Series 24: Additional Notes About Markups

Taken from our Series 24 Online Guide

Additional Notes About Markups

Note that the markups/markdowns on riskless principal transactions are calculated using the member’s cost.

Proceeds transactions occur when a customer gives an order to sell a security and uses the proceeds to buy another security. This type of transaction is considered a single transaction for purposes of calculating a markup. The markup is calculated by adding the compensation for each transaction and dividing by the inside ask/offering price for the security that was purchased times the number of shares of the security purchased.

SAMPLE QUESTION 1

ABCD Security

Bid

Ask

Size

Market Maker 1

10.25

10.80

10–20

Market Maker 2

10.15

10.85

20–20

Market Maker 3

10.10

10.75

50–10

Market Maker 4

10.05

10.90

10–10

ABCD is an actively traded security with an inside market of 10.25 – 10.75. Market Maker 3 receives a market order to buy 100 shares of ABCD. The market order is filled at the inside market and the customer is charged a net price of 11.25. What is the markup?

Answer: 4.65%. On a buy order in an active competitive market, the markup is calculated as a percentage of the best ask price. The markup amount is calculated by taking $11.25 – $10.75 = $0.50. The markup percentage is $0.50 / $10.75 = 4.65%.

SAMPLE QUESTION 2

Use table in Sample Question 1 for reference.

ABCD is an actively traded security with an inside market of 10.25 

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