5.9.2.4. Trading Ahead of Customer Orders
Broker-dealers must execute marketable customer orders fully and promptly, to the best of their abilities. Marketable customer orders are market and limit orders that can be executed at the current market price.
This rule states that brokers may not trade ahead of customer orders for their own accounts, at a price that would satisfy the customer order, unless immediately afterwards they execute the customer’s order at the same price or better.
Exceptions to the rule 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:
|
Customer Order Price |
Minimum Price Improvement* |
|
Equal to $0.01 and less than $1.00 |
$0.01 |
|
Less than $0.01 but greater than or equa |