Chapter 2 Practice Question Answers
1. Answer: A. Block size orders for OTC Equity Securities are for at least 10,000 shares AND worth at least $100,000. Block size orders for NMS stocks are for at least 10,000 shares OR worth at least $200,000.
2. Answer: A. NYSE Rule 76 specifically requires that a floor broker, before proceeding with a crossing order, must make a public bid and offer on behalf of both sides of the cross, offering the shares at a price one minimum variation higher than the bid price. Hence, in this case, the floor broker must announce to the trading crowd an offer of 2,000 shares for 50.01. If it is not accepted, the floor broker may proceed with the cross.
3. Answer: B. Suppose an investor wants to protect the profit that she has made off the ABC Company. The ABC Company is currently trading at $50, which is at a profit for the investor. The investor would like to hold onto the stock unless it starts to decline so the profit will not be lost. It places a sell stop order at $45, which means that if the ABC Company falls and begins to trade at $45 or lower, the investor’s stop order will automatically turn into a market order for a quick sale.
4. Answer: B. A “designated market maker,“ formerly known as a “specialist,” is a New York Stock Exchange member that makes a market in a specific stock and fulfills the purpose of maintaining order for the trading of that particular stock.
5. Answer: A. FINRA members must report most third market transactions to the OTC Reporting Facility within 10 seconds of the time of execution if the transaction occurs during normal market hours. Transactions in Restricted Equity Securities are not subject to the 10-second reporting period. Submissions of non-tape reports, such as those submitted for the “riskless” leg of a riskless principal transaction, are also not subject to the 10-second reporting requirement.
6. Answer: D. If a broker-dealer that is a participant of a registere