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Question 1 of 10
1. Question
According to ‘Best Execution and Inter-positioning'(FINRA Rule 5310), which of the followings in NOT a factor that will be considered in determining whether a member has used “reasonable diligence”?
Correct
According to ‘Best Execution and Inter-positioning'(FINRA Rule 5310), following factors will be considered in determining whether a member has used “reasonable diligence”:
-The Market’s character for the security (e.g., price, volatility, relative liquidity, and pressure on available communications)
-Transaction size and type
-Quotation accessiblity
-Markets number checked
-The terms and conditions of the order which result in the transaction, as communicated to the member and persons associated with the member.Incorrect
According to ‘Best Execution and Inter-positioning'(FINRA Rule 5310), following factors will be considered in determining whether a member has used “reasonable diligence”:
-The Market’s character for the security (e.g., price, volatility, relative liquidity, and pressure on available communications)
-Transaction size and type
-Quotation accessiblity
-Markets number checked
-The terms and conditions of the order which result in the transaction, as communicated to the member and persons associated with the member. -
Question 2 of 10
2. Question
According to ‘Best Execution and Inter-positioning'(FINRA Rule 5310), what happens when a member cannot execute directly with a market but must employ a broker’s broker or some other means in order to ensure an execution advantageous to the customer?
Correct
When such a situation occurs that in order to ensure an execution advantageous to the customer, a member cannot execute directly with a market but must employ a broker’s broker or some other means then the burden of showing the acceptable circumstances for doing so is on the member.
Incorrect
When such a situation occurs that in order to ensure an execution advantageous to the customer, a member cannot execute directly with a market but must employ a broker’s broker or some other means then the burden of showing the acceptable circumstances for doing so is on the member.
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Question 3 of 10
3. Question
What does the following statement refer to in the context of debt market?
‘When quotations are available, FINRA will consider the accessibility of such quotations when examining whether a member has used reasonable diligence. For purposes of debt securities, the term “quotation” refers to either dollar (or other currency) pricing or yield pricing.’Correct
When talking in terms of the debt market, the phrase “accessibility of the quotation” means that when quotations are available, FINRA will consider the accessibility of such quotations when examining whether a member has used reasonable diligence. The term “quotation” refers to either dollar (or other currency) pricing or yield pricing for purposes of debt securities. Accessibility is only one of the non-exhaustive reasonable diligence factors.
Incorrect
When talking in terms of the debt market, the phrase “accessibility of the quotation” means that when quotations are available, FINRA will consider the accessibility of such quotations when examining whether a member has used reasonable diligence. The term “quotation” refers to either dollar (or other currency) pricing or yield pricing for purposes of debt securities. Accessibility is only one of the non-exhaustive reasonable diligence factors.
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Question 4 of 10
4. Question
According to “Best execution and Inter-positioning” (FINRA Rule 5310) when does the duty to provide best execution to customer orders received from other broker-dealers arise?
Correct
A member’s duty to provide best execution in any transaction “for or with a customer of another broker-dealer” arises only when an order is routed from the broker-dealer to the member for the purpose of order handling and execution. It does not apply in instances when another broker-dealer is simply executing a customer order against the member’s quote.
Incorrect
A member’s duty to provide best execution in any transaction “for or with a customer of another broker-dealer” arises only when an order is routed from the broker-dealer to the member for the purpose of order handling and execution. It does not apply in instances when another broker-dealer is simply executing a customer order against the member’s quote.
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Question 5 of 10
5. Question
According to ‘Best Execution and Inter-positing'(FINRA Rule 5310), what is one of the areas in which a member must be ESPECIALLY diligent in ensuring that it has met its best execution obligations?
Correct
In ensuring that it has met its best execution obligations a member must be ESPECIALLY diligent with respect to customer orders involving securities for which there is limited pricing information or quotations available. Each member must have written policies and procedures in place that address how the member will determine the best inter-dealer market for such a security in the absence of pricing information or multiple quotations and must document its compliance with those policies and procedures.
Incorrect
In ensuring that it has met its best execution obligations a member must be ESPECIALLY diligent with respect to customer orders involving securities for which there is limited pricing information or quotations available. Each member must have written policies and procedures in place that address how the member will determine the best inter-dealer market for such a security in the absence of pricing information or multiple quotations and must document its compliance with those policies and procedures.
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Question 6 of 10
6. Question
According to ‘Best Execution and Inter-positioning’ (FINRA Rule 5310), what happens if a member receives an unsolicited instruction from a customer to route that customer’s order to a particular market for execution?
Correct
According to ‘Best Execution and Inter-positioning’ (FINRA Rule 5310), the member is NOT required to make a best execution determination beyond the customer’s specific instruction if a member receives an unsolicited instruction from a customer to route that customer’s order to a particular market for execution. Nonetheless, members are still required to process that customer’s order promptly and in accordance with the terms of the order.
Incorrect
According to ‘Best Execution and Inter-positioning’ (FINRA Rule 5310), the member is NOT required to make a best execution determination beyond the customer’s specific instruction if a member receives an unsolicited instruction from a customer to route that customer’s order to a particular market for execution. Nonetheless, members are still required to process that customer’s order promptly and in accordance with the terms of the order.
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Question 7 of 10
7. Question
Which of the following factors should NOT be considered by a member when reviewing and comparing the execution quality of its current order routing and execution arrangements to the execution quality of other markets?
Correct
Following factors should be considered by a member when reviewing and comparing the execution quality of its current order routing and execution arrangements to the execution quality of other markets:
(1) price improvement opportunities
(2) differences in price dis-improvement
(3) the likelihood of execution of limit orders
(4) the speed of execution
(5) the size of execution
(6) transaction costs
(7) customer needs and expectations
(8) the existence of internalization or payment for order flow arrangementIncorrect
Following factors should be considered by a member when reviewing and comparing the execution quality of its current order routing and execution arrangements to the execution quality of other markets:
(1) price improvement opportunities
(2) differences in price dis-improvement
(3) the likelihood of execution of limit orders
(4) the speed of execution
(5) the size of execution
(6) transaction costs
(7) customer needs and expectations
(8) the existence of internalization or payment for order flow arrangement -
Question 8 of 10
8. Question
According to ‘Best Execution and Inter-positioning’ (FINRA Rule 5310), until when can a member that routes its order flow to another member that has agreed to handle that order flow as agent for the customer (e.g., a clearing firm or other executing broker-dealer) rely on that member’s regular and rigorous review?
Correct
According to ‘Best Execution and Inter-positioning’ (FINRA Rule 5310), a member that routes its order flow to another member that has agreed to handle that order flow as agent for the customer (e.g., a clearing firm or other executing broker-dealer) can rely on that member’s regular and rigorous review as long as the following two conditions are satisfied:
-Statistical results and rationale of the review are fully disclosed to the member; and
-The member periodically reviews how the review is conducted, as well as the results of the review.Incorrect
According to ‘Best Execution and Inter-positioning’ (FINRA Rule 5310), a member that routes its order flow to another member that has agreed to handle that order flow as agent for the customer (e.g., a clearing firm or other executing broker-dealer) can rely on that member’s regular and rigorous review as long as the following two conditions are satisfied:
-Statistical results and rationale of the review are fully disclosed to the member; and
-The member periodically reviews how the review is conducted, as well as the results of the review. -
Question 9 of 10
9. Question
According to ‘ Prohibition Against Trading Ahead of Customer Orders’ (FINRA Rule 5320) when is a member permitted to trade a security on the same side of the market for its own account at a price that would satisfy such customer order?
Correct
A member is permitted to trade a security on the same side of the market for its own account at a price that would satisfy such customer order only in the following situations:
-with respect to orders for customer accounts that meet the definition of an “institutional account”;or
-for orders of 10,000 shares or more (unless such orders are less than $100,000 in value), given that the member has provided clear and comprehensive written disclosure to such customer at account opening and annually thereafter that:(a) discloses that the member may trade proprietorially at prices that would satisfy the customer order, and
(b) provides the customer with a meaningful opportunity to opt in to the Rule 5320 protections with respect to all or any portion of its order.Incorrect
A member is permitted to trade a security on the same side of the market for its own account at a price that would satisfy such customer order only in the following situations:
-with respect to orders for customer accounts that meet the definition of an “institutional account”;or
-for orders of 10,000 shares or more (unless such orders are less than $100,000 in value), given that the member has provided clear and comprehensive written disclosure to such customer at account opening and annually thereafter that:(a) discloses that the member may trade proprietorially at prices that would satisfy the customer order, and
(b) provides the customer with a meaningful opportunity to opt in to the Rule 5320 protections with respect to all or any portion of its order. -
Question 10 of 10
10. Question
According to ‘ Prohibition Against Trading Ahead of Customer Orders’ (FINRA Rule 5320), which of the following is NOT the minimum amount of price improvement necessary for a member to execute an order on a proprietary basis when holding an unexecuted limit order in that same security, and not be required to execute the held limit order is as follows?
Correct
A few examples of when holding an unexecuted limit order in that same security, and not be required to execute the held limit order the minimum amount of price improvement necessary for a member to execute an order on a proprietary basis are as follows:
a) For customer limit orders priced greater than or equal to $1.00, the minimum amount of price improvement required is $0.01 for NMS stocks and the lesser of $0.01 or one-half (1/2) of the current inside spread for OTC equity securities;
(b) For customer limit orders priced greater than or equal to $0.01 and less than $1.00, the minimum amount of price improvement required is the lesser of $0.01 or one-half (1/2) of the current inside spread;
(c) For customer limit orders priced less than $0.01 but greater than or equal to $0.001, the minimum amount of price improvement required is the lesser of $0.001 or one-half (1/2) of the current inside spread;
(d) For customer limit orders priced less than $0.001 but greater than or equal to $0.0001, the minimum amount of price improvement required is the lesser of $0.0001 or one-half (1/2) of the current inside spread;Incorrect
A few examples of when holding an unexecuted limit order in that same security, and not be required to execute the held limit order the minimum amount of price improvement necessary for a member to execute an order on a proprietary basis are as follows:
a) For customer limit orders priced greater than or equal to $1.00, the minimum amount of price improvement required is $0.01 for NMS stocks and the lesser of $0.01 or one-half (1/2) of the current inside spread for OTC equity securities;
(b) For customer limit orders priced greater than or equal to $0.01 and less than $1.00, the minimum amount of price improvement required is the lesser of $0.01 or one-half (1/2) of the current inside spread;
(c) For customer limit orders priced less than $0.01 but greater than or equal to $0.001, the minimum amount of price improvement required is the lesser of $0.001 or one-half (1/2) of the current inside spread;
(d) For customer limit orders priced less than $0.001 but greater than or equal to $0.0001, the minimum amount of price improvement required is the lesser of $0.0001 or one-half (1/2) of the current inside spread;