CMFAS RES 2B Derivatives-Specific Conduct Rules & OTC Market Infrastructure question: approved trader receives simultaneous buy and sell orders

CMFAS RES 2BDerivatives-Specific Conduct Rules & OTC Market Infrastructure

NK225 futures: no existing bid, no existing offer, last traded 11740. An approved trader receives simultaneous buy and sell orders at 11715. Which order should he expose first, and why?

A The sell order, because whoever lifts it buys below the last traded price of 11740
B Either order, because there are no resting quotes to compare them with
C The larger of the two orders, since it has the greater effect on the market price
D The buy order, because a buyer at 11715 pays less than the last traded price of 11740

Show the answer and explanation

Answer: A. The sell order, because whoever lifts it buys below the last traded price of 11740

In the guide's Example 3, with an empty book the sell order at 11715 is more attractive because the opposite trader who lifts it buys below the last traded price, while the buy order at 11715 would force a seller to sell below 11740. The more attractive order is exposed first.

Common mistake

With no quotes, compare each order against the last traded price.

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Ms Foo manages a discretionary account for a retired customer with a balance of S$200,000. Over one month she executes 63 round turns in index futures, producing S$18,000 of commission for her firm and no net gain for the customer. The account never exceeded a position limit set by the exchange, the clearing house or her firm, and the customer's mandate permits discretionary trading. Which act of misconduct is this?Which of the following are CORRECT?Which combination correctly matches the offence to its core feature?

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Original study material mapped to the public CMFAS RES 2B syllabus. Unofficial, not endorsed by MAS or IBF. Verify figures and rules against current guidance before relying on them.