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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