CME-1 Trading Mechanisms & Market Operations 1 — Questions and Answers
Question 1: What is the name of the Saudi stock exchange where listed securities are traded?
- Tadawul (Saudi Exchange) (Correct answer)
- Murabaha Exchange
- Riyadh Bourse
- Gulf Securities Market
Correct answer: Tadawul (Saudi Exchange)
Tadawul, officially known as the Saudi Exchange, is the principal stock exchange of Saudi Arabia and the venue for trading listed securities.
Question 2: In the Saudi capital market, what does the term 'T+2' settlement cycle mean?
- Trading takes place over two days
- Settlement of securities occurs two business days after the trade date (Correct answer)
- Two trading sessions are held per day
- Two brokers must confirm each trade
Correct answer: Settlement of securities occurs two business days after the trade date
T+2 means that the transfer of securities and cash between buyer and seller is completed two business days after the transaction date.
Question 3: Which type of order instructs a broker to buy or sell a security immediately at the best available current price?
- Limit order
- Stop order
- Market order (Correct answer)
- Good-till-cancelled order
Correct answer: Market order
A market order is executed immediately at the prevailing best available price without specifying a price limit.
Question 4: What is a 'limit order' in the context of securities trading?
- An order that expires at the end of the trading day
- An order to buy or sell at a specified price or better (Correct answer)
- An order restricted to institutional investors only
- An order that triggers when a price threshold is reached
Correct answer: An order to buy or sell at a specified price or better
A limit order sets the maximum price a buyer will pay or the minimum price a seller will accept, ensuring the trade occurs only at or better than that price.
Question 5: During a trading halt called by the exchange, which of the following is TRUE?
- Only sell orders are suspended
- All trading in the affected security is temporarily suspended (Correct answer)
- Only block trades are prohibited
- Trading continues but at reduced volumes
Correct answer: All trading in the affected security is temporarily suspended
A trading halt suspends all buying and selling activity in the affected security until the exchange lifts the halt, typically to allow dissemination of material information.
Question 6: What is the primary function of the Securities Depository Center (Edaa) in Saudi Arabia?
- Setting margin requirements for broker-dealers
- Maintaining the central registry of securities ownership and handling settlement (Correct answer)
- Publishing daily market prices for all listed securities
- Approving new listings on the Saudi Exchange
Correct answer: Maintaining the central registry of securities ownership and handling settlement
Edaa (Securities Depository Center) serves as the central securities depository, maintaining ownership records and facilitating the settlement and transfer of securities.
Question 7: Which of the following best describes a 'short sale' in securities markets?
- Selling securities held for less than one year
- Selling borrowed securities with the intention of buying them back at a lower price (Correct answer)
- A sale completed in less than the standard settlement period
- Selling securities at a price below their book value
Correct answer: Selling borrowed securities with the intention of buying them back at a lower price
A short sale involves selling securities that the seller has borrowed, anticipating a price decline so they can repurchase at a lower price and return the borrowed shares.
CME-1 Trading Mechanisms & Market Operations 1
What is the name of the Saudi stock exchange where listed securities are traded?