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1. Series 57 Nasdaq
FINRA Series 57 Exam - The Nasdaq Stock Market
| Question | Answer |
|---|---|
| A firm that commits its own capital to provide | A market maker |
| liquidity in a security is caled Which level of Nasdaq alows a market maker to enter | Level 3 |
| and update quotations? The quotes an investor with Nasdaq Level 1 aces | The National Best Bid Ofer (NBO), the highest bid, and the lowest ofer. |
| can se for a given stock are A market maker quotes a bid for 6 round lots and an | 40. Each round lots represents 10 shares. |
| ask for 4 round lots of the same stock. How many shares is it wiling to sel for its own acount or the acount of a client? Definition of the National Best Bid/Ofer (NBO) | The highest bid and lowest ofer (ask) for a particular stock. |
| What does a market maker's ask price indicate? | The price the Market Maker is wiling to pay to sel at least 10 shares of a security, either for its own acount |
| A market maker requests registration to make a | or a client. The same day as registration. |
| market in XYZ stock. What is the earliest that the market maker can begin quoting the stock? A market maker that requests registration to make | The same day as registration. |
| markets for a particular stock will go efective on A market maker requests registration to make a | By the open of trading five busines days later. |
| market in ABC stock. When is the latest that the market maker must begin quoting the stock by? If a market maker requests registration to make a | The exchange will terminate the market maker's registration for that particular stock. |
| market in DEF stock and fails to begin quoting the stock by the required deadline, what is the result? If a market maker wants to provide quotes on four | Four, one per stock. Market maker registration is on a stock-by-stock basis. |
| Nasdaq stocks, how many registrations must the firm aply for? Definition of backing away | A violation where a market maker fails to trade at their quoted prices. |
| Nasdaq market makers' minimum quotation | 10 shares (one round lot) |
| Nasdaq market makers must be prepared to buy or sel | Firm or bona fide quotes. |
| at quoted prices. These quotes are caled During what trading hours must Nasdaq market | Normal market hours, which are 9:30 am to 4 pm. |
| maker quote be firm? Nasdaq system hours are | 4:0 am to 8:0 pm |
| Nasdaq market hours are | 9:30am to 4:0 pm |
| market orders in Nasdaq's extended hours? The maximum display size on the Nasdaq system is | spreads than in normal hours. 9,9 shares. |
| The time of day when Nasdaq normal market hours | 4:0 pm. Normal hours are 9:30 am to 4:0 pm. Extended hours are 4:0 pm to 8:0 pm. |
| end, and extended hours begin is. What type of compensation may Nasdaq market | None. Market makers may not receive anything of value in exchange for initiating quotes. |
| makers be paid for agreing to initiate quotes in a security? What must a Nasdaq market maker do if the firm is | Refuse the payment. If payment is refused, the Market Maker stil can initiate quotes. |
| through a Nasdaq market maker. The number of shares that will be displayed in the quote is Nasdaq market makers normaly use Nasdaq's Level 3 | View and update quotes. |
| service, which alows them to The main diference betwen Nasdaq's Level 2 | The ability to update quotes on Level 3. On Level 2, investors can view al quotes but not update them. |
| service and its Level 3 service is The Nasdaq system executes orders based on the what | Price, time, and then size. |
| system of priority? Two orders are entered to buy the same stock at $8.45 | Market Maker A's order, because it has time priority. |
| per share. Market Maker A enters its order at 10:15 am for 30 shares. Market Maker B enters its order at 1:45 am for 50 shares. Market Maker C enters its order at non for 40 shares. Which order has execution priority? Definition of a crosed market | A market where the bid exceds the ofer. |
| If the NBO) is 34.08-34.21, what is the lowest bid | 34.2. |
| that could cros the market? The NBO for a stock is 13.25-13.32. The ask prices | Lock: 13.25. Cros: 13.24. |
| that would lock the market and cros the market are The situation in which a market maker is alowed to | When an exchange has a system malfunction (self-help). |
| cros the market. The order should Under the designated percentage rule, new quotes | 8.0%. |
| must typicaly be entered within what percentage of the inside market? The defifined limit rule alows existing quotes to | 9.5%. |
| typicaly drift what percentage away from the inside market? The defifined limit for market maker quotes is designed | Existing quotes can drift to no more than 9.5% away from the inside market |
| Nasdaq's designated percentage and defifined limit rules? What type of order automates quotes, so that they are | A Market Maker Peg Order (MPEG). |
| automaticaly adjusted to not drift outside the defifined limit? If the inside market for a stock is 10.0-10.10, the | 9.05 = 10.0 X 90.5%. Multiply the best bid (10.0) by (1 - the defined limit of 9.5%). |
| lowest permited resting bid is If the inside market for a stock is 9.89/10.0, the | 10.95 = 10.0 X 109.5%. Multiply the best ofer (10.0) by (1 + the defined limit of 9.5%). |
| highest permited resting ofer is If the inside market for a stock is 20.0/20.24, the | $18.40 = $20.0 X 92%. Multiply the best bid (20.0) by (1 - the designated percentage of 8.0%). |
| lowest permited new bid is Definition of a qualifified block positioner | A market maker firm that executes block transactions. |
| principal transactions are A Market Maker executes a riskles principal | Sel shares of ABC Co. at $45. |
| transactions are permited include A Market Maker initiates a riskles principal | institutional custodial acounts. Buy 50 shares of XYZ for at the same price ($45). |
| transaction by seling 50 shares of XYZ stock @ $45 per share for a client. What else must the market maker do to complete the transaction? A market maker executes a trade in which both legs | Riskles principal transaction. |
| (buy and sel) are simultaneously executed at diferent prices, with the fe included in the trade price. This is caled a Any fes charged by a market maker in a net | Included in the purchase price, and not be more than 5% on each side of the trade (buy and sel). |
| in advance unles there is a(n) Under the Nasdaq excused withdrawal rules, a smal | Thre or fewer Nasdaq terminals. |
| firm is a market maker with A market maker that receives an excused withdrawal | 5 days. |
| from Nasdaq for religious reasons or vacations must re-enter quotes within An involuntary termination of a clearing agrement | 60 days. |
| would alow a Nasdaq market maker an excused withdrawal of up to When a market maker removes its quotes from | 20 busines days. |
| Nasdaq without prior notice, is the market maker canot re-enter quotes in that isue for When a market maker obtains an excused withdrawal | Indefinite, usualy until the investment banking transaction is completed. |
| from making quotes on Nasdaq due to a conflflict with investment banking activities, the withdrawal period is The consequence for an unexcused withdrawal is that | canot re-enter quotes in that isue for 20 busines days. |
| the market maker A market maker acidentaly withdraws its two-sided | Contact Nasdaq MarketWatch within one hour of quote termination |
| Nasdaq quotes on ABC Co. stock. What can it do to avoid an unexcused withdrawal? Market makers post specifific unique identififiers with | Market Participant IDs (MPIDs). |
| their quotes caled For a one-sided firm quote, the type of MPID that | A suplemental MPID. In contrast, primary MPIDs must have a firm two-sided quote. |
| may be used to identify the Market Maker is Can a market maker use one MPID to execute a trade | No, market makers must use same MPID for reporting and execution of the same trade. |
| market order should Activities performed by the alternative display facility | Showing quotes and acepting or rejecting trade reports. The ADF does not route or execute orders. |
| (ADF) include Alternative display facility (ADF) participants | Their own private conectivity systems. |
| execute trades using For a market maker, failing to honor bona fifide quotes | Backing away. |
| is a violation caled In regard to a market maker's responsibilities, a bona | Is real, actual, firm, the market maker must be wiling and able to execute against the quote. |
| fifide quote is one that Market maker quotes must always be displayed in this | Round lots |
| size What is the minimum quote size for a market maker? | 1 round lot or 10 shares. A firm two-sided quote is at least 10 shares to buy and 10 shares to sel. |
| A customer enters a market order to buy 10 shares of | $23.84 per share. Note that a market order to buy is executed at the market maker's ask price. |
| 45.27, a firm enters a limit order to buy at 45.29. How is it treated? A market maker can enter a quote that would lock the | A system malfunction. |
| participants who use the ADF must execute using How often, and during what time period, does Nasdaq | Every second betwen 9:28 and 9:30 a.m. ET. |
| diseminate opening cros order imbalance information? When does the Nasdaq closing proces begin? | At 3:5 p.m. ET |
| Nasdaq's closing cros proces and price? The last time of day to enter a limit-on-close (LOC) | 3:58 p.m. ET. |
| (MOC) order is When a market maker wants to buy shares at the | Limit-on-open (LO). |
| opening price, at a given price (or beter), he/she should enter what type of order? A market maker enters a limit-on-open (LO) order | If the market opens at $36.19 or above, the order will be filed. |
| Can a market maker acept payment to initiate quotes | No, a market maker must refuse any ofer of payment, but could stil quote the security. |
| Exchanges such as the NYSE and Nasdaq are refered to as Definition of a subject quote | A quote that is priced but not firm. |
| The two exceptions to the firm quote rule are | 1. Changing a quote and 2. Executing a quote. |
| entered at $10.61, at what price is the trade executed? A market maker makes a market in ABC Co. stock, | Re-file Form 21 with FINRA. |
| market maker must review which of the company's information? A Market Maker quotes an OTC stock at 0.96 bid and | isuer. Bid: 1,0 shares because the quote is betwen 0.51 and 0.9. Ofer: 10 shares because the quote is |
| If a market maker wishes to initiate priced quotes on | File Form 21 with FINRA |
| through rules? Definition of a flflickering quote | A quote that is changed within 1 second of someone seing the quote. |
| release of material news, when can new orders be entered into the Nasdaq stock market? If there is a foreign halt of an underlying (foreign) | Yes, FINRA will halt trading of the ADR. |
| have to notify the exchange? The actions that Nasdaq can take to remedy a clearly | Voiding or amending the trade or declining to take action. Nasdaq canot asign the trade to a counterparty. |
| eroneous trade consist of Can Nasdaq asign one leg of eroneous trade to | No, Nasdaq canot asign the trade to another counterparty. |
| another counterparty? An apeal of a Nasdaq notice of a clearly eroneous | 30 minutes after the decision is reported to the afected parties. |
| pricing restrictions aply, the two main requirements for executing the trade are Nasdaq's order routing and execution system is caled | must ocur on an uptick – a price above the National Best Bid (NB). Nasdaq Market Execution System. |
| Orders can be entered into the Nasdaq Market | 4:0 AM |
| Execution System begining at what time? When a quote is entered into Nasdaq Market | Non-atributable quote. |
| Execution System that does not show a market maker's MPID, it is caled a Definition of a non-atributable quote | An anonymous quote that does not show a market maker's MPID. |
| A colared market order to buy 10 shares is entered | entry. Above $10.50, the greater of 5% of the inside market price of $0.25 per share. The colared order will be |
| when the National Best Ofer (NBO) is $10 per share. The colar will prevent execution of this market order at what price? During what times are traditional market orders | canceled rather than executed at the excesively higher price. Traditional (uncolared) market orders are permited during croses. |
| $12.72 when the national best ofer (NBO) is $12.72. However, by the time the order reaches the exchange, the NBO has increased to $12.7. What should the routing broker-dealer do? Sel stop orders are used to protect | A long stock position. |
| trade? The purpose of a reserve feature on the limit order | Alow a market maker to have aditional interest behind displayed size. |
| market maker must display quotes of at least A market maker is showing a bid of $10 in a size of | 4,20 shares. The bid (firm quote) is for 28 round lot, 2,80 shares. The reserve is for 14 round lots, 1,40 |
| 28 round lots and a reserve in size of 14 round lots. How many total shares (bid and reserve) is the market maker interested in buying at that price? A market maker displays a bid to buy 21 round lots at | shares. In total, 4,20 shares. First, the 2,10 shares displayed on the limit bok will execute. Then, the 1,0 shares held in reserve wil |
| A Market Maker (M) wants to sel a stock using a | The National Best Ofer (NBO), as a primary peg tracks the same side of the market. |
| primary peged order. To what price would the order be peged? A Market Maker uses a peged order to peg its limit | A market peg, which tracks the other side of the market. |
| order to sel 50 shares of a stock to the National Best Bid (NB). What type of peged order is the market maker using? Are midpoint peg orders ever displayed? | No, because they sit at the midpoint of the NBO. |
| required to update their quotes when they receive a block size order from a customer? A market maker receives an order from a customer | No, because a market maker must only update for size if the quote is at the inside market. |
| that ads size to the market maker's quote. If the market maker's quote is not at the inside market, is an update required under the limit order display rule? Under the limit order display rule, a market maker | 30 seconds of order receipt. |
| must update its quote to reflflect a customer order within A market maker is required to update its quote on the | Orders that improve the market maker's quote or ad size to an market maker's quote at the inside market. |
| alternative to the prevailing market price, for purposes of the 5% policy? What percentage of a security's prevailing market | 5%. |
| afecting the opening / closing price. This is a violation refered to as When algorithmic traders enter and quickly withdraw | Quote stufing. |
| displayed? A market maker is not required to display a customer | No more than 10% of the market maker's displayed quote size. |
| its trading volume, provided that it does not advertise more volume than For which type of equities are trades reported on the | Nasdaq Level 1, 2 & 3. These trades are executed on the Nasdaq Execution System. |
| must be reported to which venue? A Market Maker enters a trade on an Alternative | 10 seconds. |
| Display Facility (ADF). Once this trade is executed, it must be reported within what length of time? Are od lot and mixed lot trades required to be | Yes. |
| with the As a general rule, the executing party, normaly the | When the buyer is a market maker and the seler is not a market maker. In this case, the buyer has reporting |
| For Nasdaq-listed securities, when does the coling- | Begins: When the registration statement is filed with the SEC. Ends: When the SEC clears the ofering for |
| required to maintain an ongoing bid price of at least Under Nasdaq listing requirements, the minimum | $4.0 |
| initial bid price is Is there a minimum required seasoning period to list | There is no required seasoning period on Nasdaq. |
| which will trade on Nasdaq begining on Tuesday morning. Can the investor sel these shares on Monday? When can third-market trading begin (on an exchange | trading. Only after the first trade is made on the primary exchange (Nasdaq). |
| maker during the restricted period purchase during a restricted period under the pasive market making (PSM) exception? The average daily trading volume in a covered stock | 15,0 shares. The pasive market maker daily net purchase limit is the greater of 30% of ADTV or 20 |
| may be made by a pasive market maker is A company has an average daily trading volume | 1 busines day before pricing. This is a medium-sized company, defined as having: ADTV betwen $10,0 |
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