Traded Securities: Order Handling and Market Conduct
What the exam tests
This domain covers the mechanics of trading exchange-listed securities: order types, matching priority, auctions, trade reporting, the settlement cycle and the conduct standards expected of a trading member.
Core rules
- Limit orders execute at the stated price or better. Market orders execute at the best available price and can slip through several price levels in a thin book.
- Stop and stop-limit orders become live only when the trigger is touched. A stop is not a guarantee: gaps can fill it far from the trigger.
- The central order book matches on price first, then time. Earlier orders at the same price take precedence.
- Call auctions, typically at the open and close, aggregate orders and execute at a single price that maximises traded volume. The closing auction is often where the official closing price is set.
- Every trade must be allocated, confirmed and settled within the exchange's cycle. Failed settlements trigger buy-in procedures and penalties against the defaulting member.
- Market-abuse rules prohibit insider trading, front-running and wash trades; members must record orders and retain the audit trail.
Worked example: volume-weighted average price
A market buy order for 1,500 shares meets this book: 1,000 shares offered at R10.05, then 1,000 at R10.08.
- Fill 1,000 at R10.05 = R10,050
- Fill 500 at R10.08 = R5,040
- Total consideration = R15,090
- VWAP = 15,090 / 1,500 = R10.06
The order walked two price levels and paid 1c more per share than the best offer. Slippage of this kind is normal with market orders and is exactly why execution quality is measured against arrival price and VWAP benchmarks.
Traps that cost marks
- Assuming a stop order guarantees the trigger price.
- Ignoring time priority and assuming all orders at one price fill pro rata.
- Miscalculating the settlement date by counting calendar days rather than business days.