13. Order Entry, Routing and Execution Flashcards
(75 cards)
This is the unlawful practice of splitting customer orders for securities into multiple smaller orders for the primary purpose of maximizing payments or rebates to the member
Trade or tape shredding
True / false: odd lot orders may be executed through Nasdaq but are not displayed on the Nasdaq system
True
_______ was introduced to prevent equity transactions from occurring outside a specific price band (5%, 10% etc) in National Market System (NMS) securities
Limit Up, Limit Down (LULD)
Under LULD, what is the band limit for Tier 1 NMS securities (i.e. SP500 and Russell 1000)?
5%
Under LULD, what is the band limit for Tier 2 NMS securities (i.e. NON-SP500 NON-Russell 1000)?
10%
Under LULD, the 5%/10% limits become 10%/20% (respectively) during _______ and ________
9:30a - 9:45a (15 mins)
3:35p - 4:00pm (25 mins)
What is the rule under Limit Up, Limit Down (LULD)?
5-5-15-5
If a stock DEVIATES BY 5% from its 5-MINUTE MOVING AVERAGE and stays that way for 15 SECONDS, then trading is PAUSED for 5 MINUTES
NOTE - what will end the 15-second “limit state”? If the order at or outside the band is 1) executed or 2) cancelled within the 15 seconds
For LULD, the “reference price” is refreshed every _______ but will only change if there is a move by ____% or more
30 seconds
1% or more
i.e., the moving average needs to change by 1% otherwise the band stays the same
True / false: during a LULD halt, BDs may accept orders and publish quotes
true
A MM that has an unexcused Nasdaq withdrawal of its quotes cannot re-post quotes in that security for the next ______ business days
20 business days
This “time-in-force” order is available for potential execution until the market closes at 4PM, and if I executed after the closing cross, the order is cancelled
Good Till Market Close (GTMC)
This “time-in-force” order remains in effect until it is executed by the broker or cancelled by the customer. Furthermore, on Nasdaq this type of order will cancel _______ after entry if it remains unfilled
Good Till Cancelled (GTC)
On Nasdaq, remains in force for 1 year unless cancelled
NOTE - this order type will also survive a trading halt in a security unless the customer affirmatively cancels it
Under _____________, if a stock is available at a price that meets a customer’s limit price, those shares must go to the customers vs. the BD’s own account
the Manning Rule
E.g., Bid is $0.52, customer has a buy limit at $0.51 and the firm buys at $0.50 - BD must give customer shares at $0.50. Filling customer at $0.51 is a violation of Manning Rule
A violation of this rule is called “front running”
Under the Manning Rule, if a BD does trade shares for its own account, it must fill the customer’s order….(3 elements)
1) at the same or better price;
2) for at least the same number of shares; AND
3) immediately (within 60 seconds)
Equity trades must be reported within _______. FINRA may excuse late reports for ________ or ________
10 seconds
Excused for
1) reasonable justifications (e.g., manual entry of complex trades)
Or
2) exceptional circumstances (e.g., system failure or unusual market conditions, such as extreme volatility in a security or market as whole)
According to Reg NMS, equities priced at or above $1.00 must be quoted in minimum increments of _____. For equities below $1.00 pricing increments are at ______.
$1+ —> $0.01 increments
<$1 —> $0.0001 increments
A _______ is filling an order at a price inferior to the best displayed bid or offer (NBB&O)
trade-through
A ________ occurs when all or a part of a previously executed trade is allocated to another BD for clearing purposes
a “step out”
Under ______ sale orders must be marked as “long”, “short” or “short exempt”
Regulation SHO
Long sale examples:
1) Stock is in possession of the broker in street name
2) Stock is in paper form, held in the client’s safe at her residence
3) Client placed a buy order that has NOT yet settled (contractual right to ownership)
4) Client have conversion instructions for convertible bond (contractual right / trigger to ownership)
5) the BD has been REASONABLY INFORMED by the seller that the securities will be delivered prior to the scheduled settlement
Short sale examples
1) client owns company-issued stock options (unexcercised)
What is the Reporting System for Nasdaq Level 1, 2 and 3? And when is it open?
Trade Reporting Facility (TRF) open 8am - 8pm
What is the Execution System for the Alternative Display Facility (ADF)?
N/A - Private Connectivity Systems
What is the Execution System for OTC Markets (e.g. Pink)?
Via Voice
What is the Reporting System for OTC Markets? And when is it open?
Over the Counter Reporting Facility (ORF) open 8am - 8pm
NOTE - trades are reported via ACT
What is the Reporting System for the Alternative Display Facility (ADF)? When is it open?
the ADF, opened 8am - 630pm
