Chapter 2 Practice Question Answers
1. Answer: A. For NMS stocks, any order for at least 10,000 shares OR $200,000 total market value is considered to be a block trade, also called a block order. NMS stocks include all exchange-traded stocks. For OTC stocks, an order for at least 10,000 shares AND $100,000 total market value is considered a block order.
2. Answer: C. The buyer typically notifies the seller on T + 3 that a buy-in will occur. However, the soonest that the buyer can actually perform the buy-in is T + 5. To execute the buy-in, the buyer purchases the securities on the open market. If the buyer pays more for the securities as a result, the seller owes the buyer for the difference in price.
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: D. 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: B. Rule 204 specifies how lo