This chapter covers about 7 of the 50 scored items (14% of the exam, a CertFuel planning estimate). Best execution and the other obligations owed on a customer order, trading ahead and the other prohibited practices, and Regulation NMS (the national market system rules).
What You'll Learn
| Unit | Topic | Lessons |
|---|---|---|
| 1 | Meeting Obligations to Customers Regarding Orders | Market Hours Versus Pre- and Post-Market Trading; Best Execution Requirements; Adjustment of Orders for Stock Splits and Dividends; Fair Prices and Commissions; Other Trading Practices Reaching Customer Orders; Net Transactions; Stop Orders and Stop Limit Orders; Order Marking |
| 2 | Identifying and Avoiding Prohibited Practices with Customer Orders | Trading Ahead of Customer Orders; Exceptions to the Trading Ahead Prohibition; Minimum Price Improvement Standards; Order Handling Procedures and Trading Hours; Use of Manipulative or Deceptive Devices; Prohibited Transactions of Investment Advisers |
| 3 | Regulation NMS | The Definitions Regulation NMS Runs On; Order Protection; Customer Limit Order Display Requirements; Trade Through Protection; Intermarket Sweep Orders; Sub-Penny Rule |
Why This Chapter Matters
Function 1 closes with the customer. A trading desk holding a customer order owes best execution, fair prices, correct handling of the order across sessions and after corporate actions, and it may not trade ahead of that order. Regulation NMS then sets the market structure rules the desk trades inside: order protection, customer limit order display and the sub-penny rule.
Exam Strategy
FINRA publishes weights by function only, so the per-unit figures in each introduction are planning estimates. Focus on:
- Best execution is a reasonable diligence standard with named factors. Know them, know interpositioning, and know the regular and rigorous review a firm owes its routing.
- The 5% policy is a guideline, not a rule. Learn the factors that move a fair mark-up up or down and the prevailing market price hierarchy for debt.
- Trading ahead has exceptions with conditions. Read the proviso attached to each exception before accepting it in a fact pattern.
- Regulation NMS protects quotations, not orders. A trade-through is measured against a protected quotation; the exceptions, the intermarket sweep order and the sub-penny increments are tested by their thresholds.
-> Start Unit 1: Meeting Obligations to Customers Regarding Orders