General Securities Sales Supervisor (Series10) Practice Exam

Which type of order would be reduced on ex-date?

1. A Buy 100 ABC @ 50 DNR

2. B Buy 100 ABC @ 60 Stop

3. C Sell 100 ABC @ 60

4. D Sell 100 ABC @ 50 Stop

The correct answer is: D Sell 100 ABC @ 50 Stop

The correct answer pertains to how certain types of orders are treated when a stock goes ex-dividend. On the ex-date, the stock's price typically adjusts downward to reflect the dividend that will be paid to shareholders. In this case, the sell stop order is a conditional order that is activated when the stock price falls to a specified level. For a sell stop order, if the stock is selling at a certain price and then that price drops below the stop price, the order will trigger and sell the stock at the next available price. On the ex-date, since the stock price is expected to decrease due to the dividend adjustment, any existing sell stop orders would need to be recalculated based on the new price levels. Thus, this type of order may be reduced on the ex-date because the price at which the order is set may no longer be valid post-adjustment. The expectation is that the underlying asset’s price falls as dividends leave the stock, thus influencing the execution of the order. The other types of orders listed, such as buy limit orders or standard sell orders, do not undergo this type of adjustment based on the ex-dividend date; they either remain unchanged or execute based on market conditions unaffected by the dividend distribution.