Series 24: Trading Ahead Of Customer Orders

Trading Ahead of Customer Orders

Broker-dealers must execute marketable (both market and limit) customer orders fully and promptly, to the best of their abilities. If a broker-dealer has a pending, unfilled customer order for an equity security, they may not execute any trades on the same side of the market for their own account at a price that would satisfy the customer’s order, unless they immediately afterwards execute the customer’s order at the same price or better. Exceptions exist for:

• • Institutional customer accounts
• • Large orders– orders that are for 10,000+ shares and for at least $100,000
• • “No-knowledge”– a trading unit is not responsible for customer orders held by other trading units if appropriate information barriers are in place
• • Riskless principal transactions
• • Intermarket sweep orders
• • Odd lot transactions
• • Bona fide error transactions

For customer limit orders priced at $1 or above, the minimum price improvement is $0.01 for NMS stocks and the lesser of $0.01 and one-half of the current inside spread for OTC equity securities. For all other orders, the breakdown is as follows: