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If a customer has a gain on a short stock position that he or she wishes to protect, which statement is TRUE?

A buy stop order will be entered The customer will "lose" the gain on a short stock position if the market begins to rise. To close the position, the customer has to buy. To buy in the position in a rising market, the order must be a buy stop order, which is placed above the current market. A buy limit order cannot be used because it is placed below the current market price.

Which of the following call provisions must be considered when determining the purchase price of a municipal bond trade effected on a yield basis?

Optional Calls When a municipal dealer gives a basis quote, he or she is promising the purchaser a certain yield on the bond. MSRB rules require that when the actual dollar price is determined, that the dollar price be computed to the lowest dollar amount of yield to call or yield to maturity. The only calls that are considered are optional calls, meaning the issuer has the option of calling in the entire issue at preset dates and prices, as set forth in the bond contract. Mandatory calls are not considered - an example of a mandatory call is a "sinking fund" call. In such a call, the issuer is obligated to deposit monies annually to a sinking fund, and then use the funds to call in bonds on a random pick method at specified dates. It is the luck of the draw as to whether a given bond is called or not. Since there is no reasonable certainty of a specific bond being called, this type of call is not considered when pricing municipal bonds. Extraordinary calls (such as catastrophe calls, or calls of bonds backed by mortgages due to mortgage prepayments) are not considered, again because of the lack of any certainty as to their actually happening.

The NYSE Specialist (DMM) and Floor Trader system is the model for trading used by which of the following markets?

PHLX All of the regional stock exchanges, such as the Philadelphia Stock Exchanges (PHLX), as well as the American Stock Exchange (now renamed the NYSE American), model their trading after the NYSE Specialist/DMM and Floor Trader system. NASDAQ is an all electronic market, while BATS (Better Alternative Trading System) is an all electronic market that started as an ECN, but has grown so large that the SEC now recognizes it as an exchange. Note: The regional exchanges as independent entities are a dying breed. At the end of 2007, NASDAQ purchased the PHLX and the Boston stock exchanges. The NYSE has purchased the Pacific and American stock exchanges and has renamed the Pacific as the "ARCA" exchange and the American as the "NYSE American." These must still be known for the exam, since these are being run as separate subsidiaries of the major markets.

Trades of NYSE-listed securities that take place in all markets are consolidated and reported through the:

The Network A Tape reports trades of NYSE-listed issues, regardless of the market venue where the trade took place. The Network B Tape reports trades of NYSE American (AMEX) and regional exchange-listed issues, regardless of the market venue where the trade took place. Reports of trades of NASDAQ issues are made through the Network C Tape, regardless of the market venue where the trade took place. There is no Network D Tape.

Customers who trade NYSE-listed securities during extended trading hours are subject to:

a higher degree of price volatility than that experienced during regular trading hours The "after hours" trading sessions have much lower investor participation, so trading volumes are very small. Because of the lack of order flow, the market is less liquid; and as a result, few dealers participate in the market. Thus, one may not be able to get an execution; and each trade that is executed can result in a much greater than normal market price movement.

A member that has knowledge of a client order that has not been entered on a marketplace that could reasonably be expected to affect the market price of the security is prohibited from all of the following EXCEPT:

accepting an unsolicited order to buy from a client Consider this question to be a learning lesson in everything that is prohibited about "front running." Prior to entering a customer order that is likely to have market impact (meaning a big institutional order), a member firm cannot place an order in that security for the firm's account; cannot solicit others to place orders; and cannot inform others about the existence of the market-impact order so that they can "front run" it. However, a member firm can accept and fill an unsolicited order to buy that security from a client for that security - the client would have no way to know that another client was entering a larger order that could affect the security's price.

All of the following statements are true if a customer places an order for an NYSE-listed issue EXCEPT the order:

can be matched internally by the member firm and is not required to be sent to a public trading venue FINRA member firms cannot match orders internally and cannot "privatize" their trades. All trades must be effected in a public venue - whether it be on the NYSE floor; in the Third Market; or through an ECN. Member firms are permitted to accept payment for order flow, but this must be disclosed to customers. Also remember that any trade price must be the "best" one available at that moment in the public markets.