Securities Trader Representative (Series 57) Practice Exam

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Which of the following statements is NOT true about Nasdaq Levels 2 and 3?

Level 2 is available to any Nasdaq approved subscriber
Any Level 2 subscriber can enter orders directly into Nasdaq
Many institutional investors use Level 2 to make trading decisions
Order-entry firms would subscribe to Level 2

The correct answer is: Any Level 2 subscriber can enter orders directly into Nasdaq

In the context of Nasdaq Levels 2 and 3, it's essential to understand the differences in functionalities that these two levels offer. Level 2 is primarily designed for receiving real-time quotes and depth of market data. Subscribers at this level can view the bid and ask prices for securities, which can inform their trading decisions. However, not all Level 2 subscribers have the capability to enter orders directly into the Nasdaq system. Level 3, on the other hand, is distinct in allowing subscribers, typically market makers, to not only view the market data like in Level 2 but also to place orders directly into the Nasdaq trading system. This means that while many users gain valuable insights from Level 2, only those with Level 3 access can actually place trades. Thus, stating that any Level 2 subscriber can enter orders directly into Nasdaq is inaccurate because that ability is reserved for those with Level 3 access. This clarity on the functionalities of different levels of service helps delineate the operational capabilities and intended audience for each level of Nasdaq data.