Securities Trader Representative (Series 57) Practice Exam

If a Nasdaq market maker's clearing relationship is terminated, what must they do?

1. Withdraw their quotes and cannot reregister until 20 business days have passed

2. Continue as usual until reestablishing a clearing relationship within 10 days

3. Apply for an excused withdrawal and reregister immediately

4. Continue normal activities with a good-faith effort to reestablish the relationship

The correct answer is: Withdraw their quotes and cannot reregister until 20 business days have passed

When a Nasdaq market maker's clearing relationship is terminated, the requirement to withdraw their quotes and the subsequent waiting period of 20 business days before re-registering is grounded in the need to maintain market integrity and ensure proper clearing operations. This provision helps to safeguard the market from potential disruptions caused by market makers that no longer have a reliable clearing arrangement. The withdrawal of quotes ensures that the market maker does not continue operations without the necessary infrastructure to support their trading activities, which could lead to unsettled trades and potential losses for other market participants. Additionally, the mandatory waiting period before re-registration allows for sufficient time to address the underlying issues that led to the termination of the clearing relationship. This ensures that once the market maker is ready to return, they have a solid clearing connection in place that complies with regulatory standards and can be trusted to execute trades efficiently. This requirement is built into the regulatory framework governing Nasdaq market makers, reflecting the emphasis on risk management and the stability of the overall trading environment.