Series 7

AAA

Securities Transactions - Executing Trades


Good Delivery
The goal of executing a trade is to ensure good delivery - assurance that a security meets all the standards required to transfer title to the buyer. This means that a certificate has been delivered on the settlement date with proper denomination (round-lot), endorsements and endorsement guarantee.


Exam Tips and Tricks
Are mutilated certificates ever considered good delivery? The answer is yes, only if authenticated by the issuer\'s transfer agent.


Good delivery applies to both stocks and bonds. Transactions in book-entry securities - in which the issuer keeps a record of who has purchased its securities but does not physically deliver them - are usually cleared automatically.

  • Stocks - These securities must be transferred in round-lots. A round lot is generally 100 shares of stock. Anything less than this amount is considered to be an odd lot.

    • So, what happens if a customer has placed an order for 90 shares? For one, that customer will most likely incur an odd lot differential, which is essentially a extra fee on top of regular transaction costs. Secondly, the broker-dealer might bunch the order together with one or more other odd-lot orders for the same security in order to process the transaction as a round-lot and reduce their client's fees. (Note that the broker-dealer must ask permission in order for bunching to occur).

  • Bonds - These securities must be delivered in face value denominations of $1,000 or $5,000.

Broadly speaking, there are two ways to buy securities:

  1. in the primary market, meaning the securities are issued directly by the corporation or agency seeking to raise funds, or

  2. in the secondary market, meaning the securities are now being bought and sold by investors.


Look Out!

This distinction determines how and when securities and money change hands. The following discussion focuses on equities and private-sector bonds covered by the FINRA\'s Uniform Practice Code.


When, As, and If Issued (WI)
In the primary market, securities often trade when, as, and if issued, often abbreviated WI.

  • A trade is done on WI because there are no physical certificates available reflecting the securities being traded, so a delivery date cannot be determined at the time of execution.

  • The coupon rate on a bond is not finalized until the offering date, and the exact price and initial public offering date of a stock often are not determined until the bulk of the buyers are already lined up.

  • In either event, the securities trade WI until all details are settled and the offering date arrives. A "when issued" settlement date is established through contact with the company or its agent, which determines that there is a sufficient market for the securities to be issued.
Settling Transactions In The Secondary Market
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