SIE Market Structure and Trading

Question 1

What is the role of a market maker?

Accepted Answer

To provide liquidity by continuously quoting bid and ask prices

Answer

Market makers provide liquidity by posting continuous bid (buy) and ask (sell) prices, profiting from the bid-ask spread.

Question 2

The bid price in a security quote represents:

Accepted Answer

The price at which a dealer will buy the security

Answer

The bid price is the highest price a buyer (dealer) is willing to pay to purchase the security from an investor.

Question 3

The National Best Bid and Offer (NBBO) rule requires broker-dealers to:

Accepted Answer

Execute customer orders at the best available prices across all exchanges

Answer

The NBBO rule requires broker-dealers to execute customer orders at the best available bid or offer price across all trading venues.

Question 4

A limit order is an instruction to buy or sell a security:

Accepted Answer

At a specific price or better

Answer

A limit order specifies the maximum price a buyer will pay (or minimum price a seller will accept) and will only execute at that price or better.

Question 5

What is the difference between a broker and a dealer?

Accepted Answer

Brokers act as agents for customers; dealers trade for their own account as principals

Answer

A broker acts as an agent executing trades on behalf of customers, while a dealer trades as a principal from its own inventory.

SIE - Securities Industry Essentials Practice Test