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JSE Brokerage Operations study materials
JSE Brokerage Operations study resources

JSE Brokerage Operations practice questions

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Question 1Regulatory Framework and JSE Rules

Under the JSE Listings Requirements, which document must a listed issuer publish to shareholders before certain transactions can proceed?

  1. A press advertisement summarising the transaction value only
  2. A broker note prepared by the issuer's sponsor
  3. A circular containing the full terms and the fairness opinion where required Correct answer.
  4. An internal board memorandum retained at the company secretary's office

Explanation

The JSE Listings Requirements require a listed issuer to issue a circular to shareholders for categories of transactions and corporate actions specified in the requirements, setting out full terms and, where mandated, a fairness opinion. The circular supports informed shareholder voting and is subject to JSE and, where applicable, Takeover Regulation Panel review.

Question 2Regulatory Framework and JSE Rules

Which body is responsible for licensing and supervising stockbrokers and other market participants in South Africa?

  1. The JSE's own listing division
  2. The Prudential Authority
  3. The Financial Sector Conduct Authority Correct answer.
  4. The South African Reserve Bank's fintech unit

Explanation

The Financial Sector Conduct Authority (FSCA) licenses financial services providers, including stockbrokers, under the FAIS framework and supervises market conduct. The JSE operates the exchange and enforces its own membership rules, but licensing of FSPs sits with the FSCA.

Question 3Regulatory Framework and JSE Rules

The JSE's equities trading platform operates under which order-driven matching model?

  1. A central limit order book with continuous trading and opening and closing auctions Correct answer.
  2. A call auction only, with continuous trading reserved for bonds
  3. A request-for-quote system where clients negotiate privately with the exchange
  4. A quote-driven dealer market with no central order book

Explanation

The JSE equities market uses a central limit order book in which orders are matched continuously during the trading day, with opening and closing auction phases. This is distinct from a quote-driven dealer market where clients trade against dealer quotes.

Question 4Regulatory Framework and JSE Rules

Which settlement cycle applies to JSE equities trades under the exchange's rules?

  1. T+2 Correct answer.
  2. Same-day settlement
  3. T+1
  4. T+5

Explanation

JSE equities trades settle on a T+2 basis, with the trade date plus two business days as the settlement date. This cycle governs the timing of delivery-versus-payment obligations through the central securities depository.

Question 5Regulatory Framework and JSE Rules

Which legislation is the primary statute governing the regulation of securities services and market infrastructure in South Africa?

  1. The Companies Act 71 of 2008
  2. The Banks Act 94 of 1990
  3. The Financial Markets Act 19 of 2012 Correct answer.
  4. The National Credit Act 34 of 2005

Explanation

The Financial Markets Act 19 of 2012 regulates exchanges, central securities depositories and market participants, and underpins the JSE's regulatory mandate. The Companies Act deals with company law, while the Banks Act and National Credit Act regulate banks and credit providers respectively.

Question 6Regulatory Framework and JSE Rules

A client instructs a broker to buy shares, but the broker executes the trade on a different exchange without informing the client. Which principle of the JSE rules on client instructions is breached?

  1. The settlement cycle requirement
  2. The JSE's disclosure of beneficial ownership rules
  3. Best execution and acting in accordance with client instructions Correct answer.
  4. The listing requirements on shareholder circulars

Explanation

Brokers must act in accordance with client instructions and achieve best execution, which includes routing orders to the appropriate venue and disclosing execution arrangements. Routing to a different venue without the client's knowledge breaches these duties.

Question 7Regulatory Framework and JSE Rules

Which of the following is a core function of the JSE's Regulatory Division?

  1. Setting monetary policy for the exchange
  2. Clearing and settling trades as the central counterparty
  3. Providing retail banking services to investors
  4. Supervising compliance by JSE members and listed issuers with the exchange's rules Correct answer.

Explanation

The JSE Regulatory Division monitors and enforces compliance by members and listed issuers with the JSE's rules and the Financial Markets Act. Clearing and settlement are handled by separate entities, and monetary policy is a central bank function.

Question 8Regulatory Framework and JSE Rules

Which entity acts as the central securities depository for JSE equities?

  1. The South African Reserve Bank
  2. Strate (Pty) Ltd Correct answer.
  3. The JSE's trading engine
  4. The Financial Sector Conduct Authority

Explanation

Strate (Pty) Ltd is the licensed central securities depository for JSE equities, holding securities in electronic form and effecting settlement. The JSE operates the trading platform, while the FSCA and SARB are regulators.

Question 9Regulatory Framework and JSE Rules

A JSE member firm wants to appoint a new key individual. Which process must be followed?

  1. Appoint the individual and file a report at the next annual audit
  2. Obtain prior approval from the JSE and meet the fit-and-proper requirements Correct answer.
  3. Seek approval only from the company's board of directors
  4. Notify the JSE after the appointment takes effect

Explanation

JSE members must obtain the exchange's prior approval for key individuals and directors, who must satisfy fit-and-proper criteria. This ensures that persons controlling member firms are competent and of good standing before they assume their roles.

Question 10Regulatory Framework and JSE Rules

Which market abuse offence involves trading on information that is not generally available and that would affect the price of securities?

  1. Insider trading Correct answer.
  2. Wash trading
  3. Spoofing
  4. Front-running

Explanation

Insider trading is the use of price-sensitive, non-public information to deal in securities or to tip others. It is prohibited under the Financial Markets Act and enforced by the JSE and the FSCA.

Question 11Regulatory Framework and JSE Rules

A settlement instruction fails because the selling client has insufficient securities in its account. What is the primary consequence under JSE and CSD rules?

  1. The buying client must accept a cash refund from the CSD
  2. The trade is automatically cancelled with no further action
  3. The failing member is subject to the CSD's settlement discipline and buy-in procedures Correct answer.
  4. The JSE suspends the issuer's listing

Explanation

Failed settlements trigger the CSD's settlement discipline regime, including buy-in procedures and penalties against the failing member. The trade is not simply cancelled, and the issuer's listing is unaffected.

Question 12Regulatory Framework and JSE Rules

Under the JSE Listings Requirements, a category 1 transaction by a listed issuer generally requires which action?

  1. No shareholder involvement, only board approval
  2. Approval by the Takeover Regulation Panel only
  3. A circular to shareholders and, where required, shareholder approval Correct answer.
  4. Notification to the JSE after completion

Explanation

Category 1 transactions are significant relative to the issuer's size and require a circular to shareholders and, in specified cases, shareholder approval. This ensures shareholders have full information before the transaction proceeds.

Question 13Regulatory Framework and JSE Rules

Which of the following best describes the role of the JSE's market surveillance function?

  1. Acting as counterparty to every trade on the exchange
  2. Approving the financial statements of listed issuers
  3. Monitoring trading activity for breaches of market conduct rules and referring suspicious activity for investigation Correct answer.
  4. Setting the opening prices of listed securities each morning

Explanation

Market surveillance monitors trading for conduct breaches, including manipulation and insider trading, and refers matters for investigation or enforcement. It does not set prices, act as counterparty, or audit issuers' financial statements.

Question 14Regulatory Framework and JSE Rules

A broker receives a client order to sell a large block of shares and simultaneously buys the same shares for its own account before executing the client order. Which offence does this most likely constitute?

  1. Short selling
  2. Front-running Correct answer.
  3. Insider trading
  4. Market making

Explanation

Front-running is trading ahead of a client's known order to profit from the expected price impact, and it breaches the duty to act in the client's best interest. It is distinct from insider trading, which relies on confidential issuer information.

Question 15Regulatory Framework and JSE Rules

Which requirement applies to a JSE member firm's record-keeping of client orders and trades?

  1. Records must be retained for a minimum period prescribed by the rules and be readily retrievable Correct answer.
  2. Only paper records are acceptable
  3. Records need only be kept if the client requests them
  4. Records may be discarded once the trade has settled

Explanation

JSE members must maintain complete, accurate records of orders and transactions for a prescribed minimum period and produce them on request to regulators. This supports audit, surveillance and dispute resolution.

Question 16Regulatory Framework and JSE Rules

What is the purpose of the JSE's 'four eyes' principle in member operations?

  1. Requiring the JSE to approve every order before execution
  2. Requiring two independent reviews or approvals for key operational actions to reduce error and fraud risk Correct answer.
  3. Mandating that all trades be executed by two dealers
  4. Requiring two brokers to sign every client contract

Explanation

The four eyes principle requires independent review or authorisation by a second person for sensitive operational actions, reducing the risk of error and fraud. It is a control standard, not a requirement for dual execution of trades.

Question 17Regulatory Framework and JSE Rules

Which of the following statements about the JSE's treatment of client funds held by members is correct?

  1. Client funds must be segregated from the member's own funds and held in designated accounts Correct answer.
  2. Client funds need only be segregated if they exceed a set threshold
  3. Client funds may be commingled with the member's own funds if a bank guarantees them
  4. Client funds may be used to finance the member's proprietary trading

Explanation

JSE members must keep client funds separate from their own, typically in designated trust or segregated accounts, to protect clients in the event of insolvency. Commingling and using client money for proprietary purposes are prohibited.

Question 18Regulatory Framework and JSE Rules

A listed issuer becomes aware of information that is likely to have a material effect on its share price. Under the JSE Listings Requirements, what is the issuer's primary obligation?

  1. Announce the information promptly through the exchange's news service Correct answer.
  2. Disclose it only to major institutional shareholders
  3. Withhold the information until the next scheduled results announcement
  4. Report it to the JSE after the market closes on the following day

Explanation

Issuers must disclose price-sensitive information promptly and without delay through the approved news dissemination service, so the market trades on equal information. Selective disclosure to certain shareholders is prohibited.

Question 19Regulatory Framework and JSE Rules

Which body hears appeals against certain decisions of the JSE's regulatory bodies?

  1. The Competition Commission
  2. The National Prosecuting Authority
  3. The JSE's own appeals committee established under its rules Correct answer.
  4. The Companies Tribunal

Explanation

The JSE rules provide for an internal appeals process, including an appeals committee, to review specified regulatory decisions. Other bodies listed deal with criminal prosecution, company law matters and competition issues respectively.

Question 20Regulatory Framework and JSE Rules

A JSE member wishes to outsource its back-office settlement processing to a third-party service provider. Which requirement applies?

  1. The member must transfer its JSE membership to the provider
  2. The member may outsource without any notification provided the provider is a bank
  3. The member must notify or obtain approval from the JSE and ensure the provider meets the relevant controls Correct answer.
  4. Outsourcing is prohibited for JSE members

Explanation

Outsourcing is permitted subject to JSE notification or approval requirements and the member remaining accountable for the outsourced function, including controls and business continuity. The member retains its regulatory responsibilities.

Question 21Regulatory Framework and JSE Rules

Which of the following is a key objective of the JSE's insider trading and market abuse rules?

  1. Ensuring market integrity and equal access to information Correct answer.
  2. Reducing the number of listed issuers
  3. Guaranteeing profits for members' clients
  4. Maximising trading volumes on the exchange

Explanation

Market abuse rules protect market integrity by preventing trading on confidential information and manipulative conduct, supporting fair and equal access to information. They do not aim to boost volumes or guarantee returns.

Question 22Regulatory Framework and JSE Rules

A member firm's compliance officer discovers a suspicious trading pattern suggesting manipulation. What is the appropriate first step under the JSE rules?

  1. Confront the suspected client publicly
  2. Wait for the JSE to detect the pattern independently
  3. Report the matter promptly to the JSE's surveillance or regulatory division Correct answer.
  4. Close the client's account without any report

Explanation

Members have an obligation to report suspected market abuse promptly to the JSE's regulatory function. Self-reporting supports investigation and demonstrates good faith compliance.

Question 23Regulatory Framework and JSE Rules

An issuer proposes a transaction that would result in a change of control and triggers the Takeover Regulation Panel's jurisdiction. Which framework primarily governs the transaction?

  1. The Banks Act
  2. The Companies Act and the Takeover Regulations, alongside the JSE Listings Requirements Correct answer.
  3. The JSE Listings Requirements alone
  4. The National Credit Act

Explanation

Affected transactions are governed by the Companies Act and Takeover Regulations administered by the Takeover Regulation Panel, with the JSE Listings Requirements applying in parallel. The other statutes listed do not regulate change-of-control transactions.

Question 24Regulatory Framework and JSE Rules

A member firm executes a trade for a client but fails to obtain the required best execution evidence. Which regulatory consequence is most likely?

  1. Immediate suspension of the client's trading account by the JSE
  2. Regulatory scrutiny and potential enforcement action for breaching conduct requirements Correct answer.
  3. No consequence, as best execution is only a commercial aspiration
  4. Automatic delisting of the traded security

Explanation

Best execution is a conduct requirement, and members must be able to demonstrate compliance through records and evidence. Failure exposes the member to regulatory scrutiny and possible enforcement, but does not affect the issuer's listing or automatically suspend the client.

Question 25Regulatory Framework and JSE Rules

Which of the following best explains why the JSE separates its commercial activities from its regulatory function?

  1. To increase trading fees
  2. To reduce the number of listed companies
  3. To comply with the National Credit Act
  4. To avoid conflicts of interest between operating a profitable exchange and enforcing rules impartially Correct answer.

Explanation

Separating the commercial exchange business from the regulatory function mitigates conflicts of interest, ensuring that rule enforcement is impartial and credible. This structure supports market confidence and aligns with the Financial Markets Act's regulatory framework.

Question 26Regulatory Framework and JSE Rules

Which legislation is the primary statute governing the licensing and conduct of JSE member firms as financial services providers?

  1. The Financial Advisory and Intermediary Services Act 37 of 2002 Correct answer.
  2. The Financial Markets Act 19 of 2012
  3. The Companies Act 71 of 2008
  4. The Banks Act 94 of 1990

Explanation

FAIS governs the licensing and conduct of financial services providers, including JSE member firms acting as intermediaries, and imposes fit-and-proper, disclosure and record-keeping duties. The Financial Markets Act regulates exchanges and market conduct, while the Companies Act and Banks Act address company law and banking respectively.

Question 27Regulatory Framework and JSE Rules

Under the JSE membership requirements, which individual must be appointed to take responsibility for the member's compliance with the JSE Rules and the Financial Markets Act?

  1. The settlement officer
  2. The designated market maker
  3. The compliance officer Correct answer.
  4. The external auditor

Explanation

Each member must appoint a compliance officer who is responsible for monitoring and reporting on compliance with the JSE Rules and applicable legislation. The role is distinct from audit and settlement functions and must be filled by a suitably qualified individual approved by the JSE.

Question 28Regulatory Framework and JSE Rules

A JSE member firm's client agreement must, under the JSE Rules, disclose certain information before a client's first trade. Which item is required in that agreement?

  1. The basis on which brokerage and other charges are levied Correct answer.
  2. The member's internal profit margin per trade
  3. The personal contact details of the member's compliance officer
  4. The names of the member's largest institutional clients

Explanation

The JSE Rules require the client agreement to set out the basis on which brokerage, fees and charges are calculated and levied, so the client can give informed consent. Profit margins, other clients' identities and staff contact details are not required disclosures.

Question 29Regulatory Framework and JSE Rules

Which of the following is a primary objective of the JSE's regulatory framework as set out in its rules?

  1. Setting the interest rate at which member firms lend to clients
  2. Determining the dividend policy of listed issuers
  3. Protecting investors and ensuring fair, orderly and transparent markets Correct answer.
  4. Guaranteeing investors a minimum return on listed securities

Explanation

The regulatory framework exists to protect investors and maintain fair, orderly and transparent markets, supported by surveillance, listing standards and enforcement. The JSE does not guarantee returns, set lending rates or dictate issuer dividend policy.

Question 30Regulatory Framework and JSE Rules

A JSE member firm discovers that one of its registered representatives has been executing client orders without first obtaining a written mandate. Which consequence is most directly prescribed by the JSE Rules?

  1. The client's trades are voided and unwound by the exchange
  2. The member's external auditor must resign immediately
  3. The JSE automatically suspends trading in the affected securities
  4. The JSE may take disciplinary action against the member and the representative Correct answer.

Explanation

Failure to obtain a written mandate breaches the JSE Rules, exposing both the member firm and the individual representative to disciplinary action by the JSE. The trades themselves are not automatically voided, nor does the exchange suspend the securities or require auditor resignation.

Question 31Regulatory Framework and JSE Rules

Under the JSE Equities Rules, a member firm must report a material breach of the rules to the JSE. Within what general expectation must such a report be made?

  1. Within 30 calendar days of the financial year end
  2. Only if the client formally complains
  3. Promptly upon becoming aware of the breach Correct answer.
  4. Only after the external audit is completed

Explanation

Members are expected to notify the JSE promptly once they become aware of a material breach, allowing the exchange to assess and manage the issue. Waiting for year end, audit completion or a client complaint would defeat the purpose of timely self-reporting.

Question 32Regulatory Framework and JSE Rules

Which statement correctly describes the JSE's approach to conflicts of interest within a member firm's broking and proprietary trading activities?

  1. Members may front-run client orders provided the client is later notified
  2. Conflicts need only be disclosed to institutional clients
  3. Proprietary trading must always be conducted by the same desk as client execution
  4. Chinese walls and separate supervision are required to manage conflicts between client and proprietary activity Correct answer.

Explanation

The JSE Rules require members to identify and manage conflicts, typically through information barriers, separate supervision and dealing procedures that keep client and proprietary activity apart. Sharing a desk, limiting disclosure to institutions, or permitting front-running all undermine that control environment.

Question 33Regulatory Framework and JSE Rules

A JSE member firm wants to open a branch office. Which requirement of the JSE Rules applies to the appointment of staff at that branch?

  1. Branch staff may be unregistered provided they are supervised remotely
  2. Only the branch manager must be registered with the JSE
  3. All staff who deal with clients must be registered representatives approved by the JSE Correct answer.
  4. Registration is required only after the branch has traded for a year

Explanation

Individuals who render securities services to clients must be registered representatives approved by the JSE, and this applies to branch staff as well as head office staff. Registration is not limited to the branch manager nor deferred until after trading begins.

Question 34Regulatory Framework and JSE Rules

Under the JSE Listings Requirements, which document must a listed issuer publish when it proposes a transaction requiring shareholder approval?

  1. A press release only, with no further documentation
  2. A circular containing the details of the transaction and the required disclosures Correct answer.
  3. A confidential memorandum sent solely to the JSE
  4. An audited set of financial statements covering the next financial year

Explanation

Where shareholder approval is required, the issuer must issue a circular that contains the prescribed transaction details and disclosures so shareholders can make an informed decision. A press release, a confidential memorandum or future financial statements do not satisfy the circular requirement.

Question 35Regulatory Framework and JSE Rules

A JSE member firm receives a client complaint alleging unauthorised trading. Under the JSE Rules, what is the member's primary obligation?

  1. Refer the complaint to the JSE and take no further action
  2. Investigate the complaint, keep records and report to the JSE where required Correct answer.
  3. Advise the client to pursue the matter through the courts only
  4. Settle the complaint financially without investigation

Explanation

Members must have a complaints procedure that includes investigating the matter, maintaining records of the complaint and its resolution, and escalating to the JSE where the rules require. Simply referring the matter, paying without investigation, or deflecting to litigation would not meet the member's obligations.

Question 36Regulatory Framework and JSE Rules

Which of the following best describes the JSE's requirements regarding the segregation of client securities from member-owned securities?

  1. Segregation applies only where the client requests it in writing
  2. Client securities must be held separately and identifiable from member assets Correct answer.
  3. Segregation is required only for institutional client accounts
  4. Client securities may be pooled with firm securities provided records are kept

Explanation

Client securities must be segregated and separately identifiable so that they are protected in the event of the member's insolvency. Pooling with firm assets, limiting segregation to institutions, or making it client-optional would defeat that protection.

Question 37Regulatory Framework and JSE Rules

A member firm's trading desk executes a client order and the confirmation sent to the client omits the execution venue. Which regulatory principle is most directly engaged?

  1. The duty to withhold venue information as confidential
  2. The duty to guarantee the client a profit on the trade
  3. The duty to report the omission only to the member's auditor
  4. The duty to provide accurate contract notes reflecting the terms of the transaction Correct answer.

Explanation

Contract notes must accurately reflect the terms of the transaction, including prescribed details such as the venue where relevant, so the client can verify execution. The other options are not regulatory duties and would not excuse an incomplete confirmation.

Question 38Regulatory Framework and JSE Rules

A listed issuer's directors wish to deal in the issuer's securities during a closed period. Under the JSE Listings Requirements, which statement is correct?

  1. Directors are prohibited from dealing during a closed period, subject to limited exceptions Correct answer.
  2. Directors may deal freely as long as they notify the company afterwards
  3. Directors may deal if they obtain shareholder approval at the next AGM
  4. Directors may deal if the trade is below a prescribed value threshold

Explanation

The Listings Requirements prohibit directors and prescribed officers from dealing during closed periods, with only narrow exceptions such as transactions under a pre-existing mandate. After-the-fact notification, shareholder approval or a value threshold does not permit dealing in a closed period.

Question 39Regulatory Framework and JSE Rules

A member firm's compliance officer identifies that a registered representative has been sharing client order information with a third-party trader. Which combination of regulatory responses is most appropriate?

  1. Suspension of the representative pending the next annual audit
  2. A warning to the representative and a note in the client file
  3. Internal disciplinary action only, with no external reporting
  4. Immediate escalation to the JSE and possible reporting as suspected market abuse Correct answer.

Explanation

Sharing client order information can facilitate front-running or insider dealing, so the matter must be escalated to the JSE and assessed for reporting as suspected market abuse under the Financial Markets Act. Internal action alone, a mere warning, or waiting for the audit would fail to meet the member's reporting obligations.

Question 40Regulatory Framework and JSE Rules

Which of the following describes the JSE's power in relation to a member firm that repeatedly fails to submit required regulatory returns on time?

  1. The JSE has no jurisdiction over late returns once a trade has settled
  2. The JSE must refer the matter to the Reserve Bank for action
  3. The JSE may impose sanctions, including fines or suspension of membership Correct answer.
  4. The JSE may only issue a written warning with no further consequence

Explanation

The JSE has disciplinary powers over its members and may impose sanctions such as fines, censure or suspension where a member repeatedly breaches reporting obligations. It is not limited to warnings, does not need to refer reporting breaches to the Reserve Bank, and retains jurisdiction irrespective of settlement.

Question 41Trade Execution and Order Handling

On the Tokyo Stock Exchange, a retail client's market order for a cash equity is executed at the best available price. Which price limit rule applies to the execution of that order on the exchange?

  1. The daily price limit (stoppage) set per issue by the exchange caps how far the execution price may move from the previous close Correct answer.
  2. Price limits apply only to closing auction executions, not to continuous trading
  3. The exchange converts the market order into a limit order at the previous close
  4. Market orders are exempt from all price limits and may execute at any price

Explanation

Each listed issue has a daily price limit band referenced to the previous close, and executions cannot occur outside that band. A market order that would trade beyond the band is not executed at that price; it waits or is handled under exchange rules. This protects against erroneous or extreme price moves.

Question 42Trade Execution and Order Handling

A Japanese brokerage receives a buy order for a TSE-listed stock from a client. Before routing the order, the firm checks whether the client has sufficient buying power. In Japanese brokerage operations this check is primarily intended to do which of the following?

  1. Guarantee that the client will receive the best execution price of the day
  2. Determine the applicable consumption tax on brokerage commission
  3. Replace the exchange's own price-limit validation
  4. Prevent order acceptance that would exceed the client's margin or cash capacity and create settlement failure risk Correct answer.

Explanation

Buying-power checks at order acceptance are a risk-control step that stops orders the client cannot settle. They protect both the client and the firm from settlement failure and margin breaches. Best execution and exchange price validation are separate matters handled elsewhere in the flow.

Question 43Trade Execution and Order Handling

Which order type instructs the broker to execute immediately at the best available price and cancel any unexecuted remainder?

  1. GTC (good till cancelled)
  2. IOC (immediate or cancel) Correct answer.
  3. Stop order
  4. FOK (fill or kill)

Explanation

An IOC order executes whatever quantity is immediately available and cancels the rest. FOK requires the entire quantity to fill at once or the whole order is cancelled. GTC remains working across sessions until filled or cancelled.

Question 44Trade Execution and Order Handling

A client places a limit buy order at 1,000 yen while the stock is trading at 1,020 yen. Which statement describes the order's status?

  1. It converts into a market order after a fixed interval
  2. It executes immediately at 1,020 yen because it is a buy order
  3. It rests in the book at 1,000 yen and executes only if the market price falls to that level or below Correct answer.
  4. It is rejected because the limit is below the current price

Explanation

A buy limit below the current market price is not marketable, so it rests in the order book at the limit price. It fills only if the price declines to 1,000 yen or better. A buy limit above the market would instead execute immediately at the best available price.

Question 45Trade Execution and Order Handling

In Japanese equity trading, what does the tick size (呼値の単位) of a listed issue determine?

  1. The brokerage commission rate applied to the trade
  2. The minimum price increment by which the order price may change Correct answer.
  3. The maximum quantity allowed in a single order
  4. The daily price limit band for the issue

Explanation

Tick size sets the minimum price increment for quoting and ordering a given issue. Order prices must be a multiple of the tick size. Price limits and lot sizes are separate parameters set by the exchange.

Question 46Trade Execution and Order Handling

A client says the broker executed a trade at a price worse than the prevailing best bid/ask at the time of execution. Which operational process is designed to review and address such a claim?

  1. The best execution review and trade inquiry process Correct answer.
  2. The margin call process
  3. The corporate action entitlement process
  4. The account opening KYC process

Explanation

Best execution review examines whether the firm executed on terms favorable to the client given the prevailing market. A client complaint about execution price is handled through trade inquiry and best execution monitoring. Margin, corporate actions, and KYC are separate operational areas.

Question 47Trade Execution and Order Handling

The TSE trading session includes a closing auction. What is the primary purpose of the closing auction?

  1. To settle cash balances for the day's trades
  2. To apply corporate action adjustments to open orders
  3. To concentrate closing orders and determine a single closing price through matching Correct answer.
  4. To allow only market orders to execute after the close

Explanation

The closing auction aggregates orders submitted for the close and matches them to establish the closing price. It provides a single reference price for valuation and settlement. Settlement and corporate action adjustments occur in separate back-office processes.

Question 48Trade Execution and Order Handling

A client order is routed to a Japanese proprietary trading system (PTS) rather than to the exchange. Which statement best describes the PTS in this context?

  1. It is a division of the exchange that guarantees identical execution prices
  2. It is a settlement depository that holds client cash
  3. It is an alternative trading venue that matches orders under its own rules and reports trades accordingly Correct answer.
  4. It is a regulator that approves order types

Explanation

A PTS is a private trading venue that matches buy and sell orders outside the exchange. It operates under its own rules and reporting obligations while remaining subject to regulatory oversight. It is neither a settlement depository nor a regulator.

Question 49Trade Execution and Order Handling

A client submits a buy order with a limit price of 1,000 yen for a stock whose tick size is 1 yen. The client later asks to change the limit to 1,000.5 yen. How should the order be handled?

  1. Accept it because amendments are exempt from tick size rules
  2. Accept it and execute at the nearest valid price without client confirmation
  3. Accept it and round the price down to 1,000 yen automatically
  4. Reject the amendment because 1,000.5 yen is not a valid multiple of the tick size Correct answer.

Explanation

Order prices must conform to the issue's tick size, and 1,000.5 yen is not a valid increment when the tick is 1 yen. The amendment should be rejected and the client asked to resubmit a valid price. The firm cannot silently alter the client's instruction.

Question 50Trade Execution and Order Handling

A client places a stop sell order with a trigger of 900 yen while the stock trades at 950 yen. What happens when the market price reaches 900 yen?

  1. The order is cancelled because the trigger was not the limit price
  2. The order is activated and submitted as a market sell order under the client's instruction Correct answer.
  3. The order executes at 950 yen as if it were a limit order
  4. The order is held until the next trading session regardless of price

Explanation

A stop order lies dormant until the trigger price is reached, then becomes active and is submitted according to its terms, here as a market sell. The trigger is not a guaranteed execution price. The client should understand that the fill may occur below the trigger in a falling market.