Securities Trader Representative (Series 57) Practice Exam

Which of the following describes the requirement for minimum price-improvement for customer orders priced at less than $1.00?

1. No minimum requirement

2. 1/2 the inside market spread

3. At least $.01 above the customer’s limit price

4. Fixed amount based on order type

The correct answer is: 1/2 the inside market spread

The requirement for minimum price-improvement for customer orders priced at less than $1.00 is defined as being at least half the inside market spread. The rationale behind this requirement is to ensure that the execution of trades in low-priced stocks is fair to both brokers and customers. This is particularly important in less liquid stocks, where the spread can be wider. By requiring a minimum price improvement that is half the inside market spread, the regulation encourages better pricing for the customer, ensuring they receive a more favorable execution than the current best offer. This is especially significant in a market where prices are lower and the volatility can be greater, requiring additional safeguards to protect customer interests. The other options do not align with this requirement, as there indeed is a stipulated guideline rather than a fixed amount or no requirement at all, which might otherwise lead to inconsistency in trade executions and customer dissatisfaction.