Master order types, settlement rules, and market integrity concepts for the CIRE exam. Learn about market orders, limit orders, stop losses, best execution, and prohibited trading practices.
Order Types Every CIRE Candidate Must Know
Market Order
- Definition: Buy/sell immediately at best available current price
- Trade-off: Certainty of execution, uncertainty of price
- Risk: Slippage in fast-moving or illiquid markets
Limit Order
- Definition: Buy/sell at a specific price or better
- Buy Limit: "Buy at $50" = pay $50 or less
- Sell Limit: "Sell at $50" = receive $50 or more
- Trade-off: Certainty of price, uncertainty of execution
Stop Loss Order
- Sits dormant until "Trigger Price" is touched
- Once triggered, becomes a Market Order
- Use: Protect profit or limit loss on existing position
- Example: Own stock at $100, set stop loss at $90. If stock hits $90, system sells at next available price
Stop Limit Order
- Once triggered, becomes a Limit Order (not Market)
- Risk: If price gaps through your limit, order may not fill
Order Duration
| Type | Duration | Notes |
|---|---|---|
| Day Order | Until market close | Default setting; cancelled if not filled by 4 PM |
| Good Till Cancelled (GTC) | Until filled or cancelled | Firms usually set 30-90 day limits |
| All or None (AON) | Varies | Must fill entire order or nothing; loses queue priority |
Settlement Rules
Standard Settlement (T+1)
As of May 27, 2024, Canada and US moved to T+1 settlement for equities, corporate bonds, and mutual funds.
- Trade Monday (T) → Settle Tuesday (T+1)
- Buyer must pay, seller must deliver securities
Treasury Bills
- Usually settle Same Day (T+0) or T+1
- Short-term instruments require quick settlement
Best Execution Obligation
Dealers must obtain the most advantageous execution terms reasonably available.
- Not just best price—also considers speed, certainty, and total cost
- "Smart Order Routers" search multiple marketplaces (TSX, Alpha, Chi-X)
Short Selling
The Mechanics:
- Borrow shares from investment dealer
- Sell at current high price
- Wait for price to drop
- Buy back at lower price ("cover the short")
- Return shares to dealer, keep the difference
Requirements:
- Must be done in a Margin Account
- Every sell order must be marked "Long" or "Short"
- Dealer must confirm they can borrow the stock ("locate")
- Risk: Maximum loss is theoretically unlimited
Prohibited Trading Practices
Front Running
Trading for your own account before executing a client's order for the same security. Illegal.
Insider Trading
Trading while possessing Material Non-Public Information. Heavy fines, jail time, lifetime ban.
Tipping
Passing inside information to someone else. Both tipper and tippee are liable.
Wash Trading
Trading with no change in beneficial ownership to create false appearance of volume. Market manipulation.
High Closing (Window Dressing)
Manipulating closing price by entering orders at end of day. Often done to inflate portfolio performance.
Bucketing
Confirming a trade to client when no trade was actually executed. Fraud.
Circuit Breakers
Automatic trading halts during extreme market volatility:
| Level | S&P 500 Drop | Action |
|---|---|---|
| 1 | 7% | 15-minute halt |
| 2 | 13% | 15-minute halt |
| 3 | 20% | Trading halts for the day |
Accrued Interest
When buying a bond between coupon dates:
- Buyer pays Market Price PLUS Accrued Interest
- Accrued interest = interest earned by seller since last payment