Orders, Offerings, and Transactions in Customer Accounts

With an understanding of order types and quotes, let's look at the mechanics of how orders are recorded, how debt securities are priced at advertised yields, and how institutional accounts handle simultaneous delivery and payment.

What Must Appear on an Order Ticket?

Every customer order must be recorded on an order ticket before execution. Required information includes:

• Security symbol
• Account number
• Buy or sell
• Number of shares or units
• Order type (market, limit, stop, etc.)
• Price (if applicable)
• Time-in-force
• Solicited or unsolicited (did the rep recommend the trade or did the customer initiate it?)
• Registered representative's identifier

Order tickets must be time-stamped at two points:

1. Upon receipt of the order
2. Upon execution of the order

Exam Tip: Gotchas

• Order tickets must be time-stamped TWICE: at receipt and at execution.
• "Solicited" means the rep recommended the trade; "unsolicited" means the customer initiated it.

What Does It Mean to Order at Advertised Yield?

• For debt securities (especially municipal bonds), customers may place orders to buy at an advertised yield
• The dealer must calculate the corresponding dollar price that produces the advertised yield
• If the security is callable, the yield must be calculated to the worst call date (yield-to-worst) when the bond trades at a premium
• This ensures the customer knows the minimum yield they can expect if the bond is called early

Exam Tip: Gotchas

• When a bond trades at a premium and is callable, yield-to-worst (not yield-to-maturity) is the relevant measure for advertised yield.

How Do COD, DVP, and RVP Orders Work?

These are settlement methods commonly used by institutional accounts to eliminate settlement risk:

• Delivery vs. Payment (DVP): Securities are delivered to the customer's agent bank simultaneously with payment (also called cash on delivery, or COD)
• Receive vs. Payment (RVP): The customer's agent bank delivers securities simultaneously with receiving payment

Think of it this way: Both DVP and RVP work like a handshake where neither side lets go until the other has delivered. Securities and cash swap hands at the same moment, so neither party is left holding the bag.

Key points:

• Neither party bears settlement risk because delivery and payment happen at the same time
• Firms must obtain customer authorization and agent bank details before executing COD/DVP orders
• Common for institutional accounts; rare for retail
• Under FINRA's COD/POD rule, these procedures apply when a customer (including a foreign customer or broker-dealer) uses an agent for an eligible transaction settling in the United States
• Before or when accepting the order, the firm must have the agent's name and address, the customer's account number and when it was placed on file with the agent, and the institution number where applicable
• The order ticket must identify the transaction as payment on delivery (POD) or collect on delivery (COD), and the customer must receive a confirmation, or its customary data, no later than the end of the trade date
• Before accepting the order, the firm must have the written agreement or written policies and procedures required for the resulting transaction on file
• Depository-eligible transactions must use clearing-agency facilities for book-entry settlement, and clearing-agency or qualified-vendor facilities for electronic confirmation and affirmation

Exam Tip: Gotchas

• DVP/RVP eliminates settlement risk by linking delivery and payment simultaneously. These methods are for institutional accounts, not retail.
• The customer confirmation (or its customary data) is due by the end of the trade date, not at settlement.
• A firm cannot accept a COD/DVP order without the written agreement or written policies and procedures already in place; this is a prerequisite, not paperwork that can follow later.

What Should You Check on Exam Day?

• Confirm an order ticket carries both a receipt time-stamp and an execution time-stamp.
• Recognize "solicited" (rep recommended) versus "unsolicited" (customer initiated) on an order ticket.
• Use yield-to-worst, not yield-to-maturity, when a premium-priced callable bond trades at an advertised yield.
• Match DVP/RVP settlement to institutional accounts, and confirm the required agent and account details are on file before accepting a COD/DVP order.