Equity and Debt Securities Trading
Follow the order, follow the quotation
Most questions in this domain ask you to trace a single order from receipt to execution or reporting. Start with the vocabulary: the NBBO is the best bid and best offer across all protected quotations, not a promise of execution price or size. Regulation NMS protects those quotations: Rule 611 (order protection) bars trading through a protected quotation at a worse price, subject to exceptions such as intermarket sweep orders and self-help; Rule 610 governs access and locked/crossed markets; Rule 612 restricts sub-penny quoting. Know that an ISO can execute at multiple price levels because it simultaneously sweeps all better-priced protected quotations.
Short sales raise two distinct issues. The locate requirement demands reasonable grounds to believe the security can be borrowed before a short sale, and threshold securities carry close-out obligations for fails. Separately, the Rule 201 short sale price test is triggered when a covered security declines 10% or more from the prior day's closing price; for the rest of that day and the next, short sales may be executed only at a price above the current national best bid.
Debt trading is a reporting discipline. Corporate and agency bond trades must be reported to TRACE promptly (15 minutes for corporate and agency issues), with Treasury reporting now also on a real-time basis; municipal bonds are reported through MSRB/RTRS rules. Traps: confusing a marketable limit order with a market order, assuming an NBBO quote is firm for unlimited size, and mixing up the locate rule with the Rule 201 price test.
Rule of thumb: better price first, then displayed size, then time - and a protected quote only binds for its displayed size.