Transactions

Order tickets

Registered representatives must create an order ticket for each order they place, which leaves a paper trail in case something goes wrong. The order ticket involves all of the details of a trade, which includes:

• Customer identifier
• Cash or margin account
• Registered representative identifier
• Long or short sale*
• Security identifier (symbol or CUSIP)
• Number of shares or units
• Order type**
• Date and time
• Solicited or unsolicited order
• If order is discretionary***

*A short sale involves the sale of borrowed securities, typically as a means of betting against that security.

**Order types include market, limit, stop, and stop limit orders. While the Series 6 typically does not test these order types, it’s important to understand their place on the order ticket.

***A discretionary order involves a financial professional deciding and implementing transactions on behalf of their clients. We’ll learn more in a future chapter.

After the order is placed, each registered representative’s supervisor is required to review their work “promptly,” which usually means by the end of the day. When you place orders for customers, your boss should check to ensure they’re placed properly. Sometimes referred to as the principal, your supervisor has the ability to update the order if there’s a mistake. Even if you notice the mistake first, your principal must approve changes made to the ticket.

If you place orders for customers in your career, you’re likely to encounter a customer placing an unsuitable order. For example, a retired customer with limited resources may want to place a trade for a very risky stock. It’s your responsibility to inform them of the risk they’re encountering. However, if they refuse to listen to you and insist on placing the order, you must place the order. Ultimately, the customer is in charge of their finances and decides what actually occurs in their account.

In this situation, it’s best to document your discussion with the client. Your firm will have a file on every customer that includes transaction history and notes on previous interactions. The investor’s expectations may be wrong and could result in losing significant amounts of money. Conversation notes could help cover the firm’s liability. If the trade resulted from a recommendation, the firm could be held liable if the trade was unsuitable.

Trade confirmations

In addition to statements, customers receive trade confirmations when a transaction occurs. Trade confirmations detail all of the following:

• Customer’s name
• Account number
• Security bought or sold
• Number of shares or units traded
• Date and time of the transaction
• Fees and/or commissions
• Capacity of firm (agency or principal)
• Accrued interest (for bond trades)

Trade confirmations must be sent at or prior to the “completion of the transaction.” Essentially, the broker-dealer must send the trade confirmation by the time the trade settles. Like statements, trade confirmations may be sent by mail or electronically.