Markets & Trading — Quick Reference

Core Concepts at a Glance

• NYSE = auction market (one DMM per stock); NASDAQ = dealer market (competing market makers)

• Primary market = issuer receives proceeds; secondary market = investors trade with each other

• Reg T initial margin = 50% (Federal Reserve rule; never changes on the exam)

• Maintenance margin: 25% for long positions, 30% for short positions (FINRA minimums)

• T+1 settlement for equities, ETFs, corporate bonds, Treasuries (as of May 2024)

• Options exercise = T+0 (same-day settlement)

• Pattern Day Trader: 4+ day trades in 5 business days = $25,000 minimum equity required

• Stop order triggered = becomes MARKET order; stop-LIMIT triggered = becomes LIMIT order

• Buy BEFORE ex-dividend date to receive the dividend; buying ON or AFTER ex-date = no dividend

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NYSE vs. NASDAQ Structure

|---|---|---| ---

Order Type Decision Tree

|---|---| Key distinction: Stop vs. Stop-Limit

• Stop order triggered → MARKET order → guaranteed execution, uncertain price

• Stop-LIMIT triggered → LIMIT order → guaranteed price floor, uncertain execution

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Margin Formula Cheatsheet

Reg T Initial Margin: 50% (Federal Reserve; applies at purchase) Long account:

• Equity = Market Value - Debit Balance

• Margin % = Equity / Market Value

• Margin call if: Equity / Market Value < 25% (FINRA minimum)

• Margin call price = Debit Balance / (1 - 0.25) = Debit Balance / 0.75

Short account:

• Equity = Cash (proceeds + Reg T deposit) - Market Value of short position

• Margin % = Equity / Market Value of short position

• Margin call if: Equity / Market Value < 30% (FINRA minimum)

• Margin call price = (Original Proceeds + Reg T deposit) / 1.30

Buying power with $X in cash: $X / 0.50 = 2x your cash Pattern Day Trader minimum: $25,000 always maintained; 4x intraday buying power ---

Settlement Timeline Table

|---|---|

Feature	NYSE	NASDAQ
Market type	Auction (agency) market	Dealer (negotiated) market
Trading venue	Physical floor + electronic	All electronic
Liquidity provider	One DMM per stock	Multiple competing market makers
DMM obligation	Affirmative duty to provide liquidity	Quote-driven; no affirmative obligation
Typical listings	Large-cap industrials, financials	Technology, growth companies
Order execution	Price/time priority auction	Best available market maker quote
Goal	Order Type
Execute immediately, best price	Market order
Buy at or below a specific price	Buy limit order
Sell at or above a specific price	Sell limit order
Protect a long position, limit loss	Sell stop (stop-loss)
Protect a short position, limit loss	Buy stop
Control minimum execution price on stop	Stop-limit order
Must fill completely or not at all, immediately	Fill-or-Kill (FOK)
Must fill completely, can wait	All-or-None (AON)
Remain open until filled or cancelled	Good-Till-Cancelled (GTC)
Expire at end of trading day	Day order (default)
Security Type	Settlement
Common stocks (NYSE, NASDAQ)	T+1
ETFs	T+1
Corporate bonds	T+1
Municipal bonds	T+1
U.S. Treasury securities	T+1
Government agency securities	T+1
Options premium	T+1
Options exercise / assignment	T+0 (same day)
Mutual funds	Next business day
Cash settlement (special)	T+0 (must be arranged)

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Ex-Dividend Date Rule

To receive the dividend, you must purchase BEFORE the ex-dividend date. Under T+1 settlement:

• Buy BEFORE ex-date → trade settles on or before record date → receive dividend

• Buy ON ex-date → trade settles day after record date → do NOT receive dividend

• Buy AFTER ex-date → do not receive dividend

Timeline: Declaration date → Ex-dividend date → Record date (T+1 after ex-date) → Payment date Price impact: Stock price typically drops by approximately the dividend amount on the ex-dividend date. ---

Common Exam Traps

• Stop order price guarantee: Stop orders do NOT guarantee execution at the stop price -- they become market orders. Only stop-LIMIT orders have a price guarantee (at the cost of possible non-execution)

• Day order default: All orders are day orders unless GTC is specified

• Reg T is 50%: This never changes in exam questions; do not confuse with maintenance (25%/30%)

• Margin call price formula: Use Debit / (1 - maintenance%), NOT market value / 2

• Ex-date rule: Buy BEFORE ex-date (not ON ex-date) to receive dividend

• T+1 is now the standard: The old T+2 standard is no longer current (changed May 2024)

• Options exercise is T+0: Do not confuse with options premium payment (T+1)

• Short selling loss: Theoretically unlimited (stock can rise indefinitely)

• Dividends on short positions: Short sellers must pay dividends to the lender (payment in lieu)

• PDT rule: 4 or MORE day trades in 5 business days triggers the $25,000 requirement