S57 Chapter 2

Corporate governance standards

• NCM: minimum requirements for financial strength, public float, value, shareholders. >$4 bid
• NGM: More stringent than NCM
• NGSM: Top tier ranking with most stringent standards

• Level 1: Inside market with no MMs identified
• Level 2: Quotes of all MMs, market data such as depth, last sale, high/low, and nchg. Allows a customer to call a MM and negotiate size/price.
• Level 3: Available only to registered MMs and allows them to update price/quantity.

• Order display, execution, and reporting system for Nasdaq and CQS securities
• Orders are routed for best price and locked in
• Maximum order size is 999,999 shares unless split into smaller orders
• Displayed has priority over reserve and discretionary

They have a displayed limit order price and a non-displayed limit order price that will be traded if the market gets there

• When notified by FINRA
• Expires if no quotes are made in 5 business days

• 4 AM to 8 PM ET
• MM hours are 9:30 AM to 4:00 PM ET, anything else is pre and post market

• Primary MPID identifies the market maker
• Subsequent MPIDs may be used for sponsored access, prime brokerage, and prop trading
• They may not be used for passive MM or stabilization
• You should report trades with the same MPID as the quotes

It is rounded down to the nearest round lot at that price level?

100 shares

• 8% for SP500 and Russel 1000 Idx listed stocks
• 28% for NMS stocks not on the indexes with prices >=$1.00
• 30% for NMS stocks not on the indexes with prices < $1.00

• 5 business days for issues beyond control (e.g. system failure)
• 60 calendar days for legal/regulatory compliance
• Religious holidays
• Vacation for small firms (<=3 level III terminals)
• Participation in an underwriting
• Termination of relationship with clearing firm

Requires a broker dealer to have systems in place to prevent customers from placing erroneous/illegal orders (such as exceeding capital/credit limits).

• Direct access: orders go through BDs system
• Sponsored access: orders do not go through BDs system

• Super caps: Clearing firm placed limits on the max gross dollar amount of orders
• Blockbuster trade: Trade of >=$1M
• Risk management alert is subject to a 15 minute hold

• Large traders must file a form (13H) with the SEC and get an ID number
• Large traders are people that invest in exchange-listed equities or options with > 2 million shares/$20 million value a day OR > $20 million shares/$200 million value a month
• They must file an annual report

• Order protection rule that prevents trade-throughs
• Only protects BBO

• Intermarket sweep order
• Limit order that’s exempt from the order protection rule
• A trader can trade at an inferior price in one market, while simultaneously directing orders for execution in to other markets with protected quotes (to get full size)

• Customer orders that aren’t displayed in the system. They’re pegged outside of the NBBO
• Primary pegged: Pegged outside of the spread, may be entered with a price cap (limit)
• Market pegged: Pegged inside of the spread—buy pegged below ask, sell pegged above bid
• Mid-point pegged: Pegged to the midpoint of the NBBO

An IOC order that specifies the min quantity of shares to be executed or else the order will be cancelled.

• Limit orders not displayed in the system
• Includes odd lots, pegged orders, and customer requests