Chapter One
Issuing Corporate Securities
Introduction 7
The Prospectus 7
The Final Prospectus 8
Prospectus To Be Provided To
Aftermarket Purchasers 8
SEC Disclaimer 9
Misrepresentations 9
Tombstone Ads 9
Free Riding and Withholding / NASD Rule 2790 10
Underwriting Corporate Securities 10
Types of Underwriting Commitments 11
Market Out Clause 11
Types of Offerings 11
Initial Public Offering (IPO) / New Issue 11
Subsequent Primary / Additional Issues 11
Primary Offering vs. Secondary Offering 12
Awarding the Issue 12
The Underwriting Syndicate 12
Selling Group 12
Exempt Securities 12
Exempt Transactions 13
Private Placements / Regulation D Offerings 13
Purchaser Representative 14
Rule 144 14
Broker Transactions Under Rule 144 15
Rule 144A 15
Regulation S Offerings 16
Regulation A Offerings 16
Small Business Offerings 16
Rule 145 16
Rule 137 Non Participants 17
Rule 138 Non Equivalent Securities 17
Rule 139 Issuing Research Reports 17
Rule 415 Shelf Registration 18

Chapter Two
The Securities Marketplace
Introduction 23
Types of Orders 23
Market Orders 23
Buy Limit Orders 23
Sell Limit Orders 24
Stop Orders / Stop Loss Orders 24
Buy Stop Orders 24
Sell Stop Orders 24
Stop Limit Orders 25
Other Types of Orders 25
All or None Orders 25
Immediate or Cancel Orders 25
Fill or Kill Orders 25
Not Held Orders 25
Market on Open / Market on Close Orders 25
The Exchanges 26
The Role of The Specialist 26
The Specialist Acting as a Principal 26
The Specialist Acting As an Agent 27
Do Not Reduce / DNR 27
Adjustments For Stock Splits 28
Stopping Stock 29
Short Sales 29
Regulation of Exchange Short Sales 29
Affirmative Determination 30
Short Against The Box 31
Circuit Breakers 31
Reading The Consolidated Tape 32

Chapter Three
Trading Over The Counter
and NASDAQ Securities
Introduction 35
Market Makers 35
NASDAQ Subscription Levels 35
Registering as a Market Maker 36
Registering as a Market Maker
In an OTC BB Security 36
Piggybacking a Quote 37
NASDAQ Quotes 38
Locked and Crossed Markets 38
Nominal NASDAQ Quotes 39
Payments For Market Making 39
NASDAQ Execution Systems 39
NASDAQ Market Center Execution System /
Super Montage 39
Super Montage Order Protection Feature 40
Quotes Entered Through NASDAQ
Market Center Execution System 41
Updating NASDAQ Quotes 42
Non-Directed Orders 42
Preferenced Orders 42
Directed Orders 43
The Alternative Display Facility / ADF 43
Trade Reporting and Comparison Service / TRACS 44
Advanced Computerized Execution System / ACES 44
Electronic Communication Networks / ECNs 44
Unlisted Trading Privileges 45
Market Centers 45
NASDAQ International 46
NASDAQ NMS Short Sales 46
Regulation SHO 47
Rule 200 Definitions and Order Marking 47
Rule 202T Temporary Short Sale Suspension Rule 48
Rule 203 Security Borrowing and
Delivery Requirements 48
Threshold Securities 49
Non NASDAQ OTCBB 50
Pink Sheets 50
Third Market 51
CAES / ITS – NASDAQ Market Center For
Listed Securities 51
Fourth Market 51

Chapter Four
Market Maker Responsibilities and
Trade Reporting
Introduction 57
Times For Entering a Quote 57
The Opening Cross 57
Order Imbalances 57
The NASDAQ Official Opening Price / NOOP 58
The Closing Cross 58
Withdrawing Quotes 58
Accidental Withdrawal of Quotes 59
Handling and Displaying Customer Limit Orders 59
Anonymously Displaying Customer Orders 61
The Manning Rule 61
Undisplayed Customer Limit Orders 62
Interpositioning 62
Automated Confirmation System / ACT Market
Center Trade Reporting Service 63
ACT Trade Scan 63
Which Side of The Trade Reports to Act? 64
Bunching Trades / Aggregate Reporting to ACT 64
Avoiding Double Reporting 65
The Role of ACT in Third Market Transactions 66
Trading Halts 67
Market Making During Syndication 69
Regulation M, Rule 101 69
Penalty Bids 70
Regulation M, Rule 102 70
Regulation M, Rule 103 70
Passive Market Makers’ Daily Purchase Limit 71
Regulation M, Rule 104 71
Syndicate Short Positions 72
Regulation M, Rule 105 72
Trade Reporting and Compliance Engine / TRACE 73

Chapter Five
Commissions and Trade Complaints
Introduction 79
Broker Vs. Dealer 79
NASD 5% Markup Policy 79
Mark Ups / Mark downs When Acting
as a Principal 80
Riskless Principal Transactions 81
Proceeds Transactions 81
Dominated and Controlled Markets 81
Protection of Customer Orders 82
Firm Quote Rule 82
OTC Market Maker 83
Covered Security 83
Subject Security 83
The Firm Quote Compliance System / FCQS 83
Trade Complaints between Members 83
The Order Audit Trail System / OATS 84

Chapter Six
Securities Industries Rules and Regulations
Introduction 87
The Securities Exchange Act of 1934 87
The Securities Exchange Commission / SEC 87
Trading Suspensions 88
Issuers Repurchasing Their Own Securities 88
Tender Offers 89
The Insider Trading & Securities Fraud
Enforcement Act of 1988 90
Fire Wall 91
NASDAQ Listing Standards 91
The Penny Stock Cold Call Rule 92
Fair Dealings with Clients 92
Churning 93
Manipulative and Deceptive Devises 93
Capping 93
Pegging 93
Front Running 93
Trading Ahead 93
Painting the Tape 94
Marking the Open 94
Marking the Close 94
Collusive Behavior 94
The Uniform Practice Code 95
Trade Date 95
Settlement Date 95
Payment Date 95
Violation 95
When Issued Securities 96
Clearly Erroneous Reports 96
Execution Errors 96
Close Outs 96
Customer Confirmations 97
Prime Brokerage Accounts 98

Pretest Answer Key
Chapter One
Issuing Corporate Securities 19 101

Chapter Two
The Securities Marketplace 33 103

Chapter Three
Trading Over The Counter
and NASDAQ Securities 53 105

Chapter Four
Market Maker Responsibilities
And Trade Reporting 75 107

Chapter Five
Commissions and
Trade Complaints 85 109

Chapter Six
Securities Industries
Rules and Regulations 99 111

Glossary of Exam Terms 113