A client calls wanting "the price" of a fund and asks you to "get the best fill." Two obligations fire at once: quote accurately, then route the order so the customer gets the most favorable terms reasonably available.
A quote tells the customer where the security trades right now. The bid is the highest price a buyer will pay, so it is what your selling customer receives. The ask (offer) is the lowest price a seller will accept, so it is what your buying customer pays. The gap between them is the spread.
KEY: Sell at the bid, buy at the ask. The customer is always on the worse side of the spread.
For investment company shares, you do not quote a fluctuating market price. You quote net asset value under forward pricing: the order executes at the next NAV calculated after the fund receives it. A quote you give mid-day is informational; the fill uses the next computed price. Never promise a customer a specific intraday fill price on a mutual fund.
Common mistakes
- Reversing bid and ask. Customers sell at the bid, buy at the ask. Quoting the wrong side overstates proceeds or understates cost.
- Promising an intraday NAV. Fund orders fill at the next computed NAV under forward pricing, never the price at the moment of the call.
- Treating best execution as price-only. Rule 5310 also weighs speed, likelihood of execution, and size, and demands a quarterly regular and rigorous review.
Bottom line
- A quote has two sides: the bid (what the customer receives on a sale) and the ask/offer (what the customer pays on a buy)
- Mutual fund shares are quoted by forward pricing: orders fill at the next computed NAV (plus any sales charge), never a stale price
- Best execution under FINRA Rule 5310 requires using reasonable diligence to obtain the most favorable price reasonably available
- Firms must conduct a regular and rigorous review of execution quality, at least quarterly
Exam shortcut
Customer side of the spread is always the worse one: sell at bid, buy at ask. Any mutual fund fill question, answer with the next computed NAV (forward pricing), then add the load if buying. "Best execution" triggers Rule 5310 (diligence, quarterly review, no interpositioning); "penny stock compensation" triggers Rule 15g-4.
The full lesson (about 1,163 words, 8 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- D11
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