Unit 8: Trading Securities

The Nasdaq stock market is an (1)_______________ and (2)______________ market. 3) includes 4) does not include

1) equity 2) equity equivalent 3) common stock, preferred stock, warrants, limited partnerships, ADRs, and convertible bonds 4) straight debt securities

Last-sale information is available for (1) ________________________ and _________________________. While there are a number of sources for last sale information in general, it may not always be available for a security that is (2) __________________

1) listed (exchange traded) securities and for all Nasdaq securities 2) OTC non-Nasdaq

A customer is long 300 shares of COD and simultaneously short 200 shares of COD. To sell the 300 shares held long, the order ticket must be marked:

100 shares long and 200 shares short The customer is long 300 shares and short 200 shares of the same stock. Therefore, the customer's net long position is 100 shares. The order ticket must be marked 100 long, 200 short. In other words, the customer is long only to the extent of his net long position.

The Three Contact Rule does NOT apply to the purchase or sale of a non-Nasdaq security provided there is at least _____________ priced quotations available electronically

2 Provided there are at least 2 priced quotations available electronically, the Three Contact Rule does not apply.

A technical analyst has been charting ABC stock and notes that the support/resistance levels are $20 and $30 respectively. If the analyst expects ABC to fall through support, which of the following orders should he enter? A) Sell 100 ABC 29.75 stop. B) Sell 100 ABC 19.50 stop. C) Buy 100 ABC 20.50 stop. D) Buy 100 ABC 30.25 stop.

B An analyst who expects a stock to fall through support is anticipating that the stock will decline. He can take advantage of this trend by establishing a short position at the top of the decline. He will enter a sell stop order just below the support price.

All of the following statements regarding the short sale of a listed security are true EXCEPT: A) short sales may take place at the opening B) the buyer must be advised that he is purchasing borrowed shares C) short sales may take place at the closing D) a short sale can be executed at any time in the trade sequence

B On an exchange floor, short sales can be effected at any time in the trade sequence. In addition, short sales may be effected at either the opening or closing. The buyer is never informed that shares being purchased represent borrowed shares.

FINRA can initiate a trading halt for all of the following EXCEPT: A) Bulletin Board stocks B) listed stocks trading OTC C) NASDAQ D) listed stocks trading on an exchange

D Only the exchange or the SEC can initiate a trading halt for a listed security trading on an exchange floor.

A customer sells short 100 shares of XYZ Corporation at $78 per share. The support and resistance levels for XYZ are at $70 and $80, respectively. If he wishes to protect his position, which of the following is the best place to put in a buy stop order? A) 78.1 B) 69.85 C) 70.1 D) 80.1

D The client will want to place a buy stop a little above the resistance level to protect himself against an upside breakout. Entering a buy stop order too close to the purchase price (78.10) would not afford the client an opportunity for gain.

After-hours trading in large blocks of stock by institutional investors can be accomplished through:

Electronic Communication Networks (ECNs) Institutional investors can trade stock after hours through ECNs, which are open 24 hours per day.

According to the multi-tiered market making system of NYSE Euronext, a Supplemental Liquidity Provider may: I) never compete with the specialist II) make markets in NYSE listed securities from an off-floor location III) never receive rebates of transaction fees from the exchange IV) make a one-sided market

II and IV Under the multi-tiered market maker system employed by NYSE Euronext a Supplemental Liquidity Provider may compete with the on-floor Specialist (Designated Market Maker) and receive rebates of exchange transaction fees. Unlike a Designated Market Maker the Supplemental Liquidity Provider makes markets from an off-floor location and is permitted to make a one-sided market.

A firm 1-sided quote is permitted for:

Over-the-counter Bulletin Board stocks Any quote displayed over the OTCBB is acceptable as long as it is properly identified. For Nasdaq stocks, market makers must maintain firm 2-sided quotes.

At 2:15 pm EST, a customer gives his registered representative a market order to buy 100 shares of ABC at the close. What should the registered representative do with the order?

Send the order to the floor immediately. The registered representative should mark the order ticket at close. His firm's floor broker will take on the responsibility for proper execution.

The opening quote for issues listed on the NYSE is set by the:

The specialist (designated market maker) is responsible for setting the opening quote for issues listed on the NYSE. The set quote is based on orders in hand.

Your broker/dealer has just negotiated a trade with another broker/dealer in a Nasdaq-listed stock. The automated system that will facilitate the reporting of the post-execution data electronically, such as price and volume, to FINRA is known as:

Trade Reporting Facility (TRF) Broker/dealers acting in a dealer capacity (negotiating transactions with other broker dealers) in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor will have the post-execution data such as price and volume transmitted electronically to FINRA via the Trade Reporting Facility (TRF).

A customer has an order to buy 400 ABC at 60 Stop. ABC declares a 25% stock dividend. On the ex-date, the order on the order book will read:

buy 500 shares at 48 stop. For stock dividends, all orders on the book are adjusted and the order value must be the same before and after the adjustment. Before the adjustment 400 ABC at 60 Stop = $24,000 total value. After the adjustment total shares on the buy order will be 500 (400 × 25% = 100 new shares, 400 + 100 = 500). To arrive at the new STOP price divide the total order value by the new number of shares ($24,000 / 500 shares = 48). After the adjustment the new order will read; buy 500 shares at 48 stop.

An agency cross transaction in the OTC market occurs when a broker/dealer:

matches a customer buy order with a customer sell order on the same stock at the same price and charges each side a commission. When a broker/dealer crosses stock between 2 customers, it does so at the same price. For example, if one customer wants to buy 500 WXYZ at 36 and another customer wants to sell 500 WXYZ at 36, the firm could cross 500 at 36, charging each side a commission (agency).

Under NYSE rules, a not-held order is good for _____________________

the day only