For updates and guidance related to COVID-19 / Coronavirus, click here.
4300A. QUOTE AND ORDER ACCESS REQUIREMENTS
This rule is no longer applicable. NASD Rule 4300A has been superseded by FINRA Rule 6250. Please consult the appropriate FINRA Rule.
(a) For each security in which an ADF Trading Center displays a bid and offer (for Registered Reporting ADF Market Makers), or a bid and/or offer (for Registered Reporting ADF ECNs), in the ADF, it must:
(1) Provide other ADF Trading Centers direct electronic access, as defined below;
(2) Provide registered broker-dealers that are not ADF Trading Centers direct electronic access and allow for indirect electronic access, as defined below. In any event, an ADF Trading Center is prohibited from: (A) in any way directly or indirectly influencing or prescribing the prices that its customer broker-dealer may choose to impose for providing indirect access; and (B) precluding or discouraging indirect electronic access, including through the imposition of discriminatory pricing or quality of service with regard to a broker-dealer that is providing indirect electronic access;
(3) Provide a level and cost of access to its quotations in an NMS stock displayed in the ADF that is substantially equivalent to the level and cost of access to quotations displayed by SRO trading facilities in that NMS stock;
(4) Demonstrate that it has sufficient technology to automatically update its quotations and immediately respond to orders for execution directly against the individual ADF Trading Center's best bid or offer;
(5) Ensure that it does not impose unfairly discriminatory terms that prevent or inhibit any person, through a registered broker-dealer, from obtaining efficient access to such quotations;
(6) Provide at least 14 calendar days advance written notice, via facsimile, personal delivery, courier or overnight mail, to ADF Operations before denying any registered broker-dealer direct electronic access as defined below. The notice provided hereunder must be based on the good faith belief of an ADF Trading Center that such denial of access is appropriate and does not violate any of the ADF Trading Center's obligations under NASD rules or the federal securities laws. Further, any notification or publication of an ADF Trading Center's intent to deny access will have no bearing on the merits of any claim between the ADF Trading Center and any affected registered broker-dealer, nor will it insulate the ADF Trading Center from liability for violations of NASD rules or the federal securities laws, such as SEC Rule 602. The 14-day period begins on the first business day that ADF Operations has receipt of the notice; and
(7) Comply with the minimum performance standards set forth in (e) of this rule and the terms agreed to in the Certification Record.
(b) Subject to the terms and conditions contained herein, all ADF Trading Centers that display quotations in NASD's ADF must record each item of information described in paragraphs (b)(1) and (2) of this Rule for all orders they receive from another broker-dealer via direct or indirect electronic access, and report this information to NASD as specified below.
(1) ADF Trading Centers must record the following information for every order they receive from another broker-dealer via direct or indirect electronic access:
(A) Unique Order Identifier
(B) Order Entry Firm (OEID)
(C) Order Side (Buy/Sell)
(D) Order Quantity
(E) Issue Identifier
(F) Order Price
(G) Order Negotiable Flag
(H) Time In Force (i.e. regular hours, entire day, other)
(I) Order Date
(J) Order Time (expressed in hours, minutes and seconds based on Eastern Time in military format)
(K) Minimal Acceptable Quantity (i.e. ANY, all or none (AON), volume)
(L) Market Making Firm (MMID)
(M) Trade-or-Move Flag
(N) Any other modifier as specified by NASD or the Securities and Exchange Commission
The information described in paragraphs (A) through (N) must be reported to NASD within 10 seconds of receipt of the order.
(2) In addition to the information previously provided pursuant to paragraph (b)(1), ADF Trading Centers must record the following information, as applicable, for every order received via direct or indirect access from another broker-dealer that has been acted upon or responded to:
(A) Unique Order Identifier (as provided in paragraph (b)(1)(A))
(B) Order Response (e.g., E=Execute, D=Decline due to potential SEC Rule 611 violation, O=Decline Other, X=Cancel, T=Timed out, P=Partial, I=Price improvement)
(C) Order Response Time (expressed in hours, minutes and seconds based on Eastern Time in military format)
The information described in paragraphs (A) through (E) must be reported to NASD within 10 seconds of any response to or action taken regarding an order. In the event that a member receives and executes an order within 10 seconds, the member may submit a single report that contains the information required in (b)(1) and (b)(2).
(3) Maintaining and Preserving Records
(A) In addition to submitting the information described herein to NASD, each member shall maintain and preserve records of the information required to be recorded under this Rule for the period of time and accessibility specified in SEC Rule 17a-4(b).
(B) The records required to be maintained and preserved under this Rule may be immediately produced or reproduced on "micrographic media" as defined in SEC Rule 17a-4(f)(1)(i) or by means of "electronic storage media" as defined in SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC Rule 17a-4(f) and may be maintained and preserved for the required time in that form.
(4) Orders Not Required To Be Recorded
The recording and reporting requirements contained in paragraphs (a) and (b) of this Rule shall not apply to orders received via any system operated by a national securities exchange or national securities association such that the association or exchange operating the system has access to and regulates that order activity.
(5) Method of Transmitting Data
Members shall transmit this information in such form as prescribed by NASD.
(6) Reporting Agent Agreements
(A) "Reporting Agent" shall mean a third party that enters into any agreement with a member pursuant to which such third party agrees to fulfill such member's obligations under this Rule.
(B) Any member may enter into an agreement with a Reporting Agent pursuant to which the Reporting Agent agrees to fulfill the obligations of such member under this Rule. Any such agreement shall be evidenced in writing, which shall specify the respective functions and responsibilities of each party to the agreement that are required to effect full compliance with the requirements of this Rule.
(C) All written documents evidencing an agreement described in paragraph (6)(B) shall be maintained by each party to the agreement.
(D) Each member remains responsible for compliance with the requirements of this Rule, notwithstanding the existence of an agreement described in this paragraph.
(7) Withdrawal of Quotations
If an ADF Trading Center knows or has reason to believe that it or its Reporting Agent is not complying with the requirements of this Rule, the ADF Trading Center must withdraw its quotations from the ADF until such time that the member is satisfied that it is in compliance with the requirements of this Rule.
(c) ADF Trading Centers are required to specify as part of their Certification Record the method and terms by which they will comply with the requirements of this Rule. NASD will not allow an ADF Trading Center to display quotations in the ADF unless the method and terms provided by the ADF Trading Center are in compliance with this Rule and applicable provisions of Regulation NMS. Acceptance by NASD of an ADF Trading Center's Certification Record does not relieve an ADF Trading Center of any of its on-going obligations. Moreover, NASD's acceptance of such Certification Record, shall not constitute an estoppel as to NASD or bind NASD in any subsequent administrative, civil or disciplinary proceeding.
(1) "Direct electronic access" means the ability to deliver an order for execution directly against an individual ADF Trading Center's best bid or offer subject to applicable NASD rules and the federal securities laws, including Regulation NMS. As described herein, ADF Trading Centers must provide direct electronic access, in conformity with this rule, through the use of a communications service(s) that is deemed to be sufficient by NASD.
(2) "Indirect electronic access" means the ability to route an order through an NASD member, subscriber broker-dealer, or customer broker-dealer of an ADF Trading Center that are not an affiliate of the ADF Trading Center, for execution against the ADF Trading Center's best bid or offer subject to applicable NASD rules and the federal securities laws, including Regulation NMS. An ADF Trading Center shall not impose unfairly discriminatory terms that prevent or inhibit any person from obtaining efficient access to such quotation through an NASD member, subscriber broker-dealer, or customer broker-dealer. An NASD member that is providing indirect electronic access shall remain responsible for orders routed through it as though the orders were the firm's own orders.
(e) Minimum Performance Standards
(1) ADF Trading Centers must submit "Automated Quotations", as defined in SEC Rule 600(b)(3) to the ADF for posting. "Manual Quotations," as defined in SEC Rule 600(b)(37), shall not be submitted to the ADF. As a precondition to becoming an ADF Trading Center, an ADF Trading Center must, among other things, certify to NASD their compliance with this paragraph based on reasonable forecasts of peak volume activity and the establishment of policies and procedures to ensure only "Automated Quotations," as defined in SEC Rule 600(b)(3), are submitted to the ADF.
(2) In the event that an ADF Trading Center experiences three (3) unexcused system outages during a period of five (5) business days, the ADF Trading Center may be suspended from quoting in the ADF in all or certain issues for a period of twenty (20) business days. With respect to an ADF Trading Center, a "system outage" shall mean an inability to post "Automated Quotations," as defined by SEC Rule 600(b)(3), in the ADF or an inability to immediately and automatically respond to orders.
(3) Officers of NASD or its subsidiaries designated by the President of NASD shall, pursuant to the procedures set forth in paragraph (f) below, have the authority to review any system outage to determine whether the system outage should be excused. An officer may deem a system outage excused upon proof by the ADF Trading Center that the system outage resulted from circumstances not within the control of the ADF Trading Center. The burden shall rest with the ADF Trading Center to demonstrate that a system outage should be excused.
(4) An ADF Trading Center may contact NASD ADF Operations and request that a system outage be deemed excused, whether or not the system outage resulted from circumstances within the control of the ADF Trading Center; however, if NASD ADF Operations becomes aware of the system outage prior to the ADF Trading Center's request for an excused system outage, NASD ADF Operations may, at its own discretion, deem the system outage to be unexcused, based on the specific facts and circumstances surrounding the outage.
(f) Procedures for Reviewing System Outages
(1) Any ADF Trading Center that seeks to have a system outage reviewed pursuant to paragraph (e)(3) hereof, shall submit a written request, via facsimile or otherwise, to ADF Operations by close of the business day on which the system outage occurs, or the following business day if the system outage occurs outside of normal market hours.
(2) An ADF Trading Center that seeks review of a system outage shall supply any supporting information for a determination under paragraph (e)(3) to NASD staff by the close of business on the day following the system outage.
(3) An ADF Trading Center that seeks review of a system outage shall supply NASD staff with any information requested to make a determination pursuant to paragraph (e)(3).
(4) An officer shall, in accordance with paragraph (e)(3), make a determination whether a system outage is excused by the close of business on the day following the receipt of information supplied pursuant to paragraphs (f)(2) and (f)(3).
(5) An ADF Trading Center may appeal a determination made under paragraph (e)(3) to a three-member subcommittee comprised of current or former industry members of NASD's Market Regulation Committee in writing, via facsimile or otherwise, by the close of business on the day a determination is rendered pursuant to paragraph (e)(3). An appeal to the subcommittee shall operate as a stay of the determination made pursuant paragraph (e)(3). Once a written appeal has been received, the ADF Trading Center may submit any additional supporting written documentation, via facsimile or otherwise, up until the time the appeal is considered by the subcommittee. The subcommittee shall render a determination by the close of business following the day a notice of appeal is received. The subcommittee's determination shall be final and binding.
(g) Inactive Quoting
In order to maintain ADF certification, Registered Reporting ADF ECNs must post at least one marketable quote/order through the ADF on each side of the market every 30 calendar days. A quote/order that is posted through the ADF will be presumptively a marketable quote/order if such quote/order is accessed (i.e., traded against) by another trading center or market participant (other than a subscriber of the Registered Reporting ADF ECN). A Registered Reporting ADF ECN that fails to post at least one marketable quote/order through the ADF on each side of the market every 30 calendar days, shall lose its ADF certification at the sole discretion of NASD staff. Registered Reporting ADF ECNs seeking to regain ADF certification shall be required to recertify pursuant to this NASD Rule 4300A.
Amended by SR-NASD-2007-001 eff. March 5, 2007.
Amended by SR-NASD-2006-091 eff. March 5, 2007.
Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
Amended by SR-NASD-2004-02 eff. Oct. 20, 2004.
Amended by SR-NASD-2003-145 eff. Jan. 6, 2004.
Adopted by SR-NASD-2002-97 eff. July 29, 2002.
Selected Notice: 04-68.