II

D) A long call option traded on the CBOE

Which of the following cannot be purchased on margin? A) An NYSE-listed stock B) A listed bond C) A municipal bond D) A long call option traded on the CBOE

D) A buy stop

Which of the following is an order to purchase at higher than the current market? A) A buy limit B) A buy, immediate or cancel C) A buy, fill, or kill D) A buy stop

A) Sell short 100 shares of SSS and sell 1 SSS put.

Which of the following positions would create the most risk for an investor? A) Sell short 100 shares of SSS and sell 1 SSS put. B) Sell short 100 shares of SSS and buy 1 SSS call. C) Buy 100 shares of SSS and buy 1 SSS put. D) Buy 100 shares of SSS and sell 1 SSS call.

C) A sell stop order is used to protect a short sale.

Which of the following statements about stop orders is not true? A) A stop order to buy is always set at a price that is higher than the current market price. B) A sell stop order is always placed at a price that is below the current market price. C) A sell stop order is used to protect a short sale. D) A stop order will become a market order once a security trades at or through a specified price.

B) The use of credit to purchase new issues is prohibited for the first 30 days.

Which of the following statements is true about sales of new issues under the Securities Exchange Act of 1934? A) The SEC determines what issues may be purchased on margin. B) The use of credit to purchase new issues is prohibited for the first 30 days. C) Installment payments are allowed on purchases. D) Credit may be used in purchasing new issues.

D) 10,000 shares

Which of the following transactions on the NYSE in ABC common stock would meet the minimum size requirement to be considered a block trade? A) 100,000 shares B) $100,000 total market value C) 200,000 shares D) 10,000 shares

D) I and II

Which of the following would be a common use of a stop order? To protect the profit on a long position To prevent loss in a short position To buy at a specific price guaranteed by a specialist To lock in a price with the specialist A) II and IV B) I and III C) II and III D) I and II

B) margin accounts employ less leverage than cash accounts.

With regard to margin accounts, all of the following are accurate statements except A) a mixed margin account is an account with a broker-dealer in which there are both long and short positions. B) margin accounts employ less leverage than cash accounts. C) maintenance margin is the amount required under SRO rules when the equity in a margin account falls below a predetermined level. D) initial margin is the amount required under Regulation T when a security is purchased on margin.

A) The order was not triggered.

Your client turns in a buy limit order for 100 shares of ABC at $58. Following the entry of the order, trades occur at 59, 59, 58.80, 58.20, 58.40, 57.95, 57.85. At what price was this limit order triggered? A) The order was not triggered. B) $57.85. C) $57.95. D) $58.20.