Securities Trader Representative (Series 57) Practice Exam

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Under the Manning Rule, if a broker-dealer has a markup, what is the requirement regarding the limit order price?

Protect the order at the markup price
Protect the order at the customer's net price
Negotiate the price with the customer before executing
Report the markup as a separate transaction

The correct answer is: Protect the order at the customer's net price

The Manning Rule addresses the responsibilities of broker-dealers when executing customer orders, particularly concerning limit orders and the handling of markups. When a broker-dealer applies a markup to a security, the requirement is to protect the limit order at the customer's net price. This means that the broker-dealer must ensure that the execution price for the customer is no worse than the limit order price they set. The rationale behind this requirement is to promote fair dealing and protect the customer’s interests. It prevents the broker-dealer from executing an order at a price that would disadvantage the customer compared to their limit order. Ensuring that the customer's net price reflects the limit order safeguards the customer from potentially unfavorable trade executions due to the broker-dealer's markup practices. Therefore, complying with this requirement is essential for maintaining transparency and trust in the trading process. The other options do not align with the intent of the Manning Rule, which is focused on customer protection and maintaining fair practices in order handling.