FIA Equity Markets & Trading 5

Question 1

What does 'Regulation NMS' primarily govern in US equity markets?

Accepted Answer

Rules ensuring investors receive the best available prices across trading venues

Answer

Regulation National Market System (Reg NMS) establishes rules to ensure that investors receive the best possible price for their equity orders across all trading venues.

Question 2

What is a 'rights offering' in equity markets?

Accepted Answer

An offer to existing shareholders to purchase additional shares at a discounted price before a public offering

Answer

A rights offering gives existing shareholders the right to purchase additional shares at a discount to the market price, allowing them to maintain their proportional ownership.

Question 3

What is 'payment for order flow' (PFOF)?

Accepted Answer

A practice where brokers receive compensation from market makers in exchange for routing customer orders to them

Answer

PFOF is a practice where brokers receive payments from market makers or trading venues in exchange for directing customer order flow to them, which can create potential conflicts of interest.

Question 4

What is the purpose of a 'lock-up period' following an IPO?

Accepted Answer

To restrict insiders and early investors from selling shares for a set period after the IPO

Answer

A lock-up period (typically 90–180 days) prevents company insiders, founders, and pre-IPO investors from selling their shares immediately after an IPO, reducing potential price pressure.

Question 5

What is 'latency arbitrage' in electronic equity markets?

Accepted Answer

Using speed advantages to trade ahead of slower market participants by reacting to market data faster

Answer

Latency arbitrage involves using faster technology to detect and exploit fleeting price differences before slower participants can react, a common strategy in HFT.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Equity Markets & Trading 5