Series 57 Practice Exam.
Free practice test — 68 quality-checked questions, instant feedback.

1. A market maker on NASDAQ receives a buy order for 500 shares at the market. The current best bid is 25.50 and the best ask is 25.75. What is the market maker's PRIMARY obligation in this situation?

• A. Reject the order if the customer is not a designated market participant
• B. Fill the order at the best available ask price and earn the spread as compensation
• C. Execute the order at the midpoint price regardless of current market conditions
• D. Delay execution until the spread widens to create more profit potential

2. An OTC equity trading firm must quote both bid and ask prices for a security it makes a market in. Which statement BEST describes the regulatory purpose of this dual-quote requirement?

• A. To prevent market makers from refusing to trade at any price they have publicly quoted
• B. To allow the SEC to set prices directly and eliminate price volatility
• C. To ensure that market makers always profit by maintaining a minimum 5-cent spread
• D. To require market makers to match every trade without exception regardless of size

3. A NASDAQ-listed equity trades on both NASDAQ and multiple regional exchanges. A trading firm's best bid is displayed on NASDAQ at 45.25, but at the same moment a regional exchange shows a better bid at 45.35 from another market maker. What trading-system rule typically governs this situation?

• A. Order routing rules require the firm to route the customer's sell order to the exchange displaying the best price
• B. The firm must split the order proportionally among all exchanges to ensure fairness
• C. The firm may ignore the regional exchange price and execute on NASDAQ as the primary listing venue
• D. Regulatory rules prevent the use of regional exchanges to avoid distortions in the primary market

4. A proprietary trader executes a buy order for 10,000 shares on behalf of the firm's principal trading account. The trader fails to execute any customer orders for the same security on that day, despite receiving them. What is the PRIMARY compliance concern?

• A. The trader violated position limits by exceeding the daily volume threshold
• B. The order must be marked as proprietary, and marking requirements were not met
• C. All prop trading requires advance approval from NASDAQ before execution can occur
• D. Proprietary trading must always be subordinated to customer orders; executing prop trades first creates a conflict of interest

5. During a trading day, a firm's systems fail and disconnect from NASDAQ for 45 minutes. During this period, the firm cannot see market data or submit orders. When systems are restored, the firm's previously quoted bid-ask spread on NASDAQ remains stale in the market feed. What is the firm's most appropriate immediate action?

• A. Maintain the stale quotes until end-of-day to avoid creating system traffic
• B. Update prices automatically based on the last-known volatility model without manual review
• C. Withdraw the outstanding quotes immediately and allow them to refresh before re-quoting
• D. Request NASDAQ to cancel all trades executed against the stale quotes

6. A trading firm has established credit limits with its clearing firm that allow it to maintain inventory positions up to a certain dollar value. The firm's current inventory reaches 85% of this limit. An attractive trade opportunity arises that would consume 25% of the remaining limit. What should the firm's risk-management process prioritize in evaluating this trade?

• A. Consult the clearing firm to determine if additional margin is required under Regulation T
• B. Assess whether the risk of the position aligns with the available credit capacity and overall portfolio risk tolerance
• C. Reject the trade because the firm must maintain 50% of credit limit as a buffer
• D. Execute the trade immediately because credit limit headroom still exists

7. A trader at a market-making firm receives a large institutional buy order for an illiquid OTC equity. The current market spread for this security is 15 cents wide. The institutional client asks for a one-time quote to buy 50,000 shares. Which principle should MOST influence the firm's pricing decision?

• A. The firm should refuse all block trades to focus on liquid market-making in small sizes
• B. The firm should widen the spread to compensate for the size and illiquidity risk of the block trade
• C. The firm must quote the same spread as the standing market to ensure regulatory compliance
• D. The firm should quote tighter than the standing market to attract the large order volume

8. A sophisticated trader at a proprietary trading firm uses an algorithm that continuously monitors multiple venues and captures tiny price discrepancies between them by buying on one venue and immediately selling on another, thousands of times per day. The trader's strategy generates $50,000 in monthly profit with minimal market impact. Is this activity a regulatory concern?

• A. No, if the algorithm complies with market quality rules and does not engage in market manipulation
• B. Yes, any profit derived from price discrepancies must be reported to the SEC as market inefficiency
• C. Yes, high-frequency proprietary trading is prohibited under current market structure rules
• D. Yes, capturing spreads from market makers constitutes theft of intellectual property

9. A trader receives a customer order to buy 1,000 shares of XYZ at market, immediately followed by news that XYZ is being acquired at a 20% premium. The trader delays entry of the order for 10 minutes waiting for the stock price to stabilize. Which statement best describes the compliance issue here?

• A. The trader should have checked with the firm's legal team before executing any order on material news.
• B. No issue exists; the trader's judgment to delay protects the customer from paying an inflated price.
• C. The delay violates the requirement to promptly execute customer orders and may constitute a failure to execute the order in a timely manner.
• D. The delay is permitted only if the trader documents the reason in writing within 24 hours.

10. A trader receives a large institutional customer order to sell 25,000 shares of MNO (a thinly traded NASDAQ security) using a VWAP algorithm. Halfway through the execution, the algorithm encounters a liquidity gap and the trader must decide whether to pause execution, continue at potentially worse prices, or use alternative execution venues. The customer specified VWAP as the desired method. What is the trader's responsibility in this scenario?

• A. Switch to a more liquid market without notification, since the trader has a fiduciary duty to obtain the best possible execution regardless of the stated method.
• B. Pause execution until VWAP conditions improve, preventing any deviation from the customer's instruction.
• C. Notify the customer of the liquidity challenge, explain the implications for execution quality, and discuss alternative approaches before materially deviating from the algorithm.
• D. Continue executing strictly according to the VWAP algorithm without deviation, as the customer explicitly selected this method.

11. A customer calls and places a day order to buy 1,000 shares of PQR at market. Before the trader enters the order, the customer says, 'Actually, make that good until Friday.' The trader enters the order in the system as a GTC order. At the end of the day, the order has not filled. What compliance issue exists with how this order was handled?

• A. No issue; the trader correctly interpreted the customer's instruction to keep the order active until Friday.
• B. The order should have been rejected entirely because the customer changed the terms after initial placement.
• C. The trader should not have accepted the modification without charging the customer an additional fee.
• D. The order should have been entered as Good-Until-Friday (GTF), not as GTC; mismatching the order duration to the customer's stated intent violates order handling standards.

12. An institutional customer authorizes a trader to execute a 50,000-share order using reasonable execution methods and judgment. The trader breaks the order into multiple smaller blocks (5,000 shares at a time) and executes them over two hours at varying prices, with an average execution price of $15.47. The best available price during the execution window was $15.50 in an alternative venue. The customer later requests details of the execution. What should the trader be prepared to explain?

• A. The trader executed according to the customer's authorization for reasonable methods; no further documentation or explanation is required.
• B. The trader must disclose that the alternative venue offered a better price and refund the customer the difference ($0.03 per share) as compensation.
• C. The trader should explain the methodology used, why the order was split, the average execution price achieved, and why the alternative venue's price was not used—this is required for order accountability.
• D. The trader should only report the final average price; detailed block-by-block execution details are the customer's responsibility to request.

13. A customer places a limit buy order for 1,000 shares of VWX at $18.00. The stock trades down to $17.80 and the order is filled. The customer then calls and says, 'I didn't mean to buy at $17.80, I want to cancel the trade immediately.' The trader has not yet reported the fill to the customer or submitted the trade confirmation. What is the appropriate action?

• A. Explain that the order was properly filled within the limit price specified ($17.80 is better than the $18.00 limit), and the trade is binding; attempt to assist by discussing buy-back options.
• B. Execute a trade cancellation and immediately sell the shares to unwind the position without the customer's further authorization.
• C. Hold the trade in suspense until the customer confirms in writing; unconfirmed trades can be voided within 24 hours.
• D. Cancel the trade because the customer is requesting it before confirmation; the customer has the right to repudiate any unconfirmed trade.

14. A trader on NASDAQ executes a purchase of 1,000 shares of XYZ at $50 per share. Under normal market conditions, on which day must both the buyer and seller settle this transaction?

• A. Trade date (T)
• B. Two business days after trade date (T+2)
• C. The settlement date is determined by the SEC based on market volatility
• D. One business day after trade date (T+1)

15. A proprietary trading desk executes a series of trades in a security and wants to confirm the details with the counterparty before settlement. Which of the following is the correct mechanism for pre-settlement confirmation?

• A. Confirmation happens automatically when the clearinghouse publishes the trade report
• B. A written confirmation that specifies all material terms (price, quantity, settlement date, counterparty details) and is exchanged before settlement
• C. A phone call between the traders is sufficient to confirm all details
• D. Confirmation is only required for trades exceeding $1,000,000 in notional value

16. A trader mistakenly sells 500 shares of ABC when the customer intended to sell 5,000 shares. After discovering the error, the trader learns that settlement is scheduled for T+1 the next morning. The trader contacts the counterparty to request cancellation. What is the most likely outcome?

• A. The trader can force cancellation by refusing to deliver or accept the shares
• B. The SRO automatically reverses the trade if notified before T+1
• C. Cancellation requires mutual agreement between the parties and must be processed before the settlement window closes; if the counterparty does not agree, the trade may settle and require correction after the fact
• D. The trade can be cancelled easily because it has not yet settled; the trader simply notifies the SRO

17. A firm's clearinghouse reports that a trade failed to settle—the delivering firm did not transfer shares by the settlement deadline. Which of the following describes the firm's obligations in managing a settlement failure?

• A. The firm must immediately cancel the trade and execute a new trade at market price
• B. No action is required until the end of the month; the clearinghouse automatically reconciles all failures
• C. The firm can ignore the failure if the counterparty is a large, reputable bank
• D. The firm must attempt to locate the shares, work with the counterparty to resolve the failure, and may be subject to buy-in procedures and regulatory fines

18. A trader's firm is a broker-dealer that clears trades through a third-party clearinghouse. The firm executes a large block trade and later discovers a discrepancy between the firm's internal record and the clearinghouse's record of the trade details. What is the trader's next step?

• A. Ignore the discrepancy and assume the clearinghouse is correct
• B. Request that the clearinghouse adjust the firm's record to match their system unilaterally
• C. Report the discrepancy to the SEC only; the clearinghouse is independent and cannot be questioned
• D. Reconcile the discrepancy immediately with the clearinghouse, document the difference, and resolve any disagreement before settlement

19. A proprietary trading firm executes a block trade in an illiquid micro-cap equity. The trade settles on T+1, but by settlement date, the firm learns that the counterparty is financially distressed and may not be able to deliver the shares. The firm's clearing member informs the trader that the counterparty's clearing firm has reported a potential shortfall. What authority has the power to mandate resolution of this settlement failure?

• A. Only the SEC can mandate how settlement failures are resolved
• B. The clearinghouse (NSCC, DTCC, or equivalent) has the authority to enforce delivery rules, initiate forced buy-ins, and apply penalties to resolve the failure
• C. The executing firm, acting alone, can force the counterparty to deliver at any price
• D. The counterparty may unilaterally cancel the trade to avoid delivery

20. A trader at a proprietary trading firm executes a series of 15 separate OTC trades in the same security on the same day. Each trade is confirmed individually with the counterparty, but the trader is uncertain whether each trade must be reported separately to the trade-reporting facility. What is the correct reporting requirement?

• A. Report only the largest trade; the others are considered immaterial and do not require reporting
• B. Combine reports for all trades in the same security if they occur within 60 minutes of each other
• C. Each trade must be reported separately to the trade-reporting facility with its own execution time and counterparty information
• D. Aggregate all 15 trades into a single report to reduce administrative burden

21. A trader's firm operates as a market maker in several OTC securities. A large institutional client places an order to buy 50,000 shares of a thinly traded security. After the trade is executed, the market maker discovers that the bid-ask spread the firm quoted to the client was significantly wider than spreads the firm was simultaneously quoting to other professional counterparties in the same security. The trader's compliance officer questions whether this constitutes a reporting violation. Which of the following best describes the compliance concern?

• A. No violation; market makers may quote different spreads to different customers at their discretion
• B. A potential violation of fair-dealing rules if the disparity reflects unfair pricing rather than legitimate differences in customer type or order size; the trade and pricing must be fairly reflected in trade reporting and may require disclosure review
• C. A mandatory violation that requires immediate cancellation of the trade and a refund to the customer
• D. The firm need only report the trade at the better spread it quoted to other parties, regardless of what the customer actually paid

22. A trader at a proprietary firm executes a trade and, for operational reasons, the firm's settlement system delays submission of the trade report to FINRA by 45 minutes. The trade itself was executed in compliance with all other rules. What is the primary regulatory consequence of this delay?

• A. The trade is void and must be cancelled immediately
• B. The clearinghouse automatically rejects the trade and returns it to the firm for immediate re-execution
• C. The trade is valid and settles normally, but the late reporting violation may result in regulatory sanctions or penalties depending on the firm's reporting history and the presence of an underlying violation
• D. A 45-minute delay is within the regulatory tolerance and requires no action

23. A proprietary trader at your firm executes a series of trades in XYZ stock with the intent of creating the false appearance of high trading volume. The trader buys and sells the same shares multiple times within minutes at prices that gradually increase, hoping to manipulate the closing price upward for options expiration purposes. What trading violation is most directly demonstrated in this scenario?

• A. Trading ahead of customer orders
• B. Painting the tape
• C. Short selling without uptick
• D. Marking-up securities beyond fair value

24. A trader receives a customer order to sell 10,000 shares of ABC at the market. Before executing the customer order, the trader sells 5,000 shares of ABC from the firm's proprietary account. This is an example of which prohibited practice?

• A. Wash trading
• B. Layering
• C. Spoofing
• D. Trading ahead of customer orders (front-running)

25. A trader submits a large sell order for 50,000 shares of DEF stock, then immediately cancels it without ever intending to execute it. The trader repeats this pattern several times in rapid succession. What is the primary concern with this behavior?

• A. Violating the Regulation SHO threshold exemption for frequent traders
• B. Executing trades in violation of circuit breaker rules
• C. Failing to maintain an adequate short stock borrow position
• D. Creating a false impression of trading interest and market depth (spoofing)

26. During a single trading day, a trader executes multiple matched buy and sell orders for GHI stock between different accounts controlled by the same firm. The orders are executed at prices favorable to the firm and reduce the firm's net position to effectively zero by the close. Which trading prohibition best describes this behavior?

• A. Executing a mixed-auction arbitrage transaction
• B. Marking-up principal transactions inappropriately
• C. Churning customer accounts
• D. Wash trading

27. A firm's compliance officer discovers that one of its traders has been consistently purchasing shares in advance of large customer buy orders, executing the customer orders at higher prices, then immediately selling the trader's position at a profit. The trader justified this practice as 'providing liquidity.' What is the primary regulatory violation?

• A. Failure to maintain a Market Maker registration
• B. Front-running and trading ahead of customer orders
• C. Excessive markup on principal transactions
• D. Violation of short-sale uptick rules

28. A trader at an OTC market maker firm places hundreds of orders at various price levels for JKL stock throughout the trading session. Most orders are canceled within seconds of placement. A review shows the orders were designed to create the impression of deep liquidity at multiple price levels. Which practice is demonstrated?

• A. Stabilization
• B. Block trading in violation of size thresholds
• C. Layering
• D. Painting the tape

29. A trader manages a portfolio of illiquid microcap stocks. The trader executes a series of trades between two accounts controlled by the same firm, buying at higher prices in one account and selling at lower prices in another. Over 30 days, this activity generates losses in one account and gains in another. Which statement BEST characterizes the regulatory concern?

• A. Violation of account segregation rules under SIPC
• B. Legitimate risk management through account diversification
• C. Proper application of matched-order execution for efficiency
• D. Wash trading designed to manipulate performance metrics and potentially launder losses

30. During a 15-minute period, a trader in OTC equities receives a buy interest from a large institutional customer. Before executing the customer's order, the trader places his own buy orders, absorbs the customer order at a higher price, and then sells his position at a profit. The customer paid more than they would have in an untouched market. Why is this prohibited?

• A. Because OTC traders are prohibited from executing proprietary trades during customer order windows
• B. Because it violates the uptick rule, which requires waiting for a price improvement before buying
• C. Because the firm failed to segregate accounts under SIPC requirements
• D. Because it violates the trader's duty to execute at the best available price and constitutes front-running

31. A trader executes 500 trades in a single illiquid OTC stock over two hours, with buy and sell orders alternating in rapid succession at progressively higher prices, with no significant position remaining at the end of the period. The activity has no economic substance and appears designed solely to influence the closing price. Which trading violation BEST applies?

• A. Improper short sale execution
• B. Painting the tape and potentially fictitious trading
• C. Exceeding daily trading volume limits set by the exchange
• D. Pump-and-dump scheme

32. A trader receives an order to buy 50,000 shares of PQR at a specific limit price. Before routing the customer order to the market, the trader buys 25,000 shares from the firm's account at a lower price, then routes the customer order, which fills at a higher price. The trader then sells the firm's position at the customer's execution price. What has occurred?

• A. A violation of position limit rules for proprietary accounts
• B. A permitted principal transaction that improved the customer's execution price
• C. Front-running; the trader profited by trading ahead with knowledge of the customer order
• D. Legitimate market-making activity to provide liquidity

33. Under Regulation NMS, what does the order protection rule prohibit?

• A. Executing any order away from the primary listing exchange
• B. Displaying a quotation in more than one market
• C. Executing a trade at a price inferior to a protected quotation displayed by another trading center
• D. Trading during the opening auction

34. What is the purpose of an intermarket sweep order?

• A. To delay execution until the close
• B. To cancel all resting orders in a security
• C. To guarantee execution at the national best bid or offer
• D. To permit execution at a price that would otherwise be a trade-through, while simultaneously routing orders to clear better-priced protected quotations

35. Under Regulation NMS, what does the sub-penny rule generally prohibit?

• A. Charging commissions in fractions of a cent
• B. Displaying, ranking or accepting orders in increments smaller than one cent for stocks priced at or above one dollar
• C. Quoting stocks priced below one dollar in any increment
• D. Executing any trade at a sub-penny price under any circumstance

36. A market is described as locked. What does this mean?

• A. All orders have been cancelled
• B. A displayed bid in one market equals the displayed offer in another market
• C. A displayed bid exceeds a displayed offer
• D. Trading has been halted by the exchange

37. What does Regulation NMS's access rule cap regarding fees for accessing a protected quotation?

• A. Exchange membership dues
• B. The fee a trading center may charge for accessing a protected quotation in a security priced at or above one dollar
• C. The commission a broker may charge a retail customer
• D. The markup on a principal transaction

38. A trading venue matches subscriber orders without exercising self-regulatory authority over those subscribers. What is this venue called?

• A. A non-exchange venue that matches orders and operates under Regulation ATS, including many dark pools
• B. An order management system used internally by a broker-dealer
• C. A registered national securities exchange
• D. A clearing agency

39. What is the principal trade-off for a large institutional order routed to a dark pool rather than a displayed market?

• A. Guaranteed execution at the midpoint
• B. Exemption from best execution obligations
• C. Exemption from trade reporting
• D. Reduced information leakage and market impact, at the cost of less certain execution

40. Under the limit order display rule, what must a market maker generally do with a customer limit order priced better than its own quote?

• A. Execute it immediately at the market maker's own quote
• B. Cancel it and inform the customer
• C. Hold it until the market reaches the limit price
• D. Display it, either by improving its own quotation or by routing it to a venue that will display it

41. A market maker receives a customer market order and executes it at a price worse than the national best offer while a protected offer was available. What has occurred?

• A. A permitted principal transaction
• B. An acceptable outcome if the customer did not specify a price
• C. A crossed market
• D. A trade-through and a likely best execution failure

42. A firm holds a customer limit order to buy at 20.00 and then buys for its own account at 20.00 without executing the customer order. What violation is this?

• A. Interpositioning
• B. Trading ahead of a customer limit order
• C. Backing away from a quote
• D. Marking the close

43. A trader enters and rapidly cancels large orders on one side of the market with no intention to execute, in order to induce others to trade against a smaller genuine order on the other side. What is this?

• A. A permitted algorithmic strategy if disclosed to the venue
• B. An acceptable practice if cancellations occur within a set time
• C. Legitimate liquidity provision
• D. Spoofing or layering, a prohibited manipulative practice

44. A trader executes a series of purchases in the final minutes of the session specifically to raise the closing price of a security. What is this practice called?

• A. Best execution at the close
• B. Marking the close, a prohibited manipulation
• C. A legitimate benchmark trade
• D. A permitted closing auction strategy

45. Under Regulation SHO, how must a sale be marked when the seller owns the security and will deliver it?

• A. Long
• B. Short exempt
• C. Short
• D. Marking is optional for long sales

46. Regulation SHO's alternative uptick price test restriction is triggered by what event?

• A. A decline of 10 percent or more in a covered security from the prior day's closing price
• B. Any downtick in the security
• C. Three consecutive days of decline
• D. A decline of 2 percent from the opening price

47. A security appears on a threshold securities list. What does this indicate?

• A. It has been halted for a regulatory reason
• B. It is prohibited from being sold short
• C. It has had a substantial and persistent level of fails to deliver, triggering enhanced close-out obligations
• D. It is exempt from the locate requirement

48. What does the market access rule require of a broker-dealer providing market access?

• A. Nothing beyond a written agreement with the customer
• B. Risk management controls and supervisory procedures reasonably designed to manage financial, regulatory and other risks, applied before orders reach the market
• C. Allowing customers to set their own credit limits without firm involvement
• D. Post-trade review of all orders once daily

49. The limit up-limit down mechanism operates by doing what?

• A. Cancelling all orders in a volatile security
• B. Setting a fixed daily price limit for every security
• C. Preventing trades outside a price band calculated from a reference price, with a pause if the market cannot return within the band
• D. Halting the entire market for the day

50. A trade is executed at a price far away from the prevailing market due to an apparent input error. What process may address it?

• A. The clearly erroneous transaction process, under which the trade may be broken or adjusted within defined numerical guidelines and time limits
• B. Automatic reversal with no review
• C. Unilateral cancellation by the firm at any time before settlement
• D. No remedy exists once a trade prints

51. Market-wide circuit breakers are triggered by a decline in which benchmark?

• A. The number of securities in LULD pauses
• B. The S&P 500 Index, at defined percentage decline levels
• C. The volume of shares traded
• D. The Dow Jones Industrial Average only

52. A market maker publishes a firm quotation and then refuses to trade with a broker attempting to access it. What is this?

• A. A locked market condition
• B. Backing away, a violation of the firm quote obligation
• C. A permitted exercise of dealer discretion
• D. An acceptable response if the market has moved

53. A trader inserts an additional dealer between a customer and the best available market with no benefit to the customer. What is this called?

• A. Internalization
• B. Interpositioning
• C. Riskless principal trading
• D. Payment for order flow

54. A firm receives payment for routing customer orders to a particular venue. What is the primary obligation this creates?

• A. Nothing, since the customer pays no additional charge
• B. A prohibition on the practice in all circumstances
• C. A requirement to rebate the payment to the customer
• D. Disclosure of the arrangement and a regular, rigorous review that routing still achieves best execution

55. What is the general obligation regarding the timeliness of reporting an equity trade executed over the counter during market hours?

• A. Report by the end of the trading day
• B. Report as soon as practicable within the prescribed short window measured in seconds after execution
• C. Reporting is required only for trades above a size threshold
• D. Report by settlement date

56. In an over-the-counter equity trade between two member firms, which party has the reporting obligation?

• A. Both members must each report the trade
• B. The buy-side member always reports
• C. The sell-side member, with defined rules assigning the obligation when both or neither is a market maker
• D. Neither reports; the clearinghouse reports

57. The Consolidated Audit Trail was established to accomplish what?

• A. Create a single comprehensive record of order events across markets to support surveillance and reconstruction
• B. Provide real-time public dissemination of order data
• C. Replace the consolidated quotation system
• D. Set position limits for equity securities

58. Which reporting system covers transactions in eligible fixed income securities?

• A. EMMA
• B. The Options Price Reporting Authority
• C. TRACE
• D. The equity trade reporting facilities

59. A trade is executed at 4:15 p.m. after the close of regular trading hours. How is it generally reported?

• A. Reported the following morning with no modifier
• B. Reported promptly with a modifier indicating execution outside regular market hours
• C. Reported as a regular-hours trade
• D. Not reported, since it occurred after hours

60. A trader accidentally reports a trade with the wrong price. What is the correct remedy?

• A. Wait until settlement to correct it
• B. Leave the report and note the error internally
• C. Submit a cancellation or correction promptly so the public record is accurate
• D. Offset the error with a compensating report at a different price

61. A trader's algorithm begins sending orders at a rate far above expected levels. What control should prevent market disruption?

• A. Pre-trade message rate and order size thresholds, with an automated kill switch
• B. A weekly supervisory review
• C. End-of-day reconciliation
• D. Notification to customers after the fact

62. A trader is asked by a customer to execute matched buy and sell orders between two accounts the customer controls, with no change in beneficial ownership. What should the trader do?

• A. Refuse and escalate, since this creates a wash trade with no economic substance
• B. Execute them at the midpoint to ensure fairness
• C. Execute and report them with a modifier
• D. Execute the orders since the customer instructed them

63. What distinguishes a bona fide market making activity for purposes of certain regulatory exceptions?

• A. Any trading conducted by a registered market maker
• B. Trading conducted only at the open and close
• C. Any principal trading during market hours
• D. Genuine two-sided quoting that provides liquidity, rather than trading designed to accumulate a directional position

64. A firm must publish quarterly reports on execution quality of covered orders it handled as a market center. Which requirement is this?

• A. The annual compliance certification
• B. The consolidated audit trail submission
• C. The order routing disclosure required of broker-dealers
• D. The execution quality disclosure required of market centers under Regulation NMS

65. A customer's order is marked not held. What discretion does this convey?

• A. Discretion to change the security or the side
• B. Discretion over time and price of execution, without relieving the firm of its best execution obligation
• C. No discretion at all
• D. Discretion to cancel the order entirely

66. A trader wants to establish a position ahead of a customer's large not-held order because the order will likely move the market. What is required?

• A. The trader must not do so, because trading ahead of a customer block order misuses the customer's information
• B. The trader may do so if the customer is not informed
• C. The trader may do so with verbal supervisory approval
• D. The trader may do so if the position is small

67. A security is subject to a regulatory halt. What may a trader do during the halt?

• A. Execute previously entered orders only
• B. Continue trading in the over-the-counter market
• C. Neither quote nor trade the security in the affected market until the halt is lifted
• D. Continue quoting but not execute

68. What is the significance of the national best bid and offer for a trading desk?

• A. It is calculated once daily at the close
• B. It is the price at which the primary exchange will always execute
• C. It is the consolidated best displayed prices across venues and serves as the reference for trade-through analysis and execution quality
• D. It includes all dark pool liquidity