Welcome to Meeting Obligations to Customers Regarding Orders: the unit that sets out what a trading desk owes the customer whose order it is holding, from the session the order trades in to the price the customer finally pays.
Exam Weight: about 3 of the 50 scored items (CertFuel planning estimate; FINRA publishes weights only by function, and Function 1, Trading Activities, is 41 items / 82%)
What You'll Learn
In this unit, you'll cover:
- Market Hours Versus Pre- and Post-Market Trading: the one defined session outside regular trading hours, the disclosure statement that must be furnished individually before a customer trades in it, and the six risks that statement covers
- Best Execution Requirements: the reasonable diligence standard and its five factors, when interposing a third party becomes a violation, what a customer's own routing instruction switches off, and the quarterly regular and rigorous review
- Adjustment of Orders for Stock Splits and Dividends: which resting orders are adjusted on the ex day, the five adjustment branches, the two markings that suppress an adjustment, and the four orders the duty never reaches
- Fair Prices and Commissions: the principal and agency duties, the 5% guide and the factors around it, the transactions the Mark-Up Policy reaches, and the debt pricing hierarchy that runs when a dealer's own cost will not serve
- Other Trading Practices Reaching Customer Orders: the purpose-based prohibitions on successive-price trading, matched orders and manipulative operations, and the joint account a member may hold once it is reported
- Net Transactions: the three elements of a net trade, the single consent route a non-institutional customer has, and the three an institutional customer can choose from
- Stop Orders and Stop Limit Orders: the one trigger both order types share, the "not held" carve-out, and what a firm must disclose to the customer, in paper or electronic form, before the customer places an order that triggers on anything else
- Order Marking: the markings that switch a rule on or off, why a captured instruction is a best execution question, and the one of three markings every equity sell order must carry: long, short, or short exempt
Why This Matters
This is the unit where the desk's duties to the customer are written down as tests a scenario can fail. Most of them turn on a single qualifier: whether an instruction was unsolicited, whether a dividend was cash or stock, whether the buyer was institutional, whether the trigger was a transaction or a quotation.
The material rewards reading a fact pattern for the switch rather than the topic:
- Which capacity the member traded in, principal or agent
- Which marking the order carried, and which adjustment it suppresses
- Whether the customer directed the routing, and whether the firm suggested it
- Whether a consent came before the execution, and in which form
Let's start with the session itself, and the disclosure a customer must receive before trading outside regular hours.