Series 57 - Chapter 12

What are the S&P 500 circuit breaker trigger values?

7% from 9:30-3:35 results in 15 minutes 13% from 9:30-3:35 results in 15 minutes 20% at any time results in halts for the rest of the day At or after 3:25 trading shall continue unless there is a level 3 halt

When can an imbalance only order be entered? Cancelled?

- 4AM-3:59:59PM - Can only be modified after 3:50 to increase size - 3:50-55, only cancelled due to legitimate error - After 3:55, cannot be cancelled for any reason.

What steps must a market maker take in line with Rule 211?

- A copy of any documentation compiled by the dealer in complying with the rule must be submitted to FINRA - A completed Form 211 must be submitted to FINRA - Filing must occur at least three business days prior to entering quotes in a quotation medium

What are the rules regarding information barriers?

- Broker dealers should have written barrier procedures and document any actions taken under them - Firms that conduct investment banking, research or arbitrage must maintain a watch list and restricted list. - Material, non-public information must be carefully supervised - A firm should train its employees on info. barriers

What two rules do not apply to supplemental MPIDs?

- Continuous two-sided quote requirement - Excused withdrawal procedures ...supplemental MPID quotes can be one-sided and there is no unexcused withdrawal penalty.

What can't a supplemental MPID be used for?

- Engaging in passive market making - entering stabililzing bids.

When can market on close orders be entered until? Cancelled?

- Entered from 4AM - 3:50PM - Cancelled 3:50-55 *only due to legitimate error* - After 3:55, cannot be cancelled.

When can Limit on Close orders be entered until? Cancelled?

- Entered from 4AM - 3:50PM. - Cancelled 3:50-55 *only due to legitimate error* - After 3:55, LOC orders *can't be cancelled at all.*

What is the one exemption from transferring quotes from one medium to another under the piggyback exemption?

For a domestic issuer, if the security is eligible for the piggyback exemption in another quotation medium and the dealer seeking it published quotes in that medium meeting the regular and continuous requirements, the dealer may initiate or resume quotations in the OTCBB without complying.

When must a broker-dealer provide a confirmation of any purchase or sale?

For any purchase or sale, *before* the completion of the transaction.

A firm wishes to quote in the pink sheets. Should it have an offering circular, can it quote them per the rules?

No. Must have an offering circular, the latest form 10-K and subsequent 8Ks, or a prospectus.

Does the piggyback exemption transfer from the OTCBB to the pink sheets?

No. The exemption doesn't transfer from one quotation to another at all, unless it applies under one exception.

What does the code C mean?

Non-exchange listed security. N is its opposite, for exchange listed securities.

If an issuer is repurchasing its stock, what should it limit its purchases to, in terms of quantity and the stock's ADTV?

Under the safe harbor provisions of Rule 10b-18, an issuer should limit its purchases for that security to no more than 25% of the average daily trading volume (ADTV) on any single day

How much net capital must a block positioner maintain?

$1 million

What net capital must a qualified block positioner maintain?

$1 million

How much net capital must a prime broker maintain?

$1.5 million

What is the minimum net capital requirement for market makers?

$100,000

What is the maximum fine for failing to disclose material information in an OTC trade?

$5,000,000 fine and/or 20 years in prison

How often is the order imbalance indicator sent?

Every 5 seconds from 3:50PM untjil close.

What must quotes be to be published by member firms?

*Bona fide* quotes which represent genuine interest in the security and not manipulation. Additionally, a member firm that reports a transaction must have reason to believe that it actually did occur.

What defines a "block" purchase?

- $200k+ - 5,000+ shares and at least $50K - 20 round lots for 150% or more of the trading value on the security

With what modifier are orders executed at or prior to the opening cross reported?

.T

How does the opening cross occur?

- First, seeks to maximize values for LOO, MOO, and OIO and early market hours orders - Then, tries to find a price that minimizes the imbalance - Then, if more than one price is existent, the cross picks one - If more than one price still exists, it finds a price that minimizes the distance from the inside market to the bid/ask midpoint - If that price is outside the benchmarks, the cross finds a price within the threshold amount. Benchmarks are established periodically.

What information is typically required on a confirmation?

- Identity and price of the security, quantity - Date, time of execution - Capacity of BD - Dollar price and yield info. on debt securities - Whether a debt security is callable - Settlement date (not time received) - Commissions for riskless principal transactions

What are the parameters of a short sale?

- If a security declines by 10% or more after the prior trading day's closing price (for a covered security, *doesn't apply to OTCBB or Pink sheets*) - Is applicable during the remaining trading day through the next business day - For example, if a circuit breaker is in effect and the current national best bid is 26.75, the short sale is only permitted above 26.75.

What are the additional net capital requirements? What is the minimum? What is the maximum? Does the dealer have to register for each security it makes markets in? How? When is it effective? How long does it have to enter these quotes?

- Minimum: $100,000 - $5 or less per share: $1,000 - $5+ per share stock: $2,500 per - Maximum: $1,000,000 Yes, must register each time via the Nasdaq terminal, which is effective once registered. Has 5 days to enter these quotes, or registration is terminated.

What information does the Order Imbalance Indicator provide information on?

- Near clearing price - Far clearing price - Current reference price - Number of shares paired - Imbalance quantity - Imbalance side

What are the provisions of ITSA and ITSFEA?

- Sanctions can be applied to a person who directly or indirectly controls someone who violates insider trading rules, with a penalty of $1 million or three times the amount gained/avoided, even if the supervisor didn't know it - Must have written and enforced procedures designed to prevent misuse of material/nonpublic info. - must implement them, monitor employee personal trading, restrict trading where the firm has insider info., restrict access to confidential files and establish information barriers, and educate employees on insider trading

What do broker-dealers have to secure for customers it provides access to?

- That customer orders are not erroneous - That customer transactions are within credit/capital thresholds - The firm has risk management controls under the direct and exclusive control of the broker-dealer This applies to equities, equity options, ETFs, debt securities, and security-based swaps. The broker-dealer is required to maintain a copy of its procedures and write a description of them. It must also: - review them annually - have the CEO certify these procedures This is all per the Market Access Rule

What are the exceptions to the firm quote rule?

- The market maker communicated to Nasdaq a revised price/size prior to the presentation of the order. - The market maker just effected or is in the process of effecting a transaction at the time the order is presented and, upon cancellation, communicates a revised quote to Nasdaq. Referred to as a trade-ahead exception.

Under what conditions is an order short exempt?

- The order is priced above the NBBO - The sale is from someone who will deliver as soon as restrictions are removed - the order is an odd lot from a market maker - the order is domestic or international arbitrage - the order is a short sale by an underwriter fixing an overallottment - the order is a riskless principal transition effecting a long sale - The order is a VWAP transaction

Nasdaq can execute the following auxiliary procedures?

- The order-entry period for LOC/MOC/IO may be set earlier, but may end no earlier than 3:40 - the period for modifying/cancelling LOC, MOC, and IO orders can be earlier, but no earlier than 3:40 - The period for the display of the order imbalance indicator can be earlier, but no later than 3:40. - The frequency of display of imbalance indicators may also be adjusted - Threshold values described in the Nasdaq closing cross process may be adjusted by no more than 20%

What are the rules of the Piggyback Exception?

- The security has been quoted for 12 of the last 30 days - There have been no 4 day spans without a quote Any security that meets this exception is active and needs no paperwork. If one security quotes it but hasn't yet met the piggyback exemption, it is called "eligible".

What are the exceptions to the documentation and filing requirements of Rule 15c2-11?

- The security is also NMS listed - The quote represents unsolicited customer interest - The security is a municipal security - the Piggyback exemption labels it active or eligible

What kinds of trades require additional disclosure?

- control relationships on a security, such as a BD executing a trade on a stock they're owned by. *must be disclosed prior to execution* - if a BD is distributing securities and receiving investment advisory fees from a customer its selling to, this is a conflict of interest, and must be disclosed in writing - if a BD is goign to execute a transaction for an investment adviser client by acting as a principal or agent for the other party, it must obtain written authorization from the adviser to enter them and must disclose conflicts

Insider trading rules it is unlawful for anyone to:

- employ any device, scheme, or artifice to defraud - make any untrue statement of material fact or omit to state material fact necessary to make statements made in light of the circumstances under which they were made - Engage in any at or course of business that is fraudulent

When can a broker-dealer deliver a long order with borrowed securities?

- the BD is *lending to another BD* - the *BD knows or has been led to believe that the seller owns the security being sold* and will deliver the security by the scheduled settlement date, *but fails to deliver* - Before a loan arrangement for a security to make delivery or before a fail to deliver, an exchange or a securities association discovers that the sale originated from *a good-faith mistake*, although the broker-dealer used due diligence regarding the sale, and the requirement would create undue hardship or the sale is at an unacceptable price.

When is a transaction "completed"?

- the customer makes payment of any part of the purchase price to the BD or the bookkeeping entry is made - the customer delivers the security to the firm

When can a market maker be immediately reinstated?

1. It notifies Nasdaq within 1 hour and written notification 2. It is clear the withdrawal was inadvertent 3. the number of reinstatements is acceptable (between 2-6 depending on how many securities they make markets on) Will also consider how similar the correct and incorrect symbols were

When must a security be closed after 13 settlement days? When must it be closed after 35?

13 settlement days - threshold security 35 settlement days - Sec Rule 144 security

How long must a security enters the limit state and fails to move back for ______ (time period) the exchange will issue a 5 minute trading pause.

15 seconds

What is the ADTV limit for a firm buying their own securities?

25%

How many business days prior to entering a quote must the paperwork be filed to FINRA for quoting a non-NMS security?

3

What defines a small market maker firm?

3 or fewer level 3 terminals.

After how many days of someone not delivering a security must *the broker dealer borrow the security*?

35.

When does the Nasdaq closing cross begin? End?

3:50PM. Ends at 4PM, at a single price that maximizes shares executed.

When can a limit on open order be entered? When can it be cancelled?

4AM to 9:28 AM. Cannot be cancelled after 9:28AM.

When can a market on open order be entered? Cancelled?

4AM-9:28AM, entered or cancelled.

When are Early Market Hours Orders entered? Can it be cancelled?

4AM-9:28AM. Cannot be cancelled after 9:28.

A customer gets a confirmation and wants further information. How long does the firm have to deliver it?

5 business days, unless the transaction was over 30 days ago, then it can take 15 days.

For an equity security to be considered a threshold security, there must be an aggregate fail to deliver position for:

5 consecutive settlement days

If a security enters the LULD limits and doesn't return for 15 seconds, how long will the ensuing halt be for?

5 minutes

At what time will a firm open be forced to open its quotes?

9:25AM

When are market maker quotes opened?

9:25AM

When are late market hours orders entered? Can it be cancelled?

9:28AM or later and are treated as imbalance only. Cannot be cancelled after 9:28.

What is an easy to borrow list?

<24 hour old list that provides reasonable grounds for belief that a security on the list will be available to be borrowed.

How often is the order imbalance indicator sent out?

Every five seconds.

When does a crossed market occur?

A bid is higher than the ask, or an ask is lower than the bid.

Can a firm use multiple MPIDs?

A firm is permitted to use multiple MPIDs, but such activity may not be used to avoid Manning obligations or Passive Market Making restrictions

What are the stipulations of the firm quote rule?

A market maker is obligated to execute an order presented to it at a price at least as favorable as its published quote for an amount up to its published quote size. *The obligation to fill an order begins when the order is presented, regardless of how it was communicated.*

How wide must market maker spreads be?

A market maker's quotations must still be reasonably related to the prevailing market. If they are not, FINRA can require the market maker to reenter them.

What is the *trade-or-fade* rule?

A rule that requires Nasdaq market makers to publish an inferior quote anytime they fail to execute the full size of an incoming order that is at least one normal unit of trading greater than the market maker's published quotation size.

A member firm registered as a market maker in a security must have what quote at the least?

A two-sided quote, known as the MPID.

At what point can LOC and MOC orders not be cancelled at all?

After 3:55. Can actually be cancelled for an error between 3:50-3:55.

Short interest reporting is required for...

All Nasdaq customer and proprietary accounts.

Market makers include:

An exchange specialist A block positioner A dealer holding itself out as willing to buy or sell a specific security

How are non-displayable quotes or orders posted on Nasdaq?

Anonymously, through Nasdaq's NSDQ.

What is an OTC market maker?

Any dealer that holds itself out as willing to buy from and sell to its customers a covered security for its own account on a regular or continuous basis. Also includes firms that don't quote, *but* will buy and sell covered securities with their own customers based on best prices available. Does not include transactions on exchanges in amounts less than block size.

What is a threshold security?

Any equity security registered in accordance with Section 12 of the Exchange act and has an aggregate fail to deliver position at a clearing firm of 10,000 shares or more and equal to at least .5% of the total shares outstanding, and the SRO has put it on a threshold securities list.

What is a subject security?

Any exchange listed security for which the member acts as an OTC market maker but accounts for more than 1% of volume or Any other covered security in which tyhe firm acts as an OTC market maker and has elected to communicate those quotes to Nasdaq.

What is a covered security?

Any reported security and any other security for which: transaction reports last sale data or quote information ...is disseminated through an automated quote system as defined in the exchange act.

What is a payment for order flow relationship?

Automatically routing certain types of small retail customer trades to a specific broker-dealer for execution, where the executing BD pays a per-share fee to the originating BD.

Who is liable on a tip, the tipper or tippee?

Both.

What is the highest price at which a company can repurchase their own shares?

Higher of independent bid and last independent transaction.

What are the stipulations of SEC Rule 204?

BDs with a fail must immediately purchase or borrow to close it out. No short sales on this security would be permitted by the BD or any BD it clears with unless it has borrowed or has arranged to borrow a security.

When must deficiencies identified by FINRA in an application to quote a security be resolved?

Before quoting.

What is spoofing?

Bidding/offering with the intent to cancel to artificially create the appearance of interest.

What are the decimal point restrictions on NMS stocks?

Bids, offers, indications of interest cannot be priced at: $1 or more price: Increments less than $.01 $1 or less price: Increments smaller than $.0001

When can an OIO be entered? Cancelled?

Can be entered from 4AM-9:29:59AM. Can be cancelled only to increase the size between 9:28-9:30.

When *can* a market maker be open? When *must* a market maker be open?

Can be open from 4Am until 8PM. Must be open from 9:30AM-4PM

What is the difference between commission and markup?

Commission is the charge a broker-dealer assess for executing an agency transaction. A markup is the difference, in a principal transaction, between the price for a customer and the prevailing interdealer price.

What are the civil penalties of insider trading? Criminal?

Civil 3x amount gained/avoided, disgorgement of profits Criminal $5 million and/or 20 years in prison. Corporations can be fines up to $25 million

If a broker dealer has a fail to deliver position at a clearing firm in a *threshold* security for a continuous period of 13 *settlement* days or 35 consecutive calendar days (if the security was sold under SEC Rule 144), what must it do?

Close out the fail to deliver position immediately by purchasing like kind/quality securities.

A BD has a fail to deliver position in a threshold security for 13 consecutive settlement days on the OTCBB. Do they close out or borrow?

Close out, immediately.

What should a firm do first when it is the victim of backing away violations?

Contact the other firm directly! Then the 5-minute complaint window is waived. If the 2 parties can't resolve the issue directly, the complaint is wavied.

How often is the order imbalance indicator disseminated?

Every 5 seconds between 9:28 and 9:30.

A BD notices an error. What should he do first?

Go to his supervisor.

What are the price bands for LULD, tha tkeeps trades from occurring outside applicable price bands?

Greater than $3 - if in Russell/S&P, 5% Greater than $3 - if not, 10% Between .75-$3 - 20% Less than $.75 - the lesser of $.15 or r$.75

Under what conditions is a person considered an owner of a security?

He has purchased the security or entered into an unconditional and binding contract to make the purchase, but not yet received it, or if they hold the future and have received notification that the position will be physically settled.

What is the disclose or abstain theory?

If anyone with a fiduciary duty has inside information, they must *disclose* it to the public or *abstain* from trading on it

When is a halt lifted?

If it has been in effect for 10 business days or if FINRA determines that its basis no longer exists. During the halt, no one can trade it.

When is a qualified block positioner exempt from the locate requirement?

If it is performing bona fide market making activities.

When does a fail to deliver threshold security allow 35 settlement days instead of 13 settlement days?

If its delivered on 144.

When does a BD not have to ensure that the order is available to be borrowed for a short?

If its engaged in bona fide market making activities.

During the Nasdaq closing cross, the order imbalance indicator provides information about which of the following orders?

Imbalance only orders Short sale orders Limit-on-close orders

What is the decimal point restriction on stocks priced over $1?

In cents ($.01)

What is the decimal point restriction on stocks priced under $1?

In hundredths of cents ($.0001)

When must a piggybacker cease quoting?

It doesn't have to, actually. It only has to meet requirements if the prior firm stops, then it stops, then it must meet requirements again.

If a market maker executes part of a bid, but not the entire thing, what is its obligation?

It needs to move the quote.

What must the broker-dealer be able to do to short a security in its own account or accept a short sale in an equity security?

Locate the security being borrowed, by either borrowing the security or believing it can borrow the security. This permits use of easy to borrow lists.

When orders may not be entered after 9:28? What orders can?

MOO and LOO cannot be entered after 9:28 to facilitate the opening cross. OIO and limit orders, because they are price taker,s can be entered after 9:28.

All orders have to be ___

Marked, long or short. Long - the security sold is in the possession or control of the BD or will have it no later than settlement day Short - the seller owns the security being sold but does not believe they'll be in possession prior to settlement, or they don't own it/are borrowing it

If a market maker is out of inventory due to high volume, can they sell a stock to a customer?

Market makers can sell stock short to customers in order to provide liquidity to the market.

Does failure to contact FINRA within 5 minutes of backing-away violations relieve the guilty party from liability for a firm-quote violation?

No. But resolution is less likely.

How often must rule 605 reports be released?

Monthly

What are the market category codes?

N - Nasdaq listed security C - Exchange listed security

What is required to make a market on an OTC equity?

Nasdaq market makers are not required to register in order to make a market in an OTC equity security; however, corporate information about the issuer must be collected and reviewed.

A bank trades securities for its own account. Are they a broker?

No

Can a member firm execute transactions for customers for its own account on international markets if a trading halt is in effect?

No

Can supplemental MPIDs be used to passively make markets or stabilize?

No

Does a block positioner have to be a market maker?

No

Does a broker-dealer have to own the account if it transacts in futures?

No

Does an unexercised, written option position count as a short position in determining net position?

No

Do trading halts and limits apply to OTCBB securities?

No!!!!

Can you trade during trading pauses for LULD? Can you make bids and offers?

No, Yes.

Does a rule 105b plan, which protects insiders from insider trading, require approval from the issuer?

No, just a previously executed written agreement.

Are watch list transactions prohibited?

No, just supervised.

Will excused withdrawals be granted for pending news, price changes, or sudden influxes of orders?

No.

What is the only order that may be entered after 9:28?

OIO - Opening Imbalance Only

What is a cross trade?

One in which a broker receives a buy and sell order for the same stock at the same price and makes the simultaneous trade between customers.

Who can enter quotes into Nasdaq?

Only a registered Nasdaq market maker.

In what algorithm/priority do orders execute?

Price/Time.

According to Regulation SHO, a broker-dealer executing a short sale in an equity security for a client must perform a locate at what time in the short sale order process? Receival, acceptance, execution?

Prior to *accepting* a short sale order

Nasdaq market maker that withdraws its quotes for a specific stock from Nasdaq on an unexcused basis is:

Prohibited from reregistering as a market maker in a stock for 20 business days.

A trader sees a stock on the restricted list. What is the protocol?

Proprietary, employee, and certain customer solicited transactions are prohibited in this stock. The trader should contact the firm's procedure manual or the Compliance Department for further guidance

What predominantly drives the Nasdaq and OTC markets?

Quotes.

If a stock is in the regular, straddle and limit state, how do the price bands apply?

Regular - both sides Straddle - When one side of the market is outside price band, only one side is executable Limit - Will occur if NBB is above upper price band or NBO is below

What orders are eligible for the closing cross?

SDAY, SGTC, MDAY, SHEX, and GTMC

What orders have open eligible interest?

SDAY, SGTC, SHEX, and GTMC.

Who is responsible for the threshold securities list?

SROs.

What is a restricted list?

Securities in which proprietary, employee, and customer solicited transactions are prohibited.

What is a gray list/watch list?

Securities not subject to restriction, but trading on them is subject to closer review. Their identity is only known by select compliance and criteria for adding and deleting these securities must be limited.

What is painting the tape?

Small groups of investors or market makers trade heavily and repeatedly with each other to give a misleading appearance of activity/interest in a stock.

What are the trading halt codes?

T.1 - News pending T.2 - News released T.3 - News and resumption time disclosed, or an ETF has been corrected T.5 - A Nasdaq stock has moved by more than 10% in a five minute period T.6 - Halt, extraordinary market activity T.8 - Half, ETF T.12 - Halt, pending additional info. requersted by Nasdaq H.4- Halt due to noncompliance with Nasdaq listing requirements H.9 - Halt due to Company not current in filings H.10 - Halt due to trading suspended by SEC D - Security has been deleted by Nasdaq * - Delay resulting from an imbalance

What is the FQCS? What is its purpose?

The Firm Quote Compliance System, which receives complains on backing-away violations. The Market Regulation Department receive the complaint, and then will then enter the complaint to the FQCS. *The firm must file the complaint within 5 minutes of the violation and typically resolves it with a contemporaneous trade execution. Failure to contact the firm within 5 minutes does not relieve the offending firm from liability for a firm-quote violation.*

What is the Nasdaq IPO cross?

The Nasdaq IPO cross seeks to maximize shares crossed at a price nearest the *issuer's IPO price.*

What is the Nasdaq halt cross?

The Nasdaq halt cross seeks to maximize shares traded at a price nearest the *last execution price* of the stock prior to the halt.

What is the reference index for circuit breakers?

The S&P 500

FINRA generally considers 5% an acceptable markup for what?

The amount investors pay for and receive securities, agency and principal, listed/unlisted OTC.

Which of the following parties could be held responsible by FINRA for excessive markups?

The broker-dealer, senior management, and individual registered representatives

When can FINRA impose trading halts on the OTCBB or Pink Sheets? What are the codes?

U1 - The security has been halted by foreign authorities/regulators U2 - The security is a derivative and the underlying has been halted U3 - FINRA has determined that an extraordinary material event on the stock has occurred or is about to

For information to be fairly distributed, who must it be given to?

The financial news media.

Under what conditions must a market maker publish its quotes in a security?

The firm accounts for at least 1% of the security's trading volume.

What is the first step in becoming a market maker?

The firm must apply to FINRA for approval.

When does a locked market occur?

The highest bid and lowest offer are *locked* at equality.

Per the term quote size, what is the size assumed to be if a firm doesn't publish a quote?

The normal unit of trading for that security. Typically just assume its a round-lot, or 100 shares.

When can a market maker mark an order short exempt?

The order is priced above the national best bid at the time it is submitted or, The order meets one of the Exceptions specified in Rule 201 listed as follows. A sale by a person who is the owner of the security and will deliver the security as soon as all restrictions are removed Odd lot transactions by a market maker Domestic or international arbitrage A short sale by an underwriter who is effecting the transaction in connection with an overallotment A riskless principal transaction by a broker-dealer that is effecting the transaction of a customer long sale, provided certain conditions are satisfied Volume-Weighted Average Price (VWAP) transactions

At what time can a security be purchased for an issuer?

The purchase may not be made at the opening, which is 9:30 a.m. In addition, purchases during the last 10 minutes of the trading day for actively traded securities, or in the last 30 minutes of trading for all other securities makes choices (c) and (d) allowed.

What will a letter C in a market maker's quote montage mean?

The quote is closed for the day.

If a market maker updates its quote but does not specify a size , what is the new quote's size assumed to be?

The same as the old one.

What does the code D mean?

The ticker has been deleted.

How often are short-interest reports released?

Twice per month

In instances where a broker-dealer knows or has been led to believe that the seller owns the security being sold and will deliver the security by the scheduled settlement date, but the seller fails to deliver, the broker-dealer must borrow securities or close out the short position by buying securities of a like kind and quantity. When must this close out occur?

This close-out must take place within 35 days after trade date.

What is required before a BD initiates its quotes in a non-exchange listed OTC security?

This usually means the OTCBB or pink sheets. Must have possession of one of the following: - Prospectus less than 90 days old - An offering circular less than 40 days old - The latest 10-K and subsequent form 10-Qs and 8k - For foreign securities, financial info. filed with the SEC during the last year - Current versions of the jname, address, state of incorporation, title and class and par value, shares outstanding, name/address of transfer agent, nature of the business, nature of the products/services offered, nature and extent of the issuer's facilities, CEO/Board, balance sheet and P/L, affiliations, involved BDs, and whether the quote is on behalf of any beneficiary. The dealer must also believe that the info. is accurate and the source is reliable. And... - Record of the circumstances of the quote - copy of any SEC trading suspension in the last 12 months - Copy or written record of any other material info.

What should be filed to quote a stock not on an exchange?

To FINRA: - Form 211 - Issuer, and/or its predecessor - Type of security (warrant, common stock...) - Quotation medium to be used - Member's initial or resumed quote - Subsection of Rule 15c2-11 which is complied with

What was the goal of the quote rule?

To improve the quality and transparency of American markets.

What traders must be registered per Rule 13h-1? What form do they have to file?

Traders who trade NMS equities/options and: - 2 million shares or $20 million per *day* - 20 million shares or $200 million per *month* These traders must file form 13H and obtain a unique trade identification number (LTID) and give it to the BDs they trade through. Then, they must file an annual report.

What is the misappropriation theory?

Trading on material, nonpublic information even when the guilty party is not connected to the company and the trader kept it confidential until after trading it. Often the case with a research department report.

Limit orders entered after 9:28 a.m. ET that would lock or cross the market in the Nasdaq Market Center Execution System are:

Treated as OIO and adjusted to the inside market.

An OTC market maker withdraws his quote. When can he reenter?

Unlike Nasdaq market makers, broker-dealers that withdraw their quotes from the OTCBB are not subject to limitations on their ability to reenter the market, as long as they comply with SEC Rule 15c2-11 by collecting, reviewing, and filing with specified information about the issuer.

What is internalized order flow?

When a BD will buy and sell covered securities with their own customers based on best prices available. Qualifies a firm as an OTC market maker.

What is the difference between direct customer access and sponsored customer access?

With direct customer access, the customer uses the infrastructure of the broker-dealer and orders pass through the broker-dealer's system. With sponsored access, the customer uses *its own system* and *orders do not pass through the broker dealer's system.* This rule applies to both proprietary trading and customer accounts.

A trade is put up on a posted quote, how must it be reported?

With the same MPID used for displaying it.

Can a FINRA member use multiple MPIDs for displaying quotes *and* reporting transactions?

Yes

Can a firm execute a riskless principal transaction for an issuer buying back their stock?

Yes

Can Nasdaq issue a trading halt on CQS securities? What about ADRs?

Yes, and Nasdaq securities.

If a dealer qualifies for the piggyback exception and begins publishing quotes, can it quote without complying with 15c2-11 even if the other market maker it piggybacked on withdraws?

Yes, but if the dealer who utilizes the piggyback exemption ceases quotes, it has to comply with the rule or find an exception before resuming quotes.

Are charges for services legal?

Yes, but they must be reasonable and not unfairly discriminate between customers.

Do firms have to receive approval for additional MPIDs?

Yes, from FINRA.

Can FINRA require a *market maker* to re-enter its quotes?

Yes, if the market doesn't seem to be reasonably related to the prevailing market.

Is there anything wrong with a member publishing a subject quote and then refusing to provide an updated firm quote when approached by another member?

Yes, this can be deemed backing away.

Does a broker dealer have to aggregate all of its positions?

Yes, unless they qualify for independent trading unit aggregation. - the BD aggregates each unit with specified objectives and an organized plan - each desk determines their net position for every sale - all trades in an aggregation unit follow one strategy and do not coordinate with another unit - a trader can be on one desk at a time

After a trading halt, does a firm have to re-establish compliance with Nasdaq?

Yes.

Can FINRA halt an ADF?

Yes., for regulatory reasons.