SIE Exam Question 418: Answer and Explanation
Question: 418
NASDAQ market makers wishing to increase the ADTV (average daily trading volume) they handle in those stocks:
- A. May publish positive research reports about those issuers
- B. May instruct their registered reps to recommend those issues to their customers in greater amounts.
- C. May pay other brokerage firms to direct trades in those issues to the market maker for execution.
- D. None of the above are permitted activities
Correct Answer: C
Explanation:
C: This practice is known as 'payment for order flow' and is perfectly legal as long as the firm makes full disclosure to public customers that such an agreement exists.
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