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sale of any security the seller dooesn't own or which is consxummated by delivery of a borrowed security
- - a person is long a security if:
- -- has title to the security
- -- effects a contract that is unconditional to obtain the security (buys it)
- --owns convertible secuirty and tenders it for conversion
- -- owns options, warrants or rights and exercises them
only long as far as a person's
net long position
defined in the 1934 Act as an intermediary who makes payments or deliveries in connection with transactions AND provides facilities for comparing transactions.
any specialist who is permitted to act as a dealer - a dealer is defined as someone who holds himself out as willing to buy or sell for his own account on regular or continuous basis.
a security admitted to full trading priviledges upon application by the issuer (or banker in the case of an ADR)
Qualified OTC market maker
a broker-dealer who is registered with SEC under section 15 of the ACT
Qualified Third Market Maker
dealer in any stock registered on a national exchange - must meet higher capital requirements than regular OTC market maker - as well as the standard bona fide quote, turnover and readiness to trade stadnards
Qualified Block Positioner
a broker-dealer who is registered with the SEC under section 15, engaged in $200k blocks of stock or more.
Trading and Disclosure Rules
Disclosure on Confirmations - Rule 10b-10
- must be written
- - agent or principal
- - date, time, id of securities, price, quantity or units
- - whether there was payment for order flow (actual amount available upon customer request).
- - if agent - amount of commission and any other remuneration received, make available name of counter party
- - if principal, that they are market maker, if NASDAQ stock the mark-up, mark-down
Issuers must give 10 days notice of distributions to FINRA
so they can set the proper ex-date
Floor traders are prohibited from trading their own account
Does not apply to specialists, odd-lot traders, arbitragers, stabilizing trades and trades made to correct an error
Public orders have priority over member's orders
members, associated firms of members are lower priority than orders for the public
- - there are rules 11a-1-3T - hedge transactions are allowed
- - 11a-1-4T - bond transactions are allowed on national security exchanges
- - 11a-1-5 - allows competitive market makers to trade on exchange floors
- - 11a-2-2T - prohibits a member from camoflaging its trades by having another member do them -- but thye can do this if, order is transmitted from outside the exchange and a non-associated member does the trade , and the firm placing the order canpt participate int eh execution.
Securities Act amendment of 1975 -
- congress mandated creation of national market system
-- created and allowed competitive quotes (CQS) and consolidated trade reporting (the consolidated tape)
- Big Rule in the NMS regulation, which was following the 1975 securities act amendment:
- RULE 611 - the trade thru rule
- -- applies to NYSE, AMEX (now NYSE-MKT), NASDAQ listed issues. - the NMS stocks
- -- National Best Bid and Offer NBBO, also knows as the inside market
- -- quotes that are protected are the 1 second accessible - automated quotes
- Exceptions -
- -- ISO - Intermarket Sweep Orders - a limit order that is sent to an exchange when ANOTHER market center is posting a better price. This is usually for block trades and eliminates the negotiation for block trades.
- eliminates the firm with the order having to re-route the order to a different exchange to get the best price.
VWAP - volume weighted average price - by necessity, a time span of prices and consequently may cause what would appear to be a trade thru
Also called "benchmark" trades.
Stopped Orders - similar to a specialist "stopping" stock for a trader, but only for block trades with LIMIT orders - can result in a loss for the broker/dealer doing the trade since they may have to trade at a better price than the market is currently offering
But, often, due to the price changes in teh market, the price the block eventually gets done at is inferior to the NBBO, the SEC allows this but only for block trades with LIMIT orders
Trade through rule applies to all exchanges regardless of whether they are posting a quote for that issue
applies to all national exchanges, NYSE, NASDAQ, ECNs, OTC market makers and block positioners and ANY B/D that does internal trades
Rule ONLY APPLIES DURING REGULAR MARKET HOURS 930 - 400, ONLY NMS securities, not OTC BB or Pinksheet
Rules that apply to Broker/Dealers -
Rule 15c2-7 - fictitous quotes placed on teh Nasdaq system are considered fraudulent
Rule 15c2-17 - Quotes cannot be entered on NASDAQ for an issuer unless the issuer has filed registration paperwork with SEC and is filing required reports with the SEC.
consolidated tape reportrs trades of NYSE and NYSE - AMEX listed issues, warrants, rights and preferred stock
no warrant or option exercises
To do a "Short Against the Box"
long 1000 shares, but customer says sell at market and borrow the shares
- - it is a SHORT SALE since the shares for settlement will be borrowed
- - unless teh stock has fallen 10% earlier in the day or previous day, it can be sold at teh market rather than waiting for an up-bid