Knight Equity Markets and Knight Capital Markets are constantly searching for ways to help our clients achieve best execution. We make a market in or trade nearly every U.S. equity, including National Market System (NMS), Small-Cap, OTC Bulletin Board and Pink Sheets, as well as NYSE- and AMEX-listed securities in the Nasdaq InterMarketsm. Toward that end, we have developed the protocols listed here.
If you have any questions regarding Knight’s execution protocols or product offerings, contact Frank Grampone, fgrampone@knight.com.
LISTED ORDER HANDLING & EXECUTION PROTOCOLS (KNIGHT CAPITAL MARKETS)
Price Benchmarks
Knight Capital Markets, ("KCM") order handling protocols are designed to execute orders at prices that comply with the firm’s regulatory obligations under
Reg NMS. Accordingly, KCM endeavors to execute orders that are not exempt from the Trade-Through prohibitions of Reg NMS at or better than the current inside
protected bid or inside protected offer.
Knight Capital Markets reserves the right, at its sole discretion and at any time, to route any order to any national exchange, ECN or ATS for pricing
and/or display, as long as the facility to which the order is routed is required to comply with the Limit Order Display Rule and with Reg NMS.
During Normal Market Conditions– During normal market conditions, our execution procedures and post-execution quality control procedures, whether carried out by our system or manually, generally utilize a stock's best consolidated inside quote (NBBO) as the price benchmark.
During Non-Normal Market Conditions* – During non-normal market conditions, our execution procedures and post-execution quality control procedures, whether carried out by our system or manually, generally utilize a stock's primary exchange's quotes and/or prints as the price benchmark.
* See: "Note on Certain Highly Volatile Securities" in the Reserved Rights section of this document.
KCM's trading system is programmed to utilize a set of algorithms that determine whether, and to what extent an order electronically transmitted to us receives Automatic Execution at the National Best Bid or Offer ("NBBO") in effect at the time we receive that order, and whether, and to what extent orders electronically transmitted to us receive Price Improvement. These algorithms are dynamic, i.e., their Automatic Execution parameters and Price Improvement parameters react and change according to a number of factors including, among others:
whether market conditions in the stock are normal or "non-normal" *
whether the order is "oversized" **
the stock's overall and/or momentary volume and volatility
the size of the order
the stock's liquidity
the firm's current position in the stock
the firm's risk tolerance in the stock
Additionally, the availability of Automatic Execution and/or Price Improvement can vary on a stock by stock basis and/or on a client by client basis.
KCM, however, will always honor its own quote via automatic execution. That is, orders that are marketable against this firm's quote will receive an automatic execution, at least to the extent of the size of our quote.
The balance of any order receiving a partial automatic execution is handled on a best efforts basis. (Additionally, all orders that do not receive any automatic execution are handled on a best efforts basis.)
KCM defines Price Improvement as occurring when an order is executed in full or in part at a price which is superior to the NBBO in effect at the time the order was received. Notwithstanding an order's eligibility for Price Improvement, an order will not receive Price Improvement if the improved execution price would otherwise violate any rule or regulation.
* Non-normal market conditions are described in further detail in the section below titled "."
** KCM sets oversize levels on a stock by stock basis and on a client by client basis. These oversize levels are independent of each other. A particular order is treated as an oversized order if the amount of the order exceeds the stock's oversized level or if it exceeds the client's oversize level.
Knight's trading system begins displaying its clients' displayable orders in a given stock immediately after the stock's primary exchange posts its first quote of the trading day.
When Knight receives a limit order for a security in which we make a market, and where the limit order price improves our current bid or offer or, where the limit order adds to the size of the NBBO and Knight Capital Market's quote is the NBBO or is equal to the NBBO, the order management system at Knight will immediately update its quote so that the customer's limit order is reflected as required under limit order handling rules. In those instances where Knight's trading system has automatically sent a cover order (for the same number of shares as the client's displayable limit order) to the stock's primary exchange, the primary exchange will reflect and display any such order that is displayable under the SEC's Limit Order Display Rule. The foregoing may not apply to any order that is exempt from the SEC's Limit Order Display Rule.*
* From time to time, Knight may fully or partially display orders that, due to their size, are exempt from the provisions of the Limit Order Display Rule, (i.e., "exempt oversized" orders). If an exempt oversized order is partially displayed, Knight may execute, (subject to Reg NMS), some or all of the undisplayed portion of the order upon the full execution of the displayed portion of that order.
Limit orders may receive share-for-share matches by interacting with our marketable order flow. KCM' trading system is programmed to effect matches with limit orders in our open order file immediately when a limit order becomes eligible for the match.
Population: Type 1 stocks include all stocks in which KCM makes a market except for "Type 2" stocks as KCM has defined those stocks, below.
Definition of a Stock Opening: KCM defines the opening of a Type 1 stock as the time that the stock's primary exchange* publishes its first print of the day in that stock on the Consolidated Tape. This "opening print" usually occurs shortly after 9:30:00 AM, Eastern Time, but may occur at any time prior to the close of that primary exchange. (It is possible for a stock not to open at all on a given day.) The price of the "opening print" is the stock's "opening price."
Pre-Open Order Execution Protocol: To be deemed a Pre-Open Order, (1) the order must not include All-or-None (AON) instructions and (2) KCM must have received the order prior to 9:28:00 AM Eastern Time. Each Pre-Open market order and each Pre-Open limit order in Type 1 stocks that is marketable relative to the opening price will be eligible for automatic execution beginning immediately after our trading system detects the stock's opening print on the Consolidated Tape. These Pre-Open orders will be executed in their entirety at the stock's opening price.
Orders received at or after 9:28:00 AM but prior to the completion of the Pre-Open Order Execution Protocol may, at the firm’s discretion, be included within the Pre-Open Order Execution Protocols or otherwise handled on a best efforts basis.
Pre-Open Orders in Type 2 Stocks:
Population: Type 2 stocks include stocks listed on the NYSE that are subject to a non-regulatory halt by the NYSE pursuant to NYSE Rule 123(D)(3), (which, as a practical matter, generally includes stocks priced at or less than $1.05).
Definition of a Stock Opening: KCM defines the opening of a Type 2 stock as the time that NYSE-Arca publishes its first print of the day in that stock on the Consolidated Tape. This "opening print" usually occurs shortly after 9:30:00 AM, Eastern Time, but may occur at any time prior to the close of NYSE-Arca. (It is possible for a stock not to open at all on a given day.) The price of the "opening print" is the stock's "opening price."
Pre-Open Order Execution Protocol: To be deemed a Pre-Open Order in a Type 2 stock, (1) the order must not include All-or-None (AON) instructions and (2) KCM must have received the order prior to 9:28:00 AM Eastern Time. Pre-open market and marketable limit buy orders and sell orders in Type 2 stocks will be executed immediately after the opening at the opening price, but only to the extent that the one side or the other represents the lesser number of pre-open order shares. Any remaining market or marketable limit buy or sell orders will be deemed to have been received one second after the opening and will be handled pursuant to the order handling protocols applicable to orders received after the opening.
Orders received at or after 9:28:00 AM but prior to the completion of the Pre-Open Order Execution Protocol may, at the firm’s discretion, be included within the Pre-Open Order Execution Protocols, priced pursuant to those protocols or otherwise handled on a best efforts basis.
* A stock's "primary exchange" is the exchange on which the stock listed. It is not necessarily the exchange with the greatest market share in the stock.
Alternative Opening Protocol:
Notwithstanding the protocols set forth above in connection with Pre-Open Orders in Type 1 and Type 2 stocks, KCM reserves the right at its absolute and sole discretion to commence trading in any stock on any day pursuant to any one of the following Alternative Opening Protocols:
Alternative Opening Protocol 1:*
Definition of a Stock Opening: KCM defines the opening of a stock opened under Alternative Opening Protocol 1 as the time that the Nasdaq Opening Cross in the stock is published on the Consolidated Tape. This "opening print" should occur at or about 9:30:00 AM, Eastern Time. The price of the "opening print" is the stock's "opening price."
Pre-Open Order Execution Protocol: To be deemed a Pre-Open Order, (1) the order must not include All-or-None (AON) instructions and (2) KCM must have received the order prior to 9:28:00 AM Eastern Time. Each Pre-Open market order and each Pre-Open limit order that is marketable relative to the opening price will be eligible for automatic execution beginning immediately after our trading system detects the Nasdaq Opening Cross on the Consolidated Tape. These Pre-Open orders will be executed in their entirety at the stock's opening price.
Orders received at or after 9:28:00 AM but prior to the completion of the Pre-Open Order Execution Protocol may, at the firm’s discretion, be included within the Pre-Open Order Execution Protocols or otherwise handled on a best efforts basis.
* Generally, Alternative Opening Protocol 1 may be invoked when a stock’s Primary Exchange has announced that it is unlikely to open at or near 9:30:00 AM, (usually due to a system failure or non-regulatory halt). At initial publication of this Alternative Order Handling Protocol, DIA, IWM, MDY, OIH, SMH, SPY and XLE are among the stocks that are eligible for NASDAQ’s Opening Cross.
Alternative Opening Protocol 2:
At any time after 9:30:00 AM but prior to the time of an “opening print” in a stock, KCM may open its market in a stock by publishing the first quote of the day that represents its current top-of-book bid and offer. This publication of the first top-of-book quote is the stock’s “opening event.” All orders received prior to the “opening event” shall be treated as if received immediately after the “opening event.” * Thus, there are no Pre-Open Orders in stocks opened pursuant to this alternative opening protocol.
In the event that KCM invokes this protocol in connection with a stock, then at any time prior to an “opening print” in that stock (whether it is a Type 1 or a Type 2 stock), KCM may, at its own discretion, cease trading in that stock by publishing a stub-quote in that stock.
* Such orders will maintain any time and price priority relative to each other.
KCM accepts any Market or Limit order that can be sent to the floor of the New York Stock Exchange electronically. In addition to market and limit orders, we accept the All-or-None (AON), Fill-or-Kill (FOK) and Immediate or Cancel (IOC) order modifiers. The special execution characteristics and risks of these order modifiers are discussed below.
AON Orders – Unlike a Market or Limit order without the AON modifier, an AON order must be filled in one execution at one price for the entire amount of the order*. Unlike other orders, the client has the right to cancel an AON order unilaterally at any time before the full execution of the AON order in its entirety. This right of unilateral cancellation puts and keeps KCM at risk up until the execution of the AON order.
* However, if, pursuant to our Reserved Rights (below), KCM routes an AON order to a national exchange, ECN or ATS for display and/or pricing, and the national exchange, ECN or ATS fills the order in more than one execution, even in more than one price, KCM will fill the AON order in the same number of executions and at the same price(s) as it had received from the national exchange, ECN or ATS.
Market AON Orders – A Market AON Order may never become executable. A Market AON Order only provides that if the order becomes executable, it will be executed without partials, at one price, (depending on market conditions, that one price may or may not be the NBBO at execution), for the entire amount of shares ordered. There is no theoretical limit to how high or low the execution price may be.
Limit AON Orders – Like a Market AON order, a Limit AON Order may never become executable. Like a Market AON order, a Limit AON order will be executed without partials, at one price, (i.e. the Limit Price or better), and for the entire amount of shares ordered. Unlike a Market AON order, a Limit AON order cannot be executed at a price inferior to the Limit price.
FOK Orders – Unlike a Market or Limit order without the FOK modifier, a FOK order must be filled in one execution at one price for the entire amount of the order and unlike the AON order, the FOK order must be executable immediately upon receipt, (i.e., within 90 seconds of receipt), otherwise the order receives a "nothing done."
Market FOK Orders – A Market FOK order, if executable for the full amount ordered at the instant of receipt, will be executed in its entirety at one price.
Limit FOK Orders – A Limit FOK order, if executable for the full amount ordered at the instant of receipt, will be executed in its entirety at the limit price or better.
KCM accepts FOK orders on a discretionary basis, i.e., we may, at our discretion, cancel such orders.
IOC Orders – Unlike a FOK order, an IOC order may be filled immediately upon receipt, (i.e., within 90 seconds of receipt), but partially. Any remaining balance is cancelled.
Market IOC Orders – A Market IOC order will be filled to the extent that it can be filled immediately at a single price. Any remaining balance will be cancelled.
Limit IOC Orders – A Limit IOC order will be filled to the extent that it can be filled immediately at a single price equal to or better than the Limit price. Any remaining balance will be cancelled.
KCM accepts FOK orders on a discretionary basis, i.e., we may, at our discretion, cancel such orders.
Good-til-Cancel (GTC) Orders – A GTC order will remain an open order until executed, canceled by the broker-dealer that placed the order or canceled by KCM, whichever comes first. (Generally, KCM will automatically cancel an open GTC order one year after its receipt.)
For a Stop Order to be accepted:
The stop price of a Sell Stop Order or of a Sell Stop Limit Order must be equal to or below the National Best Bid when received, (otherwise it will be rejected).
The stop price of a Buy Stop Order or of a Buy Stop Limit Order must be equal to or above the National Best Offer when received, (otherwise it will be rejected).
Election of Stop Orders:
Sell Stop Orders and Sell Stop Limit Orders are 'elected' when the National Best Bid meets or falls below the stop price. (If, when the order is received, the stop price is equal to the National Best Bid, the order is deemed 'elected' immediately upon its receipt.)
Buy Stop Orders and Buy Stop Limit Orders are 'elected' when the National Best Offer meets or exceeds the stop price. (If, when the order is received, the stop price is equal to the National Best Offer, the order is deemed 'elected' immediately upon its receipt.)
Note: Pre-opening Stop or Stop Limit orders are triggered based upon the first unlocked, uncrossed consolidated bid/ask. Note: A National Best Bid or Offer that would otherwise elect a stop price will not elect that stop price if that Bid or Offer is one side or the other of a Locked or Crossed Market.
Executions of Elected Stop Orders:
After being elected, a Stop Order becomes a market order that is handled manually on a best efforts basis. For the purpose of determining execution quality, as compared to other market orders, the time the Stop Order is elected is the receipt time of the resultant market order.
Executions of Elected Stop Limit Orders:
After being elected, a Stop Limit Order becomes a limit order. For the purpose of determining execution quality as compared to other limit orders, the time the Stop Limit Order is elected is the receipt time of the resultant limit order.
An OPG Order will be accepted if it is received prior to the primary opening.
(The primary opening occurs when the Consolidated Tape publishes the first
NYSE or AMEX trade of the day in a stock.) An OPG Order will be rejected if not received prior to the primary opening. A cancellation requests for an OPG Order will be granted if received prior to the
primary opening. All executions of OPG orders will occur during our market opening process. An
unexecuted OPG order or the unexecuted balance of a partially executed OPG
order will be cancelled after our market opening process is complete.
Upon receipt of each Special Settlement order, but prior to our acceptance of each such order, we will check for upcoming corporate actions in the stock and we will check with our clearing firm's stock loan department for the stock's availability. These checks are designed to ascertain appropriate pricing and deliverability.
Research and manual handling of the order may take time and could affect the execution price, especially if the process occurs during market movement in the stock.
The executed price of special settlement orders may reflect our compensation, including an imputed markup or markdown.
KCM reserves the right to refuse to accept any Special Settlement (I.e., Non-Regular-Way) order.
Orders Priced at Less Than Minimum Increment Decimals
Except for orders priced below $1.00, any priced order that we receive with a price containing more than two decimal places, (e.g., 10.123, 10.125, 10.0625, 10 1/8, etc), will be rejected as an order with an invalid price. (Such orders not evenly divisible by the current unit of trading, i.e. $.01, are automatically rejected.)
Once an order is received, it cannot be cancelled unilaterally by the client. However, a client may request that any unfilled order be cancelled. Generally, order cancellation requests, when honored, are honored to the extent that an order has not been executed, or to the extent that stock is not bought or sold by Knight on the order's behalf. If an order has been reflected to the floor of an exchange or to another market participant, the cancellation request may be honored, but only to the extent that the exchange or other market participant grants an "out" on the reflected order.
KCM will act in a principal capacity with respect to each order received from its broker-dealer clients. Generally, executions reported by KCM will indicate that KCM acted as principal and that the broker-dealer client acted as agent in connection with the trade.
After-Hours Trading Discontinued as of May 1, 2002
As of May 1, 2002, KCM no longer participates in the after-hours trading session. Accordingly, KCM does not accept orders for the after-hours trading session.
KCM reserves the right, at the sole discretion of its Supervisory Principals, to determine if and when market conditions are normal. Non-normal market conditions include, but are not limited to:
Locked or crossed markets
Markets and/or market participants that are unusually volatile, unreliable and/or unresponsive
Periods of order imbalances either at this firm or at the stock's primary exchange
Non-regulatory trading halts (beginning from the time of the last print on the stock's primary exchange before the exchange's declaration of the halt and ending when the stock's primary exchange ends the halt by resuming its normal quoting and printing operations)
Periods of time when an exchange places a stock in "non-firm quote" mode or similar quoting mode
Periods of unusually wide spreads (in the inside market or by the stock’s primary exchange)
Periods of time surrounding significant news stories (whether or not those news stories result in a regulatory halt of the stock)
Stocks whose normal unit of trading is less than 100 shares
Periods of time affected by a communications or systems outage
KCM reserves the right at its sole discretion to reduce, modify, suspend, or cancel any of its order handling protocols, including, but not limited to, automated price improvement and automatic execution, without notice on a stock by stock or on a client by client basis, when non-normal market conditions exist, when attempts are made to abuse or circumvent its automatic execution size limitations, or when KCM otherwise deems it appropriate.
KCM reserves the right at its sole discretion to offer various execution services, (e.g. Print Count Protection, High-Low Print Protection, etc.), on a client by client basis that are not required pursuant to its obligations as a market maker and pursuant to the requirements under the Limit Order Display and Limit Order Protection (Manning) rules.
KCM reserves the right at its sole discretion to commence trading in any individual stock on any day pursuant to any one of its Alternative Opening Protocols. KCM may choose to provide prior notification as to which stocks KCM intends to open under a particular Opening Protocol. Any information contained in such a notification will be provided in good faith and will reflect KCM's intentions at the time the notice is provided. However, KCM shall continue to reserve its right, at its sole discretion, to commence trading in those stocks pursuant to any one of its Alternative Opening Protocols.
KCM also reserves the right, at its sole discretion and at any time, to route any order to any national exchange, ECN or ATS for pricing and/or display, as long as the facility to which the order is routed is required to comply with the Limit Order Display Rule and with Reg NMS.
Knight reserves the right at its sole discretion to cancel or price-adjust any trade whose execution is deemed by Knight to have been the result of a bonafide error and whose execution price is deemed by Knight to have be unjustly harmful or unjustly beneficial. Bonafide errors can result from human error or system malfunctions that affect the execution of an order. Such errors can occur at Knight or can occur downstream of Knight at an exchange, ECN or other market participant utilized by Knight in connection with the execution of the order. Such errors can also result from general market turbulence, communications system breakdowns or other conditions over which Knight has no control. (In the event that Knight exercises this right, Knight will use its best efforts to inform the client timely and fully and to minimize market impact for all concerned.)
KCM performs regular reviews to ensure that each order has been handled in a manner consistent with its order handling protocols and with applicable regulations. Additionally, our trading system is programmed with multiple algorithms designed to ensure that each of our clients' orders are handled and reported properly.
Among other functions, the algorithms are designed to:
display displayable orders
execute orders pursuant to the order protection rules
identify orders eligible for automatic execution
identify orders eligible for price improvement
execute marketable orders consistent with our order handling protocols
execute marketable orders consistent with our regulatory obligations
report executed orders consistent with our regulatory obligations
KCM maintains constant vigilance and oversight designed to maintain the continued proper functioning of the trading system, which, in turn, is designed to ensure that the system continues to perform its functions consistent with our order handling protocols and in compliance with the applicable rules.
KCM also performs regular reviews of its executions, which reviews are also designed to ensure that the orders were executed in a manner consistent with our order handling protocols and with the applicable rules.
KCM recognizes its regulatory obligations to execute its broker-dealer clients’ orders in a manner consistent with the requirements of the Best Execution Rule. However, KCM's Best Execution obligations to its broker-dealer clients are not the same as its broker-dealer clients’ Best Execution obligations to their customers.
It is the mission of this firm to provide high quality execution services. Toward that end, KCM will use its best efforts in connection with the handling of each of its client's orders. While it is our goal that these efforts may enable our clients to satisfy their regulatory obligations associated with the orders and the relevant fiduciary obligations that they owe to their customers, (including, but not limited to our clients' obligations to provide best execution for their customers' orders). Nothing in the foregoing materials should be construed to mean that KCM is a guarantor of any of those obligations, that KCM has agreed, either expressly or implicitly, to take on those obligations, nor that KCM has agreed to indemnify its clients with respect to any alleged or actual breach of such obligations, nor that KCM is a fiduciary of its broker-dealer clients or their customers.
A Special Note on the SEC’s Emergency Order Regarding Short Sales in Certain Securities
Background:
On July 15, 2008, the Securities and Exchange Commission (SEC) issued an emergency order which, effective as of July 21, 2008, temporarily prohibits short sales in certain securities unless the seller has first borrowed or arranged to borrow the subject security (i.e., a "pre-borrow") for delivery on settlement date of the trade.
The SEC order requires a short seller of any of the securities whose tickers are listed below to either borrow, arrange to borrow or otherwise have the subject security in inventory. The SEC has indicated that executing broker-dealers may rely upon a borrow or arrangement to borrow obtained by a client (e.g., the client’s prime broker) and that such borrow or arrangement to borrow may be documented in a manner similar to how short sale locates are recorded today (which, generally, is done through populating the "locate" field on the applicable sales system or order ticket)..
What this means for you:
Please note that compliance with the terms of the SEC order is primarily the responsibility of the short seller. As has been the case with respect to the "locate" requirements, non-FINRA member clients of Knight Capital Markets LLC, ("TRIM"), who are currently required to provide "locate" information when routing a short-sale order to us, are now required to provide the "pre-borrow" information associated with each short-sale order. Accordingly, if your firm is a non-FINRA member, then in connection with any short sale in the subject names that you route to us for execution, you agree that your entry of information into the "locate" field constitutes a representation that your firm has actually borrowed or has arranged to borrow the subject shares in compliance with the SEC order and that Knight Capital Markets LLC may reasonably rely upon this representation.
A full copy of the order is available through the following link: http://www.sec.gov/rules/other/2008/34-58166.pdf. The list of securities subject to the order (as specified by ticker symbol) is included below:
Company
Ticker Symbol(s)
BNP Paribas Securities Corp.
Bank of America Corporation
Barclays PLC
Citigroup Inc.
Credit Suisse Group
Daiwa Securities Group Inc.
Deutsche Bank Group AG
Allianz SE
Goldman Sachs Group Inc
Royal Bank ADS
HSBC Holdings PLC ADS
J. P. Morgan Chase & Co.
Lehman Brothers Holdings Inc.
Merrill Lynch & Co., Inc.
Mizuho Financial Group, Inc.
Morgan Stanley
UBS AG
Freddie Mac
Fannie Mae
BNPQF or BNPQY
BAC
BCS
C
CS
DSECY
DB
AZ
GS
RBS
HBC
JPM
LEH
MER
MFG
MS
UBS
FRE
FNM
Please contact your representative if you have any questions regarding this matter.
Knight Equity Markets L.P. (Knight), provides order handling and execution services in Nasdaq* NMS, SmallCap, OTC Bulletin Board* (OTCBB) and PinkSheets* securities. Knight's focus on execution quality, speed, price and automation serves the needs of our broker-dealer and institutional clients.
For more information on our OTC order handling protocols, contact Frank Grampone, fgrampone@knight.com.
OTC Order Handling
Order Acceptance
Knight accepts orders in all OTC securities listed by the Nasdaq (NMS, Small Cap), Bulletin Board and Pink Sheets, except that of Knight Trading Group (Nasdaq Symbol: NITE). Knight accepts market and limit orders with all modifiers (GTC, etc.) and/or restrictions (e.g., AON, FOK), in all share sizes. Knight also accepts stop and stop limit orders.
Duration of Orders
Unless otherwise designated, all orders received are deemed “day” orders, and any unfilled portions of orders will expire at the end of that same trading day (4:00 p.m. Eastern Time). Knight maintains all good-till-canceled (GTC) orders on file for the course of one full year, after which time the order will expire. We adjust priced GTC orders for corporate actions, in accordance with standard Nasdaq rules and regulations.
Limit Order Protection (Manning)
Our electronic trading system is designed to comply with the FINRA Limit Order Protection Rules (Manning) for Nasdaq and Bulletin Board Securities.
Limit Order Display
Our electronic trading system is designed to comply with the SEC's Limit Order Display Rule by displaying eligible limit orders immediately.
* From time to time, Knight may fully or partially display orders that, due to their size, are exempt from the provisions of the Limit Order Display Rule, (i.e., "exempt oversized" orders). If an exempt oversized order is partially displayed, Knight may execute, (subject to Reg NMS), some or all of the undisplayed portion of the order upon the full execution of the displayed portion of that order.
Bulletin Board and Pink Sheet Limit Order Quote Display
LOQD will commence at
9:35:00am ET and continue until 4:00:00pm ET. LOQD
will occur promptly upon receipt of an eligible order. Eligible orders will be displayed for a share amount equal to the minimum quotation size (MQS)
requirement (see chart below), with any remaining balance held in reserve. Eligible orders that are over the MQS, will be reflected at the MQS and be refreshed at the MQS
upon receipt of executions until the order is depleted or leaves a quantity below the MQS. Orders with quantities or which leave quantities that are below the MQS will not be eligible for
LOQD. Orders in stocks priced under $0.02 will be displayed up to 2x the tier size.
Orders in stocks priced equal to or greater than $1.00 per share will be displayed in accordance
with the guidelines of the SEC Limit Order Display Rule of Nasdaq and exchange listed securities. (Orders with share quantities in excess of 10,000 shares and/or
with a market value of $200,000 will not be displayed).
Stocks which are priced between $0.01 and $0.99 per share will be rounded up/down to a
maximum of three (3) decimal places. Stocks which are priced at or greater than $1.00 per share will be rounded up/down to a
maximum of
two (2) decimal places. Orders with restrictions (e.g., AON) or special handling instructions (e.g., not-held) are
not eligible for LOQD. Unsolicited
and Grey Market Pink Sheet securities are not eligible for LOQD.
Price
Minimum Quote Size
0 - .50
5,000 shares
.51 – 1.00
2,500
1.01 – 10.00
500
10.01 – 100.00
200
100.01 – 500
100
500.01 – 1000
10
1000.01 – 2500
5
2500+
1
Stop Order Handling
A sell Stop or Stop Limit order is triggered when the National Best Bid reaches the order price; conversely a buy Stop or Stop Limit order is triggered when the National Best Offer reaches the order price. Once triggered, a Stop loss order to buy/sell is processed as a market order while a stop limit to buy/sell is processed as a limit order.
Stop Orders
When triggered, a Stop order becomes a market order and is executed according to our market order handling protocols.
For the purpose of determining execution quality as compared to other market orders, the trigger time is the order receipt time.
Pre-opening Stop or Stop Limit orders are triggered based upon the first unlocked, uncrossed consolidated bid/ ask.
Stop Limit Orders
When triggered, Knight will process the limit order in compliance with the SEC Order Handling Rules, including display obligations, and the FINRA's Manning interpretation. Hence, there is no guarantee that a stop limit order will be executed.
A sell Stop or Stop Limit order will not be accepted if, upon receipt, the stated price of the order is above the National Best Bid; conversely a buy Stop or Stop Limit order will not be accepted if, upon receipt, the stated price of the order is below the National Best Offer.
A sell Stop or Stop Limit order will be immediately triggered if, upon receipt, the stated price of the order is equal to the National Best Bid; conversely a buy Stop or Stop Limit order will be immediately triggered if, upon receipt, the stated price of the order is equal to the National Best Offer.
Trailing Stop Order Handling
Knight will accept trailing stop orders in which a stop parameter --designated by points or percentage-- is used to create an activation price that moves along with fluctuations of the stock.
Not Held Order Handling (Broker-Dealer Clients Only)
When entering a "not held" order with Knight, a client is giving Knight time and price discretion to obtain a quality execution of that order. When handling orders as "not held", Knight is relieved of the responsibilities with respect to the time and the price of execution. In addition, consistent with using reasonable judgment to seek the best execution, Knight is not required to display or protect orders when it trades at prices equal to or better than those of the "not held" order.
Not held orders will be handled on a "net" basis, unless otherwise instructed, therefore the reported price may reflect our compensation, including a mark-up or mark-down. Trades may be confirmed at an average price, which may include compensation, when multiple executions are required to complete a "not held" order. Knight may act in the capacity of principal and/or riskless principal when executing a client order. Clients may request details on the individual executions required to complete a "not held" order.
Cancellation of Orders
Once an order is received it cannot be canceled unilaterally by the client. However, a client may request that any unfilled order (or unfilled portion) be canceled. Generally, cancellation requests are granted to the extent that the order has not been executed. However, if Knight has begun to interact with another market center on behalf of an order, the cancellation request may be honored, but only to the extent that Knight receives an “out” from the market center.
Upon receipt of each Special Settlement order, but prior to our acceptance of each such order, we will check for upcoming corporate actions in the stock and we will check with our clearing firm's stock loan department for the stock's availability. These checks are designed to ascertain appropriate pricing and deliverability.
Research and manual handling of the order may take time and could affect the execution price, especially if the process occurs during market movement in the stock.
The executed price of special settlement orders may reflect our compensation, including an imputed markup or markdown.
Knight reserves the right to refuse to accept any Special Settlement (I.e., Non-Regular-Way) order.
Orders that are routed to a foreign exchange or broker for execution, are handled on a "net" basis,
therefore the reported price may reflect a transaction, handling and/or currency exchange fee associated
with the transaction. Knight may also receive payment for order flow for your foreign orders.
Eligible pre-opening orders in all Nasdaq and AMEX-listed securities are executed at a single price that is based on the Nasdaq Official Opening Price (NOOP). Execution is provided at the NOOP by either the commitment of capital or through representation of pre-opening orders in Nasdaq's Official Opening Cross. All pre-opening orders are subject to the following terms and conditions:
Marketable orders received prior to and including 9:28:00 am (ET) are eligible for the NOOP.
Orders entered prior to and including 9:28:00am (ET) cannot be cancelled after 9:28:00am (ET).
Unexecuted Non-marketable orders open at 9:28:00am can be canceled only after 9:30:00am.
Orders received after 9:28:00am (ET) and before 9:29:59am (ET) will be handled internally by Knight, and executed on a best efforts basis.
Pre-opening orders may receive multiple executions.
Orders with share quantities greater than 999,999 are not eligible for the NOOP and thus will be handled on a best efforts basis.
There is no guarantee of an execution, as there could be insufficient liquidity at Nasdaq to satisfy that interest. Additionally, because of order execution priority protocols on Nasdaq's book, it is possible that one side of a "paired order" (where you send the buy and sell in the same stock) represented in the Cross will not receive an execution.
Any pre-opening order represented in the Nasdaq Cross which does not receive an execution for the reasons noted above, will be handled as a typical order pursuant to Knight's post-9:30:00am (ET) order handling protocols.
Limit order protection (Manning) and quote display is provided to any eligible pre-open order that remains unfilled after 9:30:00am (ET) until such time as the Nasdaq Official Opening Price (NOOP) is established and disseminated to the market.
AON, Stop Loss and Sell Short orders are not eligible for the NOOP.
Opening Only (OPG)
Knight will accept Opening Only orders with an "OPG" qualifier up until 9:27:30 a.m. Eastern Time which will be eligible for execution based on NASDAQ Official Opening Price (NOOP) trade data.
OPG orders received after 9:27:30 p.m. Eastern Time will not receive execution and a "too-late-to-enter" (TLTE) administrative message will be returned to the order-sending firm.
OPG order cancellation requests received up to 9:27:30 a.m. Eastern Time will be honored and confirmed in writing (typically through an electronic "ur-out" administrative message).
OPG cancellation requests received after 9:27:30 a.m. Eastern Time will not be honored and a "too-late-to-cancel" (TLTC) administrative message will be returned to the order-sending firm.
OPG orders, or the balance remaining of an OPG order, that were not executed at the opening, will be automatically cancelled and confirmed in writing (typically through an electronic "Cancel by Market Maker" administrative message).
OPG orders, or the balance remaining of an OPG, that were not executed at the opening, will not be eligible for execution in the continuous market.
IPO Pre-Opening Execution Protocols
Pre-opening orders for the secondary trading of an Initial Public Offering (IPO)
in NASDAQ securities are executed at a single price that is based on the NASDAQ
Official Opening Price (NOOP).
Execution is provided at the NOOP by either the commitment of capital or through
representation of pre-opening orders in NASDAQ's IPO Official Opening Cross.
Pre-opening orders are subject to the following terms and conditions:
Orders may receive multiple executions.
There is no guarantee of an execution, as there could be insufficient liquidity
at NASDAQ to satisfy that interest. Additionally, because of order execution
priority protocols on NASDAQ's book, it is possible that one side of a "paired order"
(where you send the buy and sell in the same stock) represented in the Cross will
not receive an execution.
Any pre-opening order represented in the NASDAQ IPO Cross which does not receive
an execution for the reasons noted above, will be handled as typical orders pursuant
to Knight's post-opening order handling protocols.
Orders received within thirty (30) seconds prior to the opening of secondary
trading are not guaranteed execution at the NOOP and thus will be handled on a best
efforts basis.
AON and Stop Loss orders are not eligible for the NOOP.
Non-Nasdaq Single Price Opening
All eligible market and aggressive limit orders in Bulletin Board and Pink Sheet securities, received prior to 9:25am (ET), are executed based upon an imbalance driven crossing algorithm, on a security-by-security basis. At 9:30am (EST), Knight will execute all eligible orders received from our clients at a single price, which is derived from the first unlocked/uncrossed consolidated national best bid or offer. Orders received after 9:25 am (EST) will be handled on a best efforts basis, and will not be guaranteed a single opening price.
The manner in which Knight will determine the single, opening price is as follows:
If an imbalance exists in Knight's pre-open order book, Knight will execute all eligible orders on the side of the market which is providing liquidity to the imbalance. For example, if there are more buyers than sellers on Knight's pre-open book, all eligible orders (buys and sells) in that security will be priced at the first unlocked/uncrossed consolidated national best offer. When Knight's pre-open order book in a security is completely balanced, Knight will execute its book at the midpoint of the first unlocked/uncrossed best bid or offer.
Opening Only (OPG) orders in non-NASDAQ securities will be accepted and executed at the first unlocked/uncrossed opening bid/offer on a best efforts basis and may receive a partial execution. OPG orders, or the balance remaining of an OPG order, that were not executed at the opening, will be automatically cancelled and confirmed in writing (typically through an electronic "Cancel by Market Maker" administrative message). OPG orders, or the balance remaining of an OPG, that were not executed at the opening, will not be eligible for execution in the continuous market.
Note: The single price opening will not apply to securities with a one-sided quotation posted at the opening.
Enhanced Liquidity
Knight provides automatic execution opportunities to eligible market and marketable limit orders at the national best bid /best offer (NBBO) at the time of receipt of the orders.
Price Improvement
Knight also provides its clients with various price improvement opportunities through its internal crossing mechanism, price discovery methods and computerized algorithms.
Internal Crossing
Knight may execute a resting market or marketable limit order instantly and simultaneously upon the receipt and execution of an opposite side market or marketable limit order. This mechanism offers more speed and enhanced liquidity to both orders.
Smart Order Routing
In an effort to facilitate the execution of client orders, Knight may also use a smart router, designed to access liquidity in the marketplace automatically.
Market-on-Close
Knight executes market-on-close (MOC) orders received up until 3:40:00 p.m. Eastern Time based on
the Nasdaq Official Closing Price (NOCP) through representation of MOC orders in Nasdaq's Official
Closing Cross, and are therefore subject to all terms and conditions of the Cross. MOC orders
received after 3:40:00 p.m. Eastern Time will not receive execution and a "too-late-to-enter"
(TLTE) administrative message will be returned to the order-sending firm.
MOC order cancellation requests received up to 3:40:00 p.m. Eastern Time will be honored and confirmed
in writing (typically through an electronic "ur-out" administrative message). Electronic MOC
cancellation requests received after 3:40:00 p.m. Eastern Time will not be honored and
a "too-late-to-cancel" (TLTC) administrative message will be returned to the order-sending firm.
After 3:40:00 p.m. Eastern Time , a client may contact his Knight representative via telephone to
request the entry of a new MOC order or to request a cancellation of an existing MOC order. Such
requests will be handled on a best efforts basis.
Non-Normal Market Conditions
The automated execution protocols offered by Knight assume normal market conditions.
Pre-Market and Post-Market Sessions
Knight is making the following risk disclosures to its customers who submit orders to be executed in the pre-market or post-market sessions:
Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular market hours. As a result, your order may only be partially executed, or not at all.
Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading than you would during regular market hours.
Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening of the next morning. As a result, you may receive an inferior price in extended hours trading than you would during regular market hours.
Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
Risk of Wider Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
Risk of Lack of Calculation or Dissemination of Underlying Index Value or Intraday Indicative Value (“IIV”). For certain Derivative Securities Products, an updated underlying index value or IIV may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and IIV are not calculated or widely disseminated during the pre-market and post-market sessions an investor who is unable to calculate implied values for certain Derivative Securities Products in those sessions may be at a disadvantage to market professionals.
Reserved Rights
All automated execution standards provided by Knight Equity Markets may be determined on a security-by-security and/or client-by-client basis and assume normal market conditions (as determined by Knight). Knight, in its sole discretion, reserves the right to reduce, modify, suspend or cancel its automated execution protocols without prior notice on a security when non-normal market conditions exist, risk management requirements protocols so dictate, an attempt is made to circumvent execution size limitations, during periods of time affected by a communications or systems outage, or when Knight otherwise deems the action appropriate.
Knight reserves the right at its sole discretion to cancel or price-adjust any trade whose execution is deemed by Knight to have been the result of a bonafide error and whose execution price is deemed by Knight to have be unjustly harmful or unjustly beneficial. Bonafide errors can result from human error or system malfunctions that affect the execution of an order. Such errors can occur at Knight or can occur downstream of Knight at an exchange, ECN or other market participant utilized by Knight in connection with the execution of the order. Such errors can also result from general market turbulence, communications system breakdowns or other conditions over which Knight has no control. (In the event that Knight exercises this right, Knight will use its best efforts to inform the client timely and fully and to minimize market impact for all concerned.)
For more information on over-the-counter order handling and execution protocols, contact Frank Grampone fgrampone@knight.com
A Special Note on the SEC’s Emergency Order Regarding Short Sales in Certain Securities
Background:
On July 15, 2008, the Securities and Exchange Commission (SEC) issued an emergency order which, effective as of July 21, 2008, temporarily prohibits short sales in certain securities unless the seller has first borrowed or arranged to borrow the subject security (i.e., a “pre-borrow”) for delivery on settlement date of the trade.
The SEC order requires a short seller of any of the securities whose tickers are listed below to either borrow, arrange to borrow or otherwise have the subject security in inventory. The SEC has indicated that executing broker-dealers may rely upon a borrow or arrangement to borrow obtained by a client (e.g., the client’s prime broker) and that such borrow or arrangement to borrow may be documented in a manner similar to how short sale locates are recorded today (which, generally, is done through populating the "locate" field on the applicable sales system or order ticket).
What this means for you:
Please note that compliance with the terms of the order is primarily the responsibility of the short seller. Accordingly, in connection with any short sale in the subject names routed to Knight Equity Markets LP for execution, and for which you, as short seller, wish to identify the source of your borrow, you agree that your entry of information into the locate field on the applicable sales system or order ticket constitutes a representation that you actually borrowed or arranged to borrow the subject shares in compliance with the provision of the SEC order and Knight Equity Markets LP may reasonably rely upon that representation.
A full copy of the order is available through the following link: http://www.sec.gov/rules/other/2008/34-58166.pdf. The list of securities subject to the order (as specified by ticker symbol) is included below:
Company
Ticker Symbol(s)
BNP Paribas Securities Corp.
Bank of America Corporation
Barclays PLC
Citigroup Inc.
Credit Suisse Group
Daiwa Securities Group Inc.
Deutsche Bank Group AG
Allianz SE
Goldman Sachs Group Inc
Royal Bank ADS
HSBC Holdings PLC ADS
J. P. Morgan Chase & Co.
Lehman Brothers Holdings Inc.
Merrill Lynch & Co., Inc.
Mizuho Financial Group, Inc.
Morgan Stanley
UBS AG
Freddie Mac
Fannie Mae
BNPQF or BNPQY
BAC
BCS
C
CS
DSECY
DB
AZ
GS
RBS
HBC
JPM
LEH
MER
MFG
MS
UBS
FRE
FNM
Please contact your representative if you have any questions regarding this matter.
LOQD will commence at
9:35:00am ET and continue until 4:00:00pm ET.
