Securities Trader Representative (Series 57) Practice Exam

What must a Nasdaq market maker do if it buys stock at 30.05 after accepting a customer limit order at 30.07?

1. Fill the customer limit order at 30.07

2. Fill the customer limit order at 30.05

3. Cancel the customer limit order

4. Execute the customer limit order partially

The correct answer is: Fill the customer limit order at 30.05

In this scenario, a Nasdaq market maker that accepts a customer limit order to buy stock at 30.07 is obligated to fill that order at the limit price or better. When the market maker subsequently buys stock at a price of 30.05, this provides the market maker with a position where it can fulfill the customer’s order. Fulfilling the limit order at 30.05 means the market maker is executing it at a price more favorable than the customer's limit price of 30.07. This practice aligns with the market making obligation to provide liquidity and fairness to trading practices. By filling the order at a lower price than the limit set by the customer, the market maker acts in the customer’s best interest. The other options are not appropriate in this context: canceling the order would harm the customer, partially filling it could lead to confusion or dissatisfaction unless it is adequately justified, and fulfilling the order at 30.07 when a better price is available would violate the requirement to execute at the best possible price for the customer. Thus, the market maker is required to execute the limit order at 30.05.