FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsMedium
A client calls their registered representative on Tuesday morning and places an order to purchase $10,000 worth of XYZ Growth Fund. Assuming the order is placed before the market closes on Tuesday, when will the client's order typically be executed and priced?
- AAt the Public Offering Price (POP) calculated at the close of Monday's trading.
- BAt the Net Asset Value (NAV) calculated at the close of Tuesday's trading.
- CAt the Net Asset Value (NAV) calculated at the close of Monday's trading.
- DAt the Public Offering Price (POP) calculated at the close of Tuesday's trading.
Show answer & explanationAnswer & explanation
Correct answer: D. At the Public Offering Price (POP) calculated at the close of Tuesday's trading.
Mutual funds, including growth funds, use forward pricing. This means that orders are executed at the next calculated NAV (or POP for purchases with a load) after the order is received. Since the order was placed before Tuesday's market close, it will be priced using Tuesday's closing NAV/POP.
Why the other options are wrong
- A. This is incorrect. Forward pricing dictates that the next calculated NAV/POP is used, not a previous one.
- B. This is partially correct. It will be priced at Tuesday's close, but for a purchase, it's the Public Offering Price (POP), not just NAV.
- C. This is incorrect. Forward pricing dictates that the next calculated NAV/POP is used, not a previous one.
Mutual Fund Forward Pricing
Orders for mutual fund shares are executed at the next calculated Net Asset Value (NAV) or Public Offering Price (POP) after the order is received.
- NAV/POP is typically calculated once daily, at market close.
- Ensures fair pricing for all investors.
- Eliminates intraday speculation for mutual funds.
Memory trick: Forward Pricing: Future Value, Not Past.