Chapter 4: Trading & Market Making
This chapter covers 21% of the Series 24 exam (approximately 32 questions) and focuses on the supervisor's obligations on the market side of the business: order handling, quoting, settlement, and trade reporting under the post-CAT, T+1, Reg NMS / Reg SHO regulatory regime.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Order Entry, Routing, and Execution | Trader mandates, aggregation units, market making, Reg SHO short-sale compliance, Reg NMS and best execution, the Market Access Rule, LULD and circuit breakers, prohibited trading, escalation |
| 2 | Settlement and Clearance | UPC scope, NSCC/DTC/FICC/OCC, comparisons and confirmations, T+1 settlement cycle, good delivery, bond settlement, Mark to Market, close-out and buy-ins |
| 3 | Trade Reporting | TRF, ADF, ORF, TRACE; reporting timeliness and MPID mapping; trade modifiers; CAT; penny stocks; books-and-records and reporting violations |
Why This Chapter Matters
Trading and market making is where the supervisor's controls hit the highest velocity. Mistakes are detected in microseconds, and remediation has to happen in T+1 windows. The exam expects principal-level fluency across:
- Pre-trade controls under the Market Access Rule and trader-mandate framework
- Order handling under Reg NMS best-execution and locked/crossed-market rules
- Short-sale compliance under Reg SHO (locate, close-out, alternative uptick, threshold securities)
- Settlement mechanics in a T+1 world with extended close-out windows
- Trade reporting to the right facility within the right window with the right modifiers
- CAT compliance with 8:00 AM ET T+1 reporting deadlines and 50-millisecond clock synchronization
Exam Strategy
This chapter is calculation-heavy and threshold-dense. Memorize:
- LULD bands: 5% / 10% / 20% with $0.15 / $0.50 / $0.75 dollar tiers; 5-minute pause
- MWCB levels: 7% / 13% / 20% with 3:25 PM ET cutoff
- Reg SHO close-outs: T+1 for fail-to-deliver; T+5 for threshold securities
- CAT deadline: 8:00 AM ET T+1; 50ms clock sync
- Manning rule: front-running prohibition for customer limit orders
- Sub-penny rule: $1.00+ stocks quote in penny increments; under $1.00 in sub-penny
- Best execution factors: price, speed, likelihood of execution, market center quality
- Reg M restricted periods: distribution participants, issuer/affiliate, and passive market makers each face distinct quoting restrictions