1. for trades that are for the benefit of an institutional account, as defined in NASD Rule 3110(c)(4); or

2. for an order that meets the definition of block size contained in Exchange Act Rule 11Ac1-4, which defines block size as any order of at least 10,000 shares, or for a quantity of stock having a market value of at least $200,000.

If an order is for the benefit of an institutional account or for an order that meets the aforementioned definition of block size, a negative consent letter may be used. Thus, a firm may use a negative consent letter for a block size order even if it is not for the benefit of an institutional account as defined in NASD Rule 3110(c)(4)(C). If a trade is not for an institutional account and the order is not of a block size, then a negative consent letter cannot be used. Rather, the broker/dealer must affirmatively obtain the customer’s consent to trade net, as stated in NASD Notice to Members 99-65.

.W Modifier

In Head Trader Alert #2000-53, Nasdaq^® provided several examples illustrating the proper use of the .W modifier. Because of the implementation of the new riskless principal trade reporting rules, the trade reporting obligations discussed in Scenarios 1 and 3 in Head Trader Alert #2000-53, which dealt with the .W modifier, have changed. The same scenarios are reproduced below indicating the new trade reporting obligations.

The trade reporting obligations discussed in Scenarios 2 and 4 do not change because the transactions would not be considered "riskless" (i.e., the volume-weighted average price (VWAP) and price charged the customer are different).

Scenario #1

At 10:00:00 a.m., Eastern Time (ET), Firm WXYZ receives an order from a customer to buy 8,000 shares of ABCD.

Firm WXYZ is flat ABCD. Firm WXYZ begins accumulating shares of ABCD through the following executions on SelectNet^®:

10:00:45 a.m., ET, B 1,000 @ 10 ½
10:00:55 a.m., ET, B 1,000 @ 10 3/4
10:01:20 a.m., ET, B 1,000 @ 11
10:02:45 a.m., ET, B 1,000 @ 11 1/4
10:03:30 a.m., ET, B 1,000 @ 11 1/2
10:03:50 a.m., ET, B 500 @ 11 3/4
10:04:00 a.m., ET, B 500 @ 12
10:04:30 a.m., ET, B 2,000 @ 12 ½

SelectNet reports each of the buys listed above to the tape. The VWAP for these trades is $11.48. At 10:04:31, a.m., ET, Firm WXYZ sells the 8,000 shares to its customer. WXYZ has two alternatives for reporting the transaction with its customer.

Alternative 1: Under the first alternative for reporting riskless principal transactions that was announced in NASD Notice to Members 99-65, if WXYZ does not clear for its customer, WXYZ would be required to enter a clearing-only record into the Automated Confirmation Transaction Service^SM (ACT^SM). As stated in Question 9 of NASD Notice to Members 99-65, the clearing-only record should indicate that the trade was done on a riskless principal basis. This is because the trade was done through a Nasdaq system (e.g., SelectNet) which indicated a capacity other than riskless principal, and the market participant is submitting a clearing-only report to ACT.

Alternative 2: If WXYZ chooses to report the transaction under the second alternative described in NASD Notice to Members 00-79 and WXYZ does not clear for its customer, WXYZ would be required to enter a clearing-only record into ACT indicating that the trade was done on a riskless principal basis. If WXYZ clears for the customer, WXYZ would submit a non-tape, non-clearing record to ACT indicating that the trade was done on a riskless principal basis.

Scenario #3

At 10:04:00, a.m., ET, Market Maker WXYZ receives an order from a customer to buy 5,000 shares of ABCD at the best available price.

Firm WXYZ is long 3,000 shares of ABCD. At 10:04:05,a.m., ET, Market Maker WXYZ sells the 3,000 shares to its customer at $12 ¾ and begins accumulating shares of ABCD through the following executions on SelectNet with another Market Maker:

10:04:30, a.m., ET, B 500 @ 12 ¾
10:04:50 , a.m., ET, B 500 @ 12 ¼
10:05:30, a.m., ET, B 1,000 @ 12 ½

Within 90 seconds of 10:04:05, a.m., ET, Firm WXYZ reports the sell to the customer to the tape: Sell 3,000 ABCD $12 ¾. This transaction is not riskless because WXYZ sold the 3,000 shares from its inventory.

SelectNet reports each of the buys listed above to the tape, indicating a capacity of principal.

At 10:05:31, a.m., ET, Firm WXYZ sells the 2,000 shares to its customer at a VWAP price of 12½. WXYZ has two alternatives for reporting this transaction with its customer.

Alternative 1: If WXYZ does not clear for its customer, WXYZ would be required to enter a clearing-only record into ACT indicating that the trade was done on a riskless principal basis. If WXYZ clears for the customer, WXYZ does not have to submit a record to ACT.