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Series 57 Example Questions

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Sample Questions


1)

If the inside spread is 4 cents, the minimum increment necessary to qualify for price improvement is:

A ) 1 cent
B ) 2 cents
C ) 3 cents
D ) 4 cents

See Answer

Answer: The Best Answer is A

Feedback: Price improvement means that the market maker improves on the best quoted prices by at least 1 cent (e.g., buy for a customer at least 1 cent lower than the inside ask; or sell for a customer at least 1 cent higher than the inside bid). The spread itself is irrelevant.


2)

The Manning Rule covers:

A ) Market orders
B ) Limit orders
C ) Stop orders
D ) GTC orders

See Answer

Answer: The Best Answer is B

Feedback: The “Manning Rule” is another name for the Limit Order Protection Rule, which prohibits member firms from trading ahead of customer limit orders.


3)

The inside market for ABCD stock is $15.00 - $15.50. If a market maker enters a bid of $15.55 into the NASDAQ System, the order is:

A ) Executed at $15.00
B ) Executed at $15.50
C ) Executed at $15.55
D ) Canceled

See Answer

Answer: The Best Answer is B

Feedback: Any orders entered into the NASDAQ System during regular market hours that would lock or cross the market are automatically matched and filled at the inside market. This customer places an order to buy at $15.55 (meaning at $15.55 or lower). Since the inside ask is at $15.50, the order will be filled at the lower price of $15.50 - a better execution for the buyer.


4)

A trade of 75 shares is a:

A ) Round lot
B ) Odd lot
C ) Mixed lot
D ) Blocked lot

See Answer

Answer: The Best Answer is B

Feedback: A round lot trade is 100 shares or a trade in multiples of 100. An odd lot trade is a trade of less than 100 shares. A mixed lot trade is one that has both a round lot component and an odd lot component.


5)

All of the following transactions are EXEMPT from the trade through rule (Rule 611) EXCEPT:

A ) benchmark trades (VWAPs)
B ) intermarket sweep orders (ISOs)
C ) stopped stock transactions
D ) minimum quantity transactions

See Answer

Answer: The Best Answer is D

Feedback: Rule 611 requires that marketable orders in NMS securities (NYSE, AMEX (NYSE-American) and NASDAQ) be executed within 1 second of execution at the best price or be routed to the better-priced market for execution. Exempted from the rule are “Benchmark” orders, which are VWAP orders. These are filled after the market close at the volume weighted average price, so the rule does not apply. The rule also does not apply to ISOs - Intermarket Sweep Orders. ISOs place the responsibility to get the best price on the firm placing the order - such orders are sent to multiple markets to sweep their books. The rule does not apply to “stopped orders” which guarantee a minimum price to sell or maximum price to buy for a block trade (at least 10,000 shares or $200,000). There is no exemption from the rule for minimum quantity orders.


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