Securities Trader Representative (Series 57) Practice Exam

If a broker-dealer holds a customer limit order, what must they ensure they do before executing their own trades?

1. Notify the customer of their intention

2. Fill the customer order first

3. Provide price improvement as required

4. Wait for the market to stabilize

The correct answer is: Provide price improvement as required

The correct response regarding the obligations of a broker-dealer holding a customer limit order is that they must provide price improvement as required. This requirement stems from the duty of broker-dealers to act in the best interest of their clients. When executing trades, if the broker-dealer has a better price available than what was stipulated in the customer limit order, they are obligated to ensure that the customer receives this favorable price, enhancing the overall execution of the order. In this context, it is important to highlight the role of price improvement in maintaining fair and ethical trading practices. The broker-dealer must strive to achieve the best execution for their clients' orders, which often involves looking for opportunities to secure better prices than those outlined in existing orders, especially when trading for their own accounts. Addressing the other considerations, notifying the customer of intentions or filling their order first does not inherently address the obligation of the broker-dealer to ensure price improvement. Additionally, waiting for the market to stabilize is not a requirement specific to a limit order and does not focus on the necessary action of providing a better price at the time of trade execution.