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.

Order Ticket Requirements

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.

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.

Cash on Delivery (COD) / Delivery vs. Payment (DVP) and Receive vs. Payment (RVP) Orders (FINRA Rule 11860)

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

Exam Tip: Gotchas

  • DVP/RVP eliminates settlement risk by linking delivery and payment simultaneously. These methods are for institutional accounts, not retail.