Answers and Explanations
Answer B is correct. The AMEX is most noted for its listing of oil and gas companies, foreign stocks, and options. A dually listed NYSE security cannot be listed on the NYSE and AMEX, but rather would be on the NYSE and a regional exchange.
Answer C is correct. Dually listed securities can only be listed on a major exchange such as the NYSE and one of the numerous regional exchanges across the country. A dual listing cannot occur on two major exchanges such as the NYSE and AMEX or the NYSE and the OTC market.
Answer B is correct. There are only two major exchanges in the United States, the NYSE and AMEX. Both of these exchanges are located in New York and are considered auction markets.
Answer C is correct. The National Association of Security Dealers (NASD) was created by the SEC specifically to oversee the OTC market.
Answer B is correct. The OTC is a negotiated market that uses the market maker system with bid and ask prices quoted. The NYSE and AMEX are both known as auction markets that use the specialist system in trading all securities.
Answer D is correct. Traders around the world who want to purchase NYSE-listed securities when the NYSE is closed have to go to an off-the-floor broker in the third market to get their orders filled. Around 30 million shares per day get filled in the third market.
Answer B is correct. An order coming from a foreign trader to a NYSE member firm cannot be filled due to the NYSE rules that limit their members to conducting business only during trading hours. They could not sell the stock out of their inventory, nor would they be able to go to the specialist during hours the exchange is not open, to accommodate the foreign trader.
Answer D is correct. All the statements are true regarding the Instinet Market. It was designed by institutional investors to trade between themselves and to save on commissions that brokers charge, and it is registered as an exchange with the SEC. It is the fourth market of the secondary market.
Answer C is correct. When a broker/dealer sells stock out of its own inventory, it is acting as a dealer. If it goes to another broker to get the security, it is acting as an agent or broker for the customer. An account executive is another term for a stockbroker, and a trader works on a trading desk.
Answer B is correct. OTC broker/dealers typically make a market in only a few securities. Most IPOs are brought to the market in the OTC marketplace, due to easier listing requirements. All broker/dealers must be members of the NASD and provide their customers with the security they want to buy or sell regardless of whether they are market makers.
Answer D is correct. The Maloney Act was created in 1938 as an amendment to the Act of 1934, which was scripted to regulate the Over-the-Counter marketplace.
Answer B is correct. The NASD was created to regulate the OTC market by the approval of the Securities and Exchange Commission under the Maloney Act of 1938.
Answer B is correct. OTC stocks that are considered too small to meet NASDAQ listing requirements are printed each day in the pink sheets. The blue sheets list municipal bonds, and the yellow sheets list corporate bonds.
Answer D is correct. A customer confirm includes the name and price of the security bought or sold, the commission that was charged on the transaction, and the role in which the broker acted.
Answer A is correct. The highest price that a customer is willing to pay is known as the bid in the negotiated OTC marketplace.
Answer B is correct. The lowest price at which a seller is willing to sell the security is known as the ask price. The difference between the bid and ask is the spread on the stock.
Answer B is correct. A stock in the OTC market that has a wide spread is indicative of a security that has little interest and minimal volume. Conversely, the smaller the spread, the more active the security trades in the market.
Answer A is correct. The Act of 1934 made stock manipulation illegal, required exchanges and members to register with the SEC, and set the rules on margin. Nonexempt securities are required to register with the SEC but under the Security Act of 1933 and not the Act of 1934, as this question suggests.
Answer B is correct. The Securities and Exchange Commission was officially created under government legislation that was part of the Securities Act of 1934. Many students assume that because the Act of 1933 states that all nonexempt issues must register with the SEC, the SEC was already in existence by the Act of 1933. In fact, it took several years for the new legislation of the Acts of 1933 and 1934 to be fully enforced.
Answer C is correct. Again, this is a tricky question. Margin is the amount that a customer must deposit when purchasing securities in a margin account. By definition, it is not the amount that the customer borrows, even though the amounts are the same. Regulation T covers the extension of credit to a customer from a broker, and Regulation U covers the extension of credit from a bank, through what might be considered a secured loan by the pledged securities in a margin account to secure the loan.
Answer B is correct. The short sale rule states that a short sale can only happen on a plus tick or a zero plus tick (upward price movement). The customer must borrow the security sold short, and the Regulation T requirement is set at 50%.
Answer C is correct. A short sale can only happen on a plus tick or a zero plus tick; thus, the first 33 1/4 represents an increase in the security price, where QVC stock could be shorted at. The 33 1/2 sld is not a denotation of a short sale but rather for a priced trade that is now being reported out of time sequence for QVC stock.
Answer C is correct. Government securities are considered exempt from SEC registration. All exchanges such as the NYSE and AMEX must register with the SEC, as well as individuals giving advice to clients such as stockbrokers.
Answer C is correct. The establishment of margin was given to the Federal Reserve Bank by the SEC under the Act of 1934. NYSE rules only apply to minimum maintenance in a margin account.
Answer C is correct. The 10-b-5 rule was a way for the SEC to create a catch-all definition of what constitutes insider trading and to whom the law applies. Mutual funds that are considered 12-b-1 funds can charge shareholders for advertising, but this point is not applicable to this question. The definition of an insider is an officer, director, or 10% shareholder. The 10-b-5 rule does not suggest that if an individual is convicted of insider trading, he or she receives a set prison sentence.