Answers
- 1. Answer: D. Rationale: A market maker is obligated to provide only 100 shares at the offering price.
- 2. Answer: C. Rationale: A locking quotation is a fairly rare event where the ask price of one market maker of a security is the same as the bid price of another market maker. Usually the ask price of a security is higher than the bid price and this difference makes up the market maker’s spread. FINRA prohibits the display of locking quotations for a National Market System (NMS) stock between the hours of 8:00 AM and 6:30 PM Eastern Time.
- 3. Answer: C. Rationale: Payment for order flow is when a market maker or exchange pays brokers to route their trades its way. This is allowed, but requires disclosure to the broker’s customers on the trade confirmation. Note that the broker is still held to best execution standards. The access fee for quotations is capped at $0.003 per share for quotations priced at $1.00 or more.
- 4. Answer: A. Rationale: Short selling is the sale of a security the seller does not own. With a naked short sale, the investor has neither bought, borrowed, nor arranged to have borrowed the security prior to selling it. Naked short selling is allowed under Regulation SHO, but only if the seller can reasonably believe the security can be borrowed and delivered by the date the security is due.
- 5. Answer: B. Rationale: The Order Protection Rule of Regulation NMS only applies to NMS stocks, which are “non-option securities for which transaction reports are collected, processed, and made available.” Stocks that fit this description are exchange-listed stocks on Nasdaq or the NYSE. St