Wednesday, November 30, 2011

Equity Trader Alert #2011 - 60
NASDAQ, BX and PSX Implement Market Access Rule Credit Limits for Routable Orders

Markets Impacted:

Contact Information:

What you need to know:

  • Effective Wednesday, November 30, 2011, The NASDAQ Stock Market® (NASDAQ®), NASDAQ OMX BXSM (BXSM) and NASDAQ OMX PSXSM (PSXSM) began applying credit limits to all routable orders in accordance with Securities and Exchange Commission (SEC) rule 15c3-5.

What is the SEC Market Access Rule?

The SEC has adopted Rule 15c3-5, "Risk Management Controls for Brokers or Dealers with Market Access" ("Market Access Rule" or "Rule"). The Market Access Rule requires broker-dealers to establish, document and maintain a system of risk management controls and supervisory procedures that are reasonably designed to systematically limit the financial exposure of the broker dealer that could arise as a result of market access and ensure compliance with all regulatory requirements that are applicable in connection with market access. The Rule became effective on July 14, 2011, subject to certain extensions of the effective date that were approved by the Commission. The full rule became effective on November 30, 2011.

What has changed?

Effective November 30, 2011, brokers or dealers providing market access "prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds in the aggregate for each customer and the broker or dealer by rejecting orders if such orders would exceed the applicable credit or capital thresholds."

How will the NASDAQ, BX and PSX routers change to comply with the additional requirement?

In accordance with SEC Rule 15c3-5, NASDAQ Execution Services, the routing broker-dealer facility of NASDAQ, BX and PSX began applying credit limits to all routable orders on November 30, 2011.

Each NASDAQ, BX or PSX MPID has been assigned a base credit limit. Credit Limits are applied based on historical activity and may be modified from time to time if such modifications are deemed appropriate by NASDAQ Execution Services. As routable orders are entered, the amount of available credit decreases; as orders are cancelled, the amount of available credit for incoming orders increases. Should a credit limit be breached, new orders will be rejected. NASDAQ Execution Services may modify credit limits after consultation with the participant.

What do I need to do?

Members do not need to take any action.

Where can I get additional information?


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