Deck 3: Security Markets

Question 1

The NYSE members who take orders that the public has placed with brokerage firms and see that these orders are executed are called

A) commission brokers
B) floor brokers
C) floor traders
D) market makers

Answer 1

A

Question 2

A specialist

A) is forbidden to act as a dealer for his stocks.
B) is allowed to sell short.
C) executes only market orders.
D) does not operate on the floor of the NYSE.

Answer 2

B

Question 3

Foreign based companies trade their stocks in the U.S. by using

A) ADR's.
B) SEAF's.
C) CORE's.
D) NASDAQ's.

Answer 3

ADR's.

Question 4

Choose the true statement about seats on the NYSE:

A) only brokerage firms can own
B) must be owned by a partner of a brokerage firm
C) no brokerage firm can own more than one
D) must be purchased from a current member

Question 5

The designation that indicates one is a member of the NYSE is known as a ___.

A) round trip
B) chair
C) option
D) seat

Question 6

The New York Stock Exchange (NYSE) is an example of a(n) ____ exchange which provides a central physical location where trading is done under a set of rules and regulations.

A) over-the-counter
B) regional
C) organized
D) international

Question 7

The market process of bidding among both buyers and sellers for a security that may occur when the specialist's bid-ask spread is large enough to permit sales at one or more prices within the spread is known as
A) open outcry auction

A) posted price entry
B) double auction
B) margin call

Question 8

During 1990, the dollar trading volume on the NYSE, compared to that on the American Stock Exchange, was

A) one-half of
B) one-tenth of
C) 2 times
D) 10 times

Question 9

The member of the NYSE who maintains the limit order book is the

A) floor broker.
B) specialist.
C) commission broker.
D) two dollar broker.

Question 10

At the NYSE, the person charged with maintaining a "fair and orderly market" is the

A) floor broker.
B) specialist.
C) floor trader.
D) two dollar broker.

Question 11

The computer system associated with NASDAQ that provides for automatic order execution of as many as 1,000 shares is known as

A) NASDAQ
B) SOES
C) SIPC
D) SAEF

Question 12

______ stock price tables provide price information on all stocks traded on the national, regional, NASDAQ, and the Instinet systems.

A) NYSE
B) Dow Jones
C) Composite
D) Japanese

Question 13

Regulatory laws such as the Securities Exchange Act of 1934 monitor the issuance of securities in the _______ markets.

A) call
B) options
C) futures
D) primary

Question 14

A continuous security market

A) does not use middlemen.
B) requires the buyer and seller to meet physically.
C) trades outstanding securities.
D) is responsible for the issuance of new securities.

Question 15

An organized exchange that specializes in trading the securities of companies located in a particular geographic section of the country is known as a ____ exchange.

A) national
B) international
C) interregional
D) regional

Question 16

SuperDesignated Order Turnaround (SuperDOT) is a set of special procedures established by the NYSE to handle ____ trading orders.

A) large
B) institutional
C) small
D) foreign

Question 17

The _____ market is a secondary security market where exchange-listed securities are traded over the counter.

A) third
B) fourth
C) regional
D) primary

Question 18

Of the members of the NYSE, the largest number are

A) dealer brokers.
B) floor brokers.
C) floor traders.
D) commission brokers.

Question 19

A stock that is available for trading on the NYSE is referred to as a

A) listed security.
B) pink sheet security.
C) specialist security.
D) double auction security.

Question 20

A security market in which trades may occur at any time during market business hours is known as a ___ market.

A) call
B) continuous
C) double auction
D) posted-price

Question 21

An example of the third market is the

A) OTC.
B) Chicago Board.
C) AMEX.
D) Pacific Exchange.

Question 22

The number of shares in a block trade is at least

A) 100
B) 10,000
C) 50,000
D)1000

Question 23

Block houses that are members of the NYSE

A) buy and sell from their own account.
B) trade only odd lots of shares.
C) typically achieve worse prices for their clients than the specialists can.
D) transaction prices are not recorded on the floor of the NYSE.

Question 24

May Day of 1975 has led to the formation of

A) the third market.
B) discount brokerage houses.
C) NASDAQ.
D) Intermarket Trading System.

Question 25

For a limit order to buy 200 shares at 50,

A) if the price is not achieved in two hours, the order is cancelled.
B) all must be purchased at 50 or the order is cancelled.
C) it will be transacted by an-odd lot dealer.
D) 100 may be purchased at 50; 100 may be entered in the limit book.

Question 26

If the bid-ask spread on a stock is no more than one-eighth point, the transaction is generally made by

A) the specialist.
B) double auction.
C) floor brokers.
D) a rights offering.

Question 27

The two largest stock exchanges outside of the U.S. are

A) London, Tokyo.
B) Paris, Hong Kong.
C) Zurich, London.
D) Milan, Tokyo.

Question 28

Limit orders in the book are executed in order of

A) price.
B) size of order.
C) last in - first out.
D) time received.

Question 29

Limit orders at the same price are executed

A) last in - first out.
B) by lottery.
C) first in - first out.
D) randomly.

Question 30

The larger the dollar size block order,

A) the larger the percentage transaction cost.
B) the more quickly the transaction occurs.
C) the larger the price impact of increased price.
D) the less the price impact on small capitalization stocks.

Question 31

NASDAQ listed securities

A) are all eligible to be sold short.
B) include bonds.
C) are fewer in number than those on the NYSE.
D) must each have at least two dealers.

Question 32

Level II of NASDAQ

A) allows traders to enter bid and ask prices.
B) is also known as the pink sheet.
C) is the level most frequently used by trading rooms.
D) is used to make block trades.

Question 33

Most block orders are traded using

A) exchange distribution.
B) special offering.
C) the upstairs dealer market.
D) secondary distribution.

Question 34

An example of a regional stock exchange is

A) American Stock Exchange.
B) Boston Stock Exchange.
C) Chicago Board Options Exchange.
D) New York Stock Exchange.

Question 35

The approximate number of issues traded on the NYSE is

A) 5500.
B) 1200.
C) 850.
D) 2250.

Question 36

Institutions use the fourth market to

A) facilitate a need for fast trading.
B) guarantee their desired trades will occur.
C) acquire investment advice.
D) lower commissions.

Question 37

Instinet

A) does not allow limit orders.
B) is used by large institutional traders.
C) uses a commission broker.
D) facilitates trades on the NYSE.

Question 38

The SIPC was formed in

A) 1933.
B) 1985.
C) 1940.
D) 1970.

Question 39

With SIPC, each customer at a brokerage firm has insurance on his securities of

A) $50,000
B) $100,000
C) $500,000
D) $1,000,000

Question 40

A "regular way" sale of securities requires delivery within

A) 2 weeks.
B) 10 days.
C) 5 days.
D) 1 month.

Question 41

Since May Day of 1975

A) the volume of trading has declined.
B) commission rates for small trades have fallen.
C) commission rates for all trades have increased.
D) commission rates for large trades have fallen.

Question 42

The act that prevented commercial banks from acting as investment bankers is

A) Humphrey-Hawkins.
B) Packwood-Gore.
C) Glass-Steagall.
D) Depository Transfer.

Question 43

Security laws are governed by the

A) FDIC.
B) FSLIC.
C) SEC.
D) NRA.

Question 44

The Securities and Exchange Commission has controlled the securities market since

A) 1934.
B) 1940.
C) 1970.
D) 1988.

Question 45

Shelf registration

A) requires firms to register securities immediately.
B) allows a firm to issue securities up to 2 years after registration.
C) requires private placement of bond issues.
D) has reduced competition among underwriters.

Question 46

An example of a fourth market crossing system is

A) POSIT.
B) NASDAQ.
C) SEC.
D) NASD.

Question 47

The per share bid-ask spread for a round-trip transaction for an active stock averages

A) $2.00
B) $1.00
C) $ .10
D) $ .30

Question 48

Blue Sky laws

A) are state laws outlawing speculative schemes.
B) do not allow banks to be investment bankers.
C) are a part of the Securities Act of 1933.
D) have been repealed in most states.

Question 49

The situation where current shareholders have the opportunity to purchase new shares first is called

A) private placement.
B) rights offering.
C) competitive bid.
D) best efforts.

Question 50

Composite Stock Price Tables are a result of the

A) Securities Act of 1933.
B) Securities Act Amendments of 1975.
C) Securities and Exchange Act of 1934.
D) Investment Companies Act of 1940.

Question 51

Investment bankers are not associated with

A) underwriting.
B) private placements.
C) the secondary market.
D) selling groups.

Question 52

For investors, on "May Day"

A) commissions were doubled.
B) commissions became no longer fixed.
C) all firms had to charge the same commission.
D) were first allowed to hold stock in "street name."

Question 53

The eventual elimination of the need for stock certificates by a larger use of the

A) Intermarket Trading System.
B) Depository Trust Company.
C) Securities Investor Protection Corporation.
D) NASDAQ International.

Question 54

Of the two types of markets, call and continuous, an investor seeking the one with the greater liquidity would prefer ___ market.

A) the continuous
B) the call
C) either
D) neither

Question 55

A situation where a new security issue is sold to one buyer is called

A) private placement.
B) rights offering.
C) best-efforts.
D) red herring.

Question 56

The London Stock Exchange system of SEAQ is similar to

A) NASDAQ.
B) AMEX.
C) NYSE.
D) OTC.

Question 57

The primary control of security trading in the OTC is by

A) SIPC.
B) FDIC.
C) ADR.
D) NASD.

Question 58

The act that required the setting of minimum commissions was

A) Securities and Exchange Act of 1934.
B) Security Investor Protection.
C) Securities Act Amendments of 1975.
D) Investment Act of 1940.

Question 59

The "truth in securities" law is the

A) Securities and Exchange Act of 1934.
B) Investment Company Act of 1940
C) Mann Act of 1952.
D) Securities Act of 1933.

Question 60

A large capitalization stock compared to a small capitalization stock typically has

A) a lower market price.
B) a smaller percentage spread.
C) about the same percentage spread.
D) less trading activity.

Question 61

One characteristic of the fourth market that distinguishes it from the other three is

A) there are no computer communications systems.
B) there are no brokers or exchanges.
C) the trading takes place over the phone rather than electronically.
D) the large orders are handled by negotiation over the Internet.

Question 62

One of the goals of the movement to a consolidated tape and composite stock price tables was to

A) foster efficiency in the stock markets.
B) reduce the bid-ask spreads for investors.
C) eliminate the use of specialists in block trades.
D) increase the access to broker order information for small investors.

Question 63

Typically, block orders are placed by

A) government agencies
B) institutional customers
C) specialists for their own accounts
D) floor traders for their own accounts

Question 64

When a specialist "takes the other side," it is because there has been

A) no response from the floor.
B) an excessive amount of interest by floor brokers.
C) a stop order placed that must be executed before all others.
D) a pause in the trading.

Question 65

If a commission broker is unable to immediately place one of her orders on the NYSE, she most likely will leave it with the

A) floor broker
B) floor trader
C) two-dollar broker
D) specialist

Question 66

Uninformed dealers often price themselves out of the market by

A) excessively narrowing the bid-ask spread.
B) charging excessive commissions.
C) ignoring the bid-ask spread.
D) having too wide a bid-ask spread.

Question 67

Which one of the following is an advantage of owning a seat on the NYSE? A member has the ____.

A) privilege of executing trades using the facilities provided by the Securities Exchange Commission
B) privilege of executing trades using the facilities provided by the Exchange
C) exclusive privilege of trading stocks of listed firms on the Exchange
D) assurance that his or her trades will be executed by the specialist the same day they are placed

Question 68

One reason institutional customers will use block houses is because

A) they are guaranteed much lower commission charges.
B) the specialists will raise the bid and lower the ask prices.
C) they will get better prices for their orders.
D) the orders are automatically placed in the specialist's book.

Question 69

When the specialist offsets the losses from trades with information-motivated traders with gains from liquidity-motivated traders by widening the bid-ask spread, the specialist is said to be coping with the _______ problem.

A) moral hazard
B) liquidity-trap
C) index arbitrage
D) adverse selection

Question 70

Which one of the following is NOT a general criteria for listing a firm on the NYSE?

A) the degree of national interest in the company
B) the company's relative position and stability in the industry
C) the degree of international activities of the company
D) the company's prospects for at least maintaining its relative position in the industry

Question 71

One of the advantages of trading stocks in the third market rather than on the NYSE and regional exchanges is

A) trading hours are not fixed.
B) commissions are not charged.
C) regulations are much more liberal.
D) brokers are not used in the trading.

Question 72

Which one of the following is a criticism of preferencing?

A) There is a potential economic cost that is undisclosed.
B) Too many opportunities exist for the customer to benefit from price improvements.
C) It adds nothing of value to the price discovery process.
D) A preferencing broker plays too active a role in price setting.