S55 Exam 1

1.

1 point

Which TWO of the following are CORRECT concerning a registered market maker in the Nasdaq Market Center Execution System? It:

I. Is required to accept automatic electronic executions
II. Is required to use Aces
III. Must be able to be contacted on the phone during normal business hours
IV. Is required to maintain a relationship with a registered clearing agency

I and III

I and IV

II and III

II and IV

2.

1 point

All of the following are obligations of Nasdaq market makers when reporting transactions of Nasdaq-listed or other exchange-listed securities to the TRF EXCEPT:

Entering trade details for all clearable transactions using the market maker function

Reporting trades in Nasdaq-listed, and CQS securities within 90 seconds of execution during System hours

Correcting, declining, or canceling trades through the TRF as necessary

Accepting automatic exections of customer orders when at the inside market on Nasdaq

3.

1 point

The normal settlement date of three business days after the trade for over-the-counter transactions:

May not be altered under any circumstances

May be altered if expressly agreed to by the parties at the time of the trade

Applies only if disclosed to the client at the time the account is opened

Does not apply to broker-to-broker transactions

4.

1 point

Which of the following trades would be subject to the NASD Markup Policy?

I. A third-market trade of IBM
II. A mutual fund sale
III. An OTC trade involving an unlisted stock in an agency capacity
IV. An OTC principal transaction with a customer

IV only

III and IV only

I, III and IV only

I, II, III and IV

5.

1 point

Which of the following best describes CQS securities transactions?

Transactions in Nasdaq-listed stocks after normal market hours

Transactions in Nasdaq-listed stocks on exchanges under unlisted trading privileges

Other exchange-listed stock transactions in the over-the-counter market

Other exchange-listed stock transactions on the OTC Bulletin Board

6.

1 point

Broker-Dealer B previously acted only as an order-entry firm. It now has acquired more capital and would like to begin making markets in several Nasdaq stocks. What is the first step it must take?

Apply to the NASD for approval to act as a market maker

Enter a registration request through a Nasdaq terminal for each security in which it wants to make a market

Enter a registration request through a Nasdaq terminal for each security in which it wants to make a market, but no more than one request per day

Enter quotations into Nasdaq for the stocks in which it wants to make a market, followed by written notification to Nasdaq Market Operations

7.

1 point

A group of market makers agree to trade repeatedly with each other in a Nasdaq Capital Market stock to attract investor attention to the apparent heavy trading volume in the stock. This activity is characterized as:

Painting the Tape, a violation of antimanipulation provisions of the Exchange Act

Stabilization, a legal activity if performed in accordance with Regulation M

Churning, a violation of the NASD Conduct Rules

Cross trading, one of the collusive activities investigated by the Department of Justice

8.

1 point

Which of the following best describes Aces Pas-Thru?

It allows broker-dealers to report transactions to Nasdaq

It permits NASD members to automatically execute small customer orders

It permits complaints about backing away to be processed on a real-time basis

It allows order-entry firms to arrange to send order flow to a market maker's internal trading system.

9.

1 point

All of the following must be reported for a transaction in a Nasdaq Global Market security EXCEPT:

The time of execution

The price, exclusive of markup, markdown or commission

Whether the trade is a buy, sell or cross

Whether the reporting firm is a registered Nasdaq market maker in that security

10.

1 point

Under Rule 102 of Regulation M, issuers and selling shareholders:

May not purchase or bid for the subject security, or induce other to do so

May not disclose their holdings of the subject security until the completion of the distribution

May purchase the subject security if it is actively traded

Must stand ready to repurchase the securities being distributed if the offering begins to sell at an immediate discount in the secondary market

11.

1 point

For each penny stock transaction, a broker-dealer must provide the customer all of the following EXCEPT:

A risk disclosure document on penny stocks

The current quotation for the security

The compensation the broker-dealer will receive for the transaction

The compensation the registered representative will receive for the transaction

12.

1 point

Which of the following statements is TRUE regarding quotations entered in Nasdaq?

Quotations may only be entered if they help maintain a fair and orderly market

Nasdaq rules limit the number of times per hour that a market maker may change its quotations

Quotations entered by a market maker must be reasonably related to the prevailing market

Market makers may not update their quotations until they execute a transaction

13.

1 point

A transaction in the Nasdaq Market Center Execution System is automatically sent to a clearing corporation for clearance and settlement according to the terms at which it was executed. This type of trade is referred to as:

Prearranged

DVP

Locked-In

Precleared

14.

1 point

Which of the following terms represents the process used to establish an orderly market opening?

The Opening Switch

The Opening Cross

The Opening Trade

The Opening Match

15.

1 point

Under what circumstances is a market maker prohibited from making a passive market in a Nasdaq stock under Rule 103 of Regulation M?

If no independent market maker is quoting the stock on Nasdaq

If the offering is not an IPO

If the broker-dealer was not one of the three most active market makers in the stock in the four calendar weeks just prior to the offering

If all independent bids are raised above the bid of the passive market maker

16.

1 point

NASD members are required to periodically report to the NASD the total short positions in Nasdaq stock sin which of the following types of accounts:

I. Retail customer accounts
II. Institutional customer accounts
III. Proprietary accounts

I, II and III

II only

I only

I and II only

17.

1 point

The inside market for a Nasdaq stock is 21.15 - 21.35, 10 x 10. Market Maker A is quoting the stock at 21.05 - 21.35, 15 x 10. The market maker then accepts a customer order to buy 300 shares at 21.10. What will Market Maker A's quote be if it handles the customer's order in accordance with SEC rules?

21.05 - 21.35, 15 x 10

21.10 - 21.35, 10 x 10

21.10 - 21.35, 3 x 10

21.15 - 21.35, 3 x 10

18.

1 point

An institutional customer gives an order to a market maker to sell 5,000 shares of a Nasdaq stock at 25. The customer requests that the market maker not display the order. Which of the following statements is TRUE?

The market maker may grant the customer's request, and should document the request on the ticket or otherwise.

The market maker may grant the request only if the customer increases the order to at least 8,000 shares ($200,000 worth of stock)

The market maker may grant the request only if the customer's order would NOT change the inside market

A customer may not waive the right to have a limit order displayed in the market maker's quote

19.

1 point

A broker-dealer may use borrowed securities to make delivery for settlement purposes on a long sale transaction if:

The seller fails to deliver the security

The seller doesn't own the security

The broker-dealer is having operational difficulties

The broker-dealer is net-long the security

20.

1 point

All of the following are TRUE regarding reporting transactions under Nasdaq rules EXCEPT:

In a transaction between two registered market makers, only the buyer reports

In a transaction between a market maker and a member firm that is not a market maker, only the market maker reports

In a transaction between two members, neither of whom are market makers, only the seller reports

In a transaction between a member firm and a customer, only the member firm reports

21.

1 point

Transactions in Nasdaq stocks executed between 4:00 pm and 8:00 pm ET:

Must be reported within 90 seconds

Must be reported within 90 seconds and designated ".T"

Must be reported between 8:00 am and 8:00 pm on "T + 1" as an "as/of" trade, along with the time of execution

Need not be reported

22.

1 point

Transactions in domestic non-Nasdaq OTC equity securities, executed between midnight and 8:00 AM ET, are:

Not reported

Reported only if the issuer is quoted on the OTCH Bulletin Board

Reported within 90 seconds of execution trade, along with the time of execution

Reported between 8 am and 9:30 am ET

23.

1 point

Under SEC rules, when is a purchase of securities by a customer considered to be completed?

I. When the customer makes payment of any part of the purchase price to the dealer
II. If payment is made by a bookkeeping entry, the purchase is completed when an entry is made for any part of the purchase price
III. If the customer pays prior to the time that payment is due, the purchase is completed when the broker-dealer delivers the securities into the customer's account

I only

I and II only

II and III only

I, II and III

24.

1 point

Quicksand Inc. is a non-Nasdaq stock that is quoted on the OTC Bulletin Board. Which of the following statements, if made by a registered representative soliciting a transaction in Quicksand, is most likely to be considered misleading?

"While there are quotes for Quicksand on the OTCBB today, market makers could withdraw them at any time."

"The market for many of these types of stocks is thin and volatile."

"Since it is quoted on the OTCBB, Quicksand is part of the Nasdaq market."

"Some of the quotes for Quicksand on the OTCBB represent unsolicited customer interest."

25.

1 point

All of the following are considered "covered securities" under the SEC Quote Rule EXCEPT:

Listed securities traded off the exchange

Nasdaq Capital Market securities

Nasdaq Global Market securities

Securities quoted on the OTC Bulletin Board

26.

1 point

Which of the following practices would violate the provisions of the Department of Justice stipulation and order resulting from its investigation of Nasdaq market makers?

I. Entering a quote that narrows the current NBBO significantly
II. Moving an offer down at the request of another market maker
III. Providing information to another member firm's trader about an institutional customer's strategies
IV. Revealing to another member firm's trader a large net-long position

I and III only

II and IV only

II, III and IV only

I, II, III and IV

27.

1 point

Rule 104 of Regulation M defines stabilizing as:

Any purchase by or bid for a security by an underwriter or underwriting syndicate, prior to the effective date of the registration statement for the security being offered

The placing of any bid or the effecting of any purchase for the purpose of pegging, fixing or otherwise maintaining the price of a security

The setting of an offering price for a distribution at any price under the current market value of the security, if the security is currently trading in the secondary market

Any transaction by a participant in a security distribution that is nonmanipulative

28.

1 point

An NASD member that wishes to engage in stabilizing activity with regard to a security being distributed by a syndicate, must provide prior notification to:

Nasdaq Market Operations

NASDR Corporate Financing Department

The SEC

The market on which the stabilizing transactions will be effected

29.

1 point

Which TWO of the following statements are TRUE of orders entered into the Nasdaq Market Center Execution System?

I. MDAY, MIOC and MGTC orders entered prior 9:28 am, are considered Early Market Hours Orders, and will be eligible to participate in the opening cross.
II. OIO orders may only be entered from 7:00 am to 9:28 am in order to participate in the opening cross
III. MOO and LOO orders may be entered from 7:00 am to 9:28 am and be eligible for participation in the opening cross
IV. SDAY, SHEX, SGTC and GTMC orders entered prior to 9:28 am are not eligible for participation in the opening cross.

II and III

II and IV

I and IV

I and III

30.

1 point

Nasdaq has halted trading in the stock of XYXY pending the release of material information. Information would be deemed to be properly released under which of the following circumstances?

I. A corporate executive discusses the information with several broker-dealers.
II. A corporate executive discuses the information at a meeting of financial analysts.
III. A corporation sends telegrams to all of its shareholders discussing the information.
IV. A corporation releases the information to the financial news media, which disseminates the information to the public.

IV only

II and III only

III and IV only

I, II, III and IV

31.

1 point

The restrictions against insider trading only apply to persons who:

I. Are officers, directors, or employees of an issuer of publicly traded equity securities
II. Work for a broker-dealer or investment banking firm
III. Are part of the public media, such as a newspaper reporter or television journalist

I only

II only

I, II and III

The rules against insider trading apply to all persons, not just those listed above.

32.

1 point

All of the following are TRUE regarding the restircted period under Rule 101 of Regulation M, EXCEPT:

It begins the later of five business days prior to pricing or whenever the broker-dealer becomes a participant in the distribution

For securities that are actively traded, it begins the later of one business day prior to pricing or whenever the broker-dealer becomes a participant in the distribution

It ends when the broker-dealer's participation is over

For actively traded securities; it ends on the effective date

33.

1 point

Which of the following statements is/are CORRECT regarding settlement dates on when, as and if issued securities?

I. Delivery is normally required on the date determined by the NASD Operations Committee
II. If no delivery date is specified by the Operations Committee, delivery may be made by the seller on one day's written notice to the buyer
III. On securities being issued through a syndicate or selling group, settlement is on the date the syndicate or selling group contracts are settled

I only

III only

I and II only

I, II and III

34.

1 point

A market maker publishing a firm quote is obligated to:

Buy or sell up to the size quoted at its stated bid or offer only if the quote appears in an electronic quotation medium

Buy or sell up to the size quoted at its stated bid or offer

Buy or sell 100 shares at its stated bid or offer only if the quote appears in an electronic quotation medium

Buy or sell 100 shares at its stated bid or offer

35.

1 point

A customer wishes to sell 1,000 shares of a Nasdaq stock that is currently showing a down bid. The customer assures the representative that she owns the stock and will deliver by the settlement date. For purposes of making the ticket either "long" or "short," this customer would be considered the owner of the stock in all of the following cases except:

The customer owns bonds which can be converted into the underlying stock with no further payments of money required by the customer

The customer owns call options on the stock and has exercised them

The customer sold put options on the stock which have been exercised against her, but she has not yet received the stock

The customer owns warrants to buy the underlying stock and has exercised them

36.

1 point

Form T is used to:

File backing away complaints against Nasdaq market makers

Request passive market-maker status for syndicate members who are Nasdaq market makers

Report short interest in Nasdaq securities on a monthly basis

Report transactions on a weekly basis that were not reported normally through the TRF or ORF

37.

1 point

A client, who is the assistant to the CEO of a major Nasdaq company, asks his registered representative for advice. The client is worried that he may lose his job soon because his comapny is in much worse financial shape than is generally known. Only the company's board and the client's boss know the true extent of the problems. Which of the following is TRUE regarding this sensitve information?

The representative has a fiduciary duty to disclose this information to any of her clients who might own the stock.

The fact that the representative knows this information is a violation of the Securities Exchange Act of 1934.

The representative would not be in violation as long as she does not trade based on this information, but she should disclose this information to her Compliance Department

The representative would not be in violation as long as she does not trade based on this information, but she should disclose this information to her Tradind Department.

38.

1 point

The NASD has the authority to halt trading in all of the following securities EXCEPT:

Nasdaq Global Market securities

Nasdaq Capital Market securities

Non-Nasdaq OTC equity securities

Exchange-listed securities in the OTC market

39.

1 point

A step-out is defined as:

A method of cancelling part of a transaction

A method of transferring a positoin from an institutional client to a clearing firm

A method used by a broker-dealer to transfer a position to one or more other broker-dealers

A method used by a broker-dealer to enter transactions on behalf of another broker-dealer

40.

1 point

A market maker is holding an order to buy a large block of a Nasdaq stock for an institutional client. While holding the order, the market maker is NOT permitted to:

Execute an order for its own account in an option on the security

Accept an execution against its own account through the Nasdaq Market

Execute any other customer orders for the security prior to filling the block order

Execute orders for its own account in the security, even if the market maker has agreed to terms and conditions with the customer that include the disclosure that it might trade ahead of the order

41.

1 point

A market maker is holding two customer limit orders to sell 500 shares at 20. The market maker receives a market order to buy 400 shares, which it executes against its own account. Which of the following statemtns is TRUE?

Both orders must be executed in full at 20.

Both orders must receive a partial execution for 400 shares at 20.

Each order must receive a partial execution for 200 shares at 20.

One order can receive a partial execution for 400 shares at 20 and the other order can remain unfilled; no allocation is necessary.

42.

1 point

Under the TRF reporting rules, an order-entry firm:

Must report its side of the trade within 90 seconds

Does not have any obligations if it reasonably believes that the market maker will report the trade accurately

Must either enter its version of the trade or resond to the market maker's trade details within 90 seconds

Must either enter its version of the trade or respond to the market maker's trade details within 20 minutes

43.

1 point

Which of the following transactions in listed securities does (do) NOT have to be reported to the TRF?

I. Transactions executed on an exchange
II. Transactions executed OTC after the close of the exchange on which the stock is listed
III. Transactions reported automatically by the Nasdaq Market Center execution system
IV. Securiteis purchased off of the floor of an exchange in connection with a tender offer

II only

I and III only

I, III and IV

II, III and IV

44.

1 point

The NASD customer Limit Order Protection Interpretation (the Mannning Rule) requires that:

A market maker holding a customer limit order for a Nasdaq stock must execute that order immediately upon executing an order for its own account that would have filled the customer order

A market maker must execute customer limit orders in a priority determined by the time the order was received by the trading desk

A market maker may not execute (i.e., it must "protect") customer orders against incoming market orders from other customers

Customer limit orders accepted by a market maker must be sent to an ECN if doing so would result in price improvement to the order

45.

1 point

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

I. Imbalance only orders
II. Short sale orders
III. Market-on-close
IV. Limit-on-close orders

I and II only

II and IV only

I, III and IV only

I, II, III and IV

46.

1 point

The inside market for HIJK, an actively traded Nasdaq Global Market stock, is 20.35 - 20.50. Market Maker R's quote for the stock is 20.30 - 20.60. If R sells 100 shares of the stock to a retail customer for 21, what is the percentage markup?

1.82%

1.88%

2.38%

2.44%

47.

1 point

ANasdaq marke maker is quoting a stock at 20 - 20.10 while holding an undisplayed customer buy limit order at 20.05. If the market maker purchases stock at 20 for its own account:

It is obligated to execute the customer's order at 20.05

It is obligated to execute the customer's order at 20

It is obligated to execute the customer's order if additional stock becomes available at 20.05 or less

It is not obligated to fill the customer's order because it is undisplayed

48.

1 point

A trader for Broker-Dealer Y has been found by the SEC to have traded on inside information for peronal profit. Which of the following statements is TRUE regarding the broker-dealer's liability in this situation?

The broker-dealer cannot be held account able for insider trading done by its registered representatives if the firm was unaware of the rep's actions

The broker-dealer is not liable if insider trading by its registered representatives occurs, unless the firm itself earned profits fromt the illegal actions

The controlling person at the broker-dealer could be liable for criminal penalties of up to $5 million and or up to 20 years in prison. The controlling person may also face civil penalties of up to three times the amount gained or loss voided, even if he did not profit from the illegal actions

The president or CEO of the broker-dealer could be liable for imprisonment for up to 20 years because of the actions of its representatives, even if the firm was unaware of the activity

49.

1 point

With the inside market at 25.10 - 25.35, 10 x 10, a market maker is holding an undisplayed customer limit order to buy 500 shares at 25.20. The market maker then receives a market order to sell 500 shares from a customer. Which of the following statements is true?

The market maker must either fill the market order at 25.20 from its own account and then fill the customer limit order at the same price, or cross the market and limit orders at 25.20

The market maker may fill the market order from its own account at 25.10 as long as it then immediately fills the limit order from its own account at 25.20

The market maker may fill the market order from its own account at 25.10 without filling the limit order, since the market order is being filled for a customer

The market maker must either fill the market order at 25.10 from its own account and then fill the customer limit order at the same price, or cross the market and limit orders at 25.10

50.

1 point

The SEC has imposed a trading suspension on the common stock of ABCD, a stock quoted only in the Pink Sheets by several firms, including Market maker Q. All of the following are TRUE EXCEPT:

Q may not execute transactions in ABCD as long as the suspension in effect

Under SEC Rule 15c2-11, Q must obtain for its records a copy of the suspension order or the public release announcing the suspension

Q should review the information in its possession as required by Rule 15c2-11 to determine whether it is accurate

Q must provide written disclosure about the suspension to each customer who currently has a position in the stock