Series 7 Exam Question 122: Answer and Explanation

Question: 122

A Designated Market Maker receives an order to buy 1,000 shares of ABC stock. Place in order from highest to lowest, what the DMM looks at to fill the order.

I. Parity

II. Precedence

III. Priority

• A. I, II, III
• B. I, III, II
• C. III, II, I
• D. III, I, II

Correct Answer: D

Explanation:

D. The first thing that's looked at is the priority, highest bid price or lowest ask price. If there is more than one seller (in the case of a buy order), at the best ask price, the seller who placed the order first (parity) will have their shares used to fill the order first. In the event that the orders came in at the same time, the seller with the largest order (precedence) will get hit first.