Securities Trader Representative (Series 57) Practice Exam

In the context of market making, when one market maker (MM#2) proposes to buy shares at a specific price, MM#1 has certain obligations and rights regarding the execution of that order. In this case, if MM#1 receives a proposal to buy 700 shares at $31.55, the correct understanding lies in how market makers handle their quotes in relation to trades executed against them. The correct choice indicates that even if MM#1 executes the entire order from MM#2, it does not have to adjust its quote upward. This is grounded in the principle that market makers are not required to change their quotes in response to the execution of a trade, provided they can still accommodate more trades at the same price and size. Market makers quote prices and provide liquidity, and once they execute a trade, they can choose to maintain their existing quotes unless the market conditions or their inventory levels dictate otherwise. In simple terms, executing the order does not automatically trigger a requirement for MM#1 to increase or revise their quoted price. This means MM#1 can still quote the same bid and ask prices after the transaction, allowing for flexibility in their market-making activities.