Transactions

Order tickets

Registered representatives must create an order ticket for every order they place. The ticket creates a paper trail in case something goes wrong.

An order ticket includes the key details of the trade, including:

• 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 selling borrowed securities, typically as a way to bet 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 still important to know why they appear on the order ticket.

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

After the order is placed, the registered representative’s supervisor must review the work promptly, which usually means by the end of the day. When you place orders for customers, your supervisor checks that the orders were entered correctly.

This supervisor is sometimes called the principal. The principal can correct an order ticket if there’s a mistake, but any change to the ticket must be approved by the principal. Even if you spot the error first, the principal still has to approve the correction.

If you place orders for customers, you’ll likely encounter a customer who wants to place an unsuitable order. For example, a retired customer with limited resources might want to buy a very risky stock. Your responsibility is to explain the risks involved.

If the customer understands the risks and still insists on placing the order, you must place it. The customer ultimately controls what happens in their account.

In that situation, it’s best to document your discussion with the customer. Firms keep a file for each customer that includes transaction history and notes from prior interactions. If the customer’s expectations are unrealistic and the trade results in significant losses, those notes can help address questions about what was discussed.

Also, keep in mind the difference between:

• A trade the customer insists on after being warned (generally treated as the customer’s decision), and
• A trade that resulted from a recommendation (where the firm could be held liable if the recommendation was unsuitable).

Trade confirmations

In addition to statements, customers receive trade confirmations when a transaction occurs. A trade confirmation includes 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. In practical terms, the broker-dealer must send the confirmation by the time the trade settles. Like statements, trade confirmations may be sent by mail or electronically.