A customer purchases 100 shares of stock on Thursday, August 2. This transaction must settle regular way no later than:
Answer(s): B
Regular-Way Settlement: For equity securities, settlement occurs on a T+2 basis, meaning two business days after the trade date.Calculation:Trade Date (T): Thursday, August 2.T+2 Settlement: Excludes weekends, so settlement falls on Monday, August 6.Incorrect Options:A: Reflects T+1, not the correct settlement cycle.C & D: Extend beyond the standard T+2 cycle.
FINRA and SEC Settlement Rules: SEC Settlement Rules.
Which of the following terms describes failure to honor a firm quote?
Backing Away: Refers to the failure of a market maker to honor a firm quote when a customer attempts to trade at that price. It is a violation of market rules.Incorrect Options:Freeriding: Involves selling securities before paying for them in a cash account.Interpositioning: Involves unnecessary intermediaries in trades, which can harm customers.Market Manipulation: Covers a range of deceptive practices, such as wash trading or spoofing, not specific to honoring quotes.
FINRA Rule 5220 (Firm Quote Rule): FINRA Rule 5220.
When exercised, an option written on which of the following items must be settled in cash?
Answer(s): A
Equity Index Options: These are cash-settled because the underlying asset is not a physical security but a theoretical value representing the index.Incorrect Options:Preferred Stock, Master Limited Partnerships, and ETFs: These involve physical delivery of the underlying asset upon exercise.
Options Clearing Corporation (OCC) Guidelines: OCC Cash-Settled Options.
Which of the following statements is a characteristic of a government bond fund?
Answer(s): D
Government Bond Funds: Invest in government-backed securities, but the value of the fund itself is not guaranteed by the government, as these funds are subject to market risks.Incorrect Options:A: Diversification depends on the fund's investment strategy.B: Interest/dividend payments may fluctuate.C: If interest rates fall, NAVs typically rise, not drop.
SEC Guidance on Mutual Funds: SEC Government Bond Funds.
A customer buys 100 ABC at $50 and at the same time sells an ABC April 50 call at $8. At expiration, ABC must be at what market price for the customer to break even?
Breakeven Calculation: For covered call writing, breakeven is the stock purchase price minus the premium received.Purchase Price = $50Premium Received = $8Breakeven = $50 - $8 = $42.Other Options:B, C, and D: Incorrect because they do not reflect the proper calculation of stock price minus the premium.
Options Clearing Corporation (OCC) Education: OCC Options Guidance.
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