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- Series 24 - General Securities Principal
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Series 24 Text Book - General Securities Principal
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Series 24 Text Book - General Securities Principal Exam
SERIES 24 EXAM INFORAMTION:
Each Series 24 exam will comprise questions that focus on the following areas:
- 150 questions
- 3½ hours
- 70 % = pass
Supervision of Investment Banking: 23 questions, which is 15% of the exam.
Supervision of Trading and Market Making: 39 questions, which is 26% of the exam.
Supervision of Brokerage Operations: 34 questions, which is 23% of the exam.
Sales Supervision / NASD Supervision: 38 questions, which is 25% of the exam.
Financial and Record Keeping Rules: 16 questions, which is 11% of the exam.
Sample portion of a chapter:
Registering as a Market Maker
All broker dealers who wish to register as a marker maker must file an application with
the NASD and demonstrate that they are in good standing with the Association and that
the firm meets the capital requirements to become a market maker. The broker dealer’s
registration will become effective upon notification by the NASD. Once approved, a
broker dealer must register in each security it wishes to make a market in, prior to
quoting that security. Broker dealers may not receive any consideration from the issuer or
from promoters for making a market in the security. As a result of recent SEC order
handling rules all market makers will be considered primary market makers and will be
exempt from the NASDAQ short sale rule.
Registering as a Market Maker In an OTC BB Security
Securities that are quoted in the OTCBB do not have to meet any listing requirements and
may be quoted by broker dealers who are registered as OTC marker makers. Market
makers must obtain detailed information regarding the issuer as required by SEC Rule
15c2-11. Prior to quoting or resuming a quote in an OTC BB security the marker maker
must have at least one of the following:
�� Form 10K, 10Q, and 8K
�� An offering circular effective within 40 days
�� A prospectus effective within 90 days
�� Other detailed financial information
�� Foreign financial filings for foreign firms
The market maker entering the quote must maintain a file containing the following:
�� A copy of any SEC trading suspension or public release relating to any of the
issuer’s securities within the last 12 months
�� A record of the name of the person or people for whom the quote is published and
a record of any information provided to the dealer by that person.
�� A copy of other information relating to the issuer that the dealer becomes aware
of.
The dealer is required to file form 211 with the NASD at least 3 business days prior to
entering a quote. The firm is also required to provide the Association with the
information required under SEC Rule 15C2-11. The filing should also include:
�� The name of the issuer
�� The dealer’s initial or resumed quote
�� The basis for the quote
�� The type of security
�� How the firm will display the quote
�� A demonstration of the dealer’s compliance with SEC Rule 15C2-11
�� The previous name of the company if the issuer was party to a merger
TAKE NOTE!
If the dealer’s initial quote is not priced and is subsequently changed to a priced quote the
dealer must update their filing and must include their new quote and the basis for the
quote.
The NASD will respond to the dealer’s application within 3 business days and will notify
the dealer if the application has been cleared, denied, or if the Association needs
additional information.
TEST FOCUS!
SEC Rule 15C2-11 only relates to Non NASDAQ securities. A dealer may be exempt
from the requirements of SEC Rule 15 C 2-11 if:
�� The Quote is being entered based on an unsolicited customer order
�� The security is listed on an exchange or trades on NASDAQ
�� The dealer is “piggybacking” another dealer’s quote.
Piggybacking a Quote
If an OTC BB security has been quoted by another dealer for a minimum of 30 days, they
may simply enter their own quote by piggybacking the current dealer’s quote so long as:
�� The security has been quoted for at least 12 of the last 30 days (Active)
�� There have been no more than four consecutive days without a quote (Active)
�� There is at least one independent market maker quoting the security.
Securities that have been delisted from NASDAQ may be automatically quoted by a
dealer on the OTC BB if:
�� The issuer is not in bankruptcy
�� The market maker quoted the security on NASDAQ in the last 30 days
�� The security was quoted for 30 days continuously before being halted
�� The issuer is current with all required SEC filings
If a security being quoted on the OTC BB is the subject of an SEC trading suspension,
the market maker should review the information they have in their possession with regard
to the issuer to ensure that it is still accurate and that they are still in compliance with
SEC Rule 15C2-11. The market maker must obtain updated information if necessary.
NASDAQ Quotes
Most actively traded NASDAQ stocks are quoted by a large number of market makers.
As market makers enter their quotes, some will be above or below the best quote known
as the inside market. A market maker whose quote is above or below the inside market is
said to be away from the market. As the market makers adjust their quotes, the market
maker who is publishing the highest bid for the security has their bid displayed at the top
of the list and their bid is published as the best bid to anyone with a NASDAQ Level I
subscription service or higher. The market maker publishing the lowest offer will have
their offer listed at the top of the list and published as the lowest offer to anyone with a
NASDAQ Level I subscription service or higher. As a result, the best bid and offer from
any two market makers will make up the inside market.
Example:
XYAD
Bid Ask
15.00 15.05
MM 1 14.90 15.10
MM 2 15.00 15.20
MM 3 14.85 15.05
MM 4 14.95 15.15
MM 5 14.98 15.18
Note:
Notice how the inside market for XYAD consists of the bid from market maker 2 and the
offer from market maker 3. All of the other market makers are away from the market.
Locked and Crossed Markets
Market makers may not enter quotes that would lock or cross the market. A locked
market is one where the bid and offer are equal in price. For example, if another market
maker came into the above listed market for XYAD known as market maker 6, and
entered a bid of 15.05 or an offer of 15.00, the bid or offer entered would lock the market.
A crossed market is one where a bid is entered that is higher than the offer or, one where
an offer is entered that is lower than the bid. If market maker 6 entered a bid of 15.10 or
an offer of 14.95 the bid or offer would cross the market. A market maker who has an
order that would cause them to enter a bid or offer that would lock or cross the marker
must make an effort to trade with all the market makers whose bid or offer they would
lock or cross. The NASDAQ’s Super Montage system helps alleviate most locked or
crossed markets.
Nominal NASDAQ Quotes
All quotes published over the NASDAQ workstation are firm quotes. A dealer who fails
to honor their quotes has committed a violation known as backing away. Dealers who
provide quotes over the phone, which are clearly indicated as being subject or nominal,
cannot be held to trade at those prices. NASDAQ qualifiers are:
�� “It looks like”
�� “It’s around”
�� “Subject”
�� “Nominal”
�� “Work it out”
�� “Last I saw”
A response of “it is’ would indicate a firm quote. A firm quote is always good for at least
one round lot or 100 shares.
NASDAQ Execution Systems
Most NASDAQ trades are executed over the NASDAQ workstation using one of its
Automated execution systems. These systems allow dealers to execute orders without
having to speak with one another on the phone.
Super Montage
The NASDAQ Super Montage system accepts market orders and immediately executable
limit orders for both customer and firm accounts. Orders may be entered for up to
999,999 shares per order. The orders will immediately be routed to dealers on the inside
market for automatic execution. Larger orders may be split up to meet the maximum
order volume. Orders executed through the Super Montage system are automatically
reported to act. Orders executed through the Super Montage system are executed based
on the priority of price and time. Orders will be executed against the market maker that is
quoting the best price first. If more than one market maker is quoting the same price,
orders will be executed against the market maker who quoted the best price first. Orders
may be entered in the Super Montage system by both market makers and order entry
firms. Firms may modify the way that their orders are routed to market makers by
selecting:
�� Modified price and time; this option will take into consideration access fees that
may be charged by the counter parties
�� Price, size, time which takes into consideration the size of the counter parties
quote
Quotes Entered Through Super Montage
Maker makers who quote securities through the Super Montage system must display the
price for their quote as well as the size of their quote. The Super Montage system will
also allow market makers to maintain additional shares to buy or sell in “reserve”. This
reserve size is not seen by other market participants and must be for at least one round lot
or 100 shares.
Series 24 - General Securities Principal Qualifies an individual to be an officer, partner, or supervisor of sales personnel with a FINRA member firm
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Series 24 - General Securities Principal Qualifies an individual to be an officer, partner, or supervisor of sales personnel with a FINRA member firm
