General Securities Sales Supervisor (Series10) Practice Exam

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When a customer enters a buy order for stock at a price below the market offer, what must the market maker do?

Fill the order immediately
Update its quote to reflect the new demand
Notify the customer of the transaction
Increase the price of the stock

The correct answer is: Update its quote to reflect the new demand

When a customer enters a buy order for stock at a price below the market offer, the market maker must update its quote to reflect the new demand. This is essential because the market maker’s role is to provide liquidity and facilitate trading. By updating the quote, the market maker acknowledges the new interest in the stock at the specified price, which can influence future pricing and trading strategies. This action shows that there is demand for the stock at a lower price, and other market participants might adjust their pricing strategies based on this new information. It keeps the market transparent and allows for an accurate representation of the buy and sell interests at various price points. Fulfilling the order immediately, notifying the customer, or increasing the stock price would not align with the market maker's obligations or the dynamics of market orders and pricing mechanisms. Instead, the function of updating quotes allows the market maker to adapt to market conditions intelligently.