Securities Trader Representative (Series 57) Practice Exam

What must a broker-dealer do in relation to a held limit order under the Manning Rule?

1. Protect the order at the net price

2. Mark the order as "day only"

3. Report the order immediately

4. Cancel the order if it cannot be executed

The correct answer is: Protect the order at the net price

The Manning Rule requires broker-dealers to protect held limit orders by ensuring they are executed at the specified limit price or better before executing their own transactions that could adversely affect the price of the securities associated with those orders. This is designed to enhance the fairness and transparency of the market and to prevent broker-dealers from exploiting their own orders at the expense of their clients’ orders. When a broker-dealer has a held limit order, it must give that order priority in order execution. Failing to do so could result in a conflict of interest where the broker-dealer profits from trading against the interest of its clients. Therefore, protecting the order at the net price is crucial, as it aligns with the rule's goal of ensuring that customer orders are treated fairly in the marketplace. Other options lack the fundamental requirement established by the Manning Rule. Marking the order as "day only" does not address the obligation to protect the limit order. Reporting the order immediately is also not a specific requirement under this rule, and canceling the order if it cannot be executed does not fulfill the responsibility of prioritizing the customer’s interests. Thus, the focus on protecting held limit orders better encapsulates the intent behind the Manning Rule.