Function 4: Trading and Market Making
FINRA gives this function 32 of 150 scored items. It covers order handling and execution, quoting, short sales, market access, settlement and trade reporting. The PrepPass Series 24 Study Guide teaches this function in depth, with the rule text, worked examples and a chapter quiz.
Order handling
Best execution requires reasonable diligence to find the best market, with regular and rigorous reviews at least quarterly for firms that do not review order by order. The Manning rule bars trading ahead of held customer orders, and firms may not front-run blocks or trade ahead of their own research.
Quotes and market structure
Quotes must be firm and bona fide and never coordinated or paid for by issuers. Regulation NMS protects displayed quotations against trade-throughs, caps access fees and sets minimum pricing increments; Regulation SHO requires marking, a locate before short sales, close-outs of fails and a short-sale price test after a 10% decline.
Controls, settlement and reporting
Firms with market access need pre-trade credit and erroneous-order controls certified annually by the CEO. Regular-way settlement is one business day after trade date. Equity trades are reported within 10 seconds and corporate bond trades to TRACE within 15 minutes under the rule text in force through August 1, 2027.
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