Pre-Trade Risk Management (PRM)

Control Your Risk from Entry to Execution

Overview

NASDAQ's Pre-Trade Risk Management (PRM) provides member firms with the ability to set a wide range of parameters for orders to facilitate pre-trade protection. Using PRM, firms can increase controls on their trading activity and the trading activity of their clients and customers at the order level — including the opportunity to prevent potentially erroneous transactions.

Benefits and Features

Validation Ahead of the Match

PRM validates orders entered on PRM-enabled ports prior to allowing those orders into its matching engine. PRM uses client-set parameters to determine if the order should be sent for fulfillment. If rejected, PRM provides customers with clearly defined reject reasons. These alerts are sent on Execution and Order/Message DROP copy lines/reports — available on FIX, NASDAQ Workstation, WeblinkACT 2.0 and RASHport.

PRM has several great benefits:

  • Speed. PRM is fast — adding virtually no latency to order acknowledgement time.
  • Accuracy. PRM functionality reads real-time Level 2 price information from the UTP and CTA Security Information Processors (SIPs) at the port level to ensure the most accurate information available for validating orders.
  • Flexibility. PRM is flexible enough to manage everything from price protection on retail or agency orders to full control of sponsored access relationships.

PRM Protection

Fat Finger Checks allows you to compare price instructions on incoming orders against the current displayed size and price in the market. If the order is not in line with the displayed price and size, the order will be rejected before it can execute. Firms can set order limits at several levels to ensure that clearly erroneous orders never execute.

Order Checks provide users the ability to check orders against an array of manageable limits. Users can decide whether to allow trading in the pre- and post- market sessions; specify which order types, if any, are prohibited and manage symbol lists — including restricted stock lists — by allowing or disallowing orders on a per-security basis.

Aggregate Total Checks allow users to set limits for:

  • Daily shares and/or total value
  • Buy, sell or on a net basis
  • Executed trades, open orders or both to summarize total risk
  • Settings available globally and on a per-security basis on each module

PRM NASDAQ Workstation Add-On lets one or more NASDAQ Workstation or WeblinkACT 2.0 users view limits, receive real-time alerts for PRM rejects and view real-time updates on aggregate totals for trades, orders or combined risk.

  • Using Aggregate Total Checks, customers can view alerts for trades and open orders side-by-side with their set limits
  • View user-based configurations for each module intraday

Customize for Maximum Control

In addition to the global settings available on each module, the fully-configurable PRM allows managing firms to control risk at several levels, including:

  • By price
  • Per order
  • By order type(s)
  • Executed trades
  • Open orders
  • Buy, sell or net
  • By security

Who Can Participate

Adding virtually no latency to order acknowledgement time, Broker/Dealers and Market Makers will find NASDAQ's PRM valuable for virtually any business line or function in which they engage. Other typical users include:

  • Sponsored Access Brokers. Firms are accountable for meeting regulatory obligations and ensuring proper trading behavior when sponsoring another firm into the NASDAQ Exchange. Firms can use PRM to prepare for and stay in control of these regulatory requirements.
  • Retail Brokers. Fat Finger Controls help prevent erroneous trades that can result from manual entry of order prices.
  • Agency Desks. PRM closely manages orders, prices and sizes entering the NASDAQ Exchange.

How to Subscribe

NASDAQ market participants can subscribe to PRM by completing the NASDAQ PRM Order Form. Please fax the form to NASDAQ Subscriber Services at +1 212 231 5426.

For any further information or questions, please contact NASDAQ Subscriber Services at +1 212 231 5180.

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