Every order passes through one chain: entry, screening, routing and execution. As a principal you supervise every link, and most trading questions ask which link broke.
To supervise order entry, routing and execution, start with the record. Accounts and Records, Reports, Examinations of Exchanges, Members and Others (Exchange Act Section 17) requires broker-dealers to make and keep the records the Securities and Exchange Commission (SEC) prescribes, and opens them to examination. Exchange Act Rule 17a-3(a)(1) through (a)(7) lists the core trading records.
The order memoranda in (a)(6) and (a)(7) must show the order's terms and any modification or cancellation; the account; the times received and entered; the execution price; the associated person responsible for the account; and who entered or accepted the order (or that the customer entered it electronically). Execution or cancellation time is required where feasible.
The Financial Industry Regulatory Authority's Pre-Time Stamping (FINRA Rule 5340) treats stamping order tickets in advance for block positioning as a violation of FINRA Rule 4511, the books and records rule, since it can make a later...
Common mistakes
- Counting only shares. The large-order exception needs 10,000 shares and $100,000 (see Example 2).
- Blending the Regulation SHO clocks. Identify the sale type first; see the Regulation SHO DECISION box.
- Stretching the market maker exception. It excuses only the Rule 203 locate; market-making fails still face a Rule 204 deadline.
Bottom line
- Rule 17a-3(a)(6) and (a)(7) order memoranda record terms, account, times, price and responsible persons; pre-time stamping block tickets violates Rule 4511 (Rule 5340).
- Aggregation-unit netting under Regulation SHO Rule 200(f) requires a written plan, net positions at each sale, no coordination and one unit per trader.
- Rule 15c3-5 controls reject orders pre-trade on credit, capital, price and size, stay under the firm's exclusive control (only regulatory controls may go to a broker-dealer customer), and get an annual documented review and CEO certification.
- Regulation SHO requires marking every sale long, short or short exempt, and a documented locate before shorting.
Exam shortcut
When a stem shows trading while holding information, name what was known: a customer order points to Rule 5320, a coming block to Rule 5270, an unpublished report to Rule 5280, issuer secrets to Rule 10b5-1. Translate outline numbers like 4613 to Equity 2 and answer on substance. For halts, read the clock first. In escalation questions, the right first move stops and escalates; "continue monitoring" is the trap.
The full lesson (about 5,912 words, 39 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- D13
Browse all free Series 24 lessons or jump into free Series 24 practice questions.