3220. Adjustment of Open Orders
This rule is no longer applicable. NASD Rule 3220 has been superseded by FINRA Rule 5330. Please consult the appropriate FINRA Rule.
(a) A member holding an open order from a customer or another broker/dealer shall, prior to executing or permitting the order to be executed, reduce, increase or adjust the price and/or number of shares of such order by an amount equal to the dividend, payment or distribution, on the day that the security is quoted ex-dividend, ex-rights, ex-distribution or ex-interest, except where a cash dividend or distribution is less than one cent ($.01), as follows:
(1) In the case of a cash dividend or distribution, the price of the order shall be reduced by subtracting the dollar amount of the dividend or distribution from the price of the order and rounding the result to the next lower minimum quotation variation used in the primary market, provided that if there is more than one minimum quotation variation in the primary market, then the greater of the variations shall be used (e.g., if a market has minimum quotation variations of 1/16 or 1/32 of a dollar for securities trading in fractions, depending on the price of the security, or $.01 for securities trading in decimals, then the adjustment to open orders shall be in increments of 1/16 of a dollar for issues trading in fractions, and $.01 for issues trading in decimals);
(2) In the case of a stock dividend or split, the price of the order shall be reduced by rounding the dollar value of the stock dividend or split to the next higher minimum quotation variation used in the primary market as specified in paragraph (a)(1) and subtracting that amount from the price of the order; provided further, that the size of the order shall be increased by (A) multiplying the size of the original order by the numerator of the ratio of the dividend or split, (B) dividing the result by the denominator of the ratio of the dividend or split, and (C) rounding the result to the next lower round lot; and
(3) In the case of a dividend payable in either cash or securities at the option of the stockholder, the price of the order shall be reduced by the dollar value of the cash or securities, whichever is greater, according to the formulas in subparagraph (1) or (2), above; provided, that if the stockholder opts for securities, the size of the order shall be increased pursuant to the formula in subparagraph (2), above.
(b) If the value of the distribution cannot be determined, the member shall not execute or permit such order to be executed without reconfirming the order with the customer.
(c) If a security is the subject of a reverse split, all open orders shall be cancelled.
(d) The term "open order" means an order to buy or an open stop order to sell, including but not limited to "good 'til cancelled," "limit" or "stop limit" orders which remain in effect for a definite or indefinite period until executed, cancelled or expired.
(e) The provisions of this Rule shall not apply to:
(1) orders governed by the rules of a registered national securities exchange;
(2) orders marked "do not reduce" where the dividend is payable in cash;
(3) orders marked "do not increase" where the dividend is payable in stock, provided that the price of such orders shall be adjusted as required by this Rule;
(4) open stop orders to buy;
(5) open sell orders; or
(6) orders for the purchase or sale of securities where the issuer of the securities has not reported a dividend, payment or distribution pursuant to SEC Rule 10b-17.
(f) Mandatory Open Order Conversion for Securities Commencing Decimal Pricing
All open orders in Nasdaq securities priced in fractions remaining in a firm's internal system on the evening prior to, or received thereafter and prior to, the security's commencing decimal pricing pursuant to the Decimals Implementation Plan for the Equities and Options Markets shall be converted, no later than midnight on that evening prior to their first day of decimal pricing, as follows:
(1) Prior to the conversion, member firms should notify their customers and inform them of the change to their open fractional order(s) as a result of the conversion to decimal pricing. Customers should be afforded the opportunity to take action if they do not wish to participate in the conversion. Customers not wishing to participate in the mandatory conversion should be allowed the opportunity to cancel their open order(s) prior to the evening of the conversion.
(2) No later than midnight on the evening prior to a security's first day of decimal pricing, all open orders priced in fractions that have not been canceled, including those with price qualifiers such as DNR and DNI, shall be converted as follows:
• The fractional price of all open Buy Orders (GTC, GTX, Buy Stop and Buy Stop Limits) will be converted to their decimal equivalent and then "rounded down" to the nearest $0.01.
• The fractional price of all open Sell Orders (GTC, GTX, Sell Stop and Sell Stop Limits) will be converted to their decimal equivalent and then "rounded up" to the nearest $0.01.
Example: Buy 1000 MSFT 88 1/16 would convert to B 1000 MSFT 88.06 (1/16 = 0.0625)
Sell 1000 MSFT 88 1/16 would convert to S 1000 MSFT 88.07
This rule is to be in effect only in preparation for the first day of decimal trading of the newly-converted security. After conversion, firms may accept orders of any number of spaces beyond the decimal point in the newly-converted security and submit them, after appropriate rounding (See NASD Rule 4613 (a)(1)(D)), to Nasdaq for display.
Amended by SR-NASD-01-10 eff. March 12, 2001.
Amended by SR-NASD-00-46 eff. Aug. 28, 2000.
Amended by SR-NASD-97-48 eff. July 30, 1997.
Amended by SR-NASD-95-27 eff. Aug. 22, 1995.
Amended by SR-NASD-94-71 eff. Feb. 7, 1995.
Amended by SR-NASD-94-46 eff. Sept. 15, 1994.
Adopted by SR-NASD-93-52 eff. May 16, 1994; eff. date amended to Sept. 15, 1994 by SR-NASD-94-22.
Selected Notices: 93-61, 94-9, 94-28, 94-63.