Normal Business Hours and Locked or Crossed Quotations

Two rules govern the hours a quotation is displayed and what that quotation may not do to another market's price. Both are stated with qualifiers that a fast reading loses.

What Hours Must an ADF Trading Center Keep?

An ADF trading center shall be open for business as of 9:30 a.m. Eastern Time and shall close no earlier than 4:00 p.m. Eastern Time. The rule sets a floor on the close, not a fixed closing time.

An ADF trading center may be open for business on a voluntary basis for any period of time between 8:00 a.m. and 9:30 a.m. Eastern Time, or between 4:00 p.m. and 6:30 p.m. Eastern Time.

An ADF trading center whose quotes are open before 9:30 a.m. or after 4:00 p.m. Eastern Time is obligated to comply, while its quotes are open, with all FINRA rules that are not, by their express terms or by an official interpretation of FINRA, inapplicable to any part of those two periods.

Exam Tip: Gotchas

• The closing time is a minimum. A trading center that stays open past 4:00 p.m. Eastern Time is complying with the rule, not departing from it.
• The voluntary sessions carry the full rulebook. A rule stops applying in those hours only where its own terms or an official FINRA interpretation say it does not.
• The extended-hours duty attaches only while quotes are open. The obligation is framed around a trading center whose quotes are open before 9:30 a.m. or after 4:00 p.m.

What Makes a Quotation Locking or Crossing?

Both definitions run between 8:00 a.m. and 6:30 p.m. Eastern Time, and both measure against a quotation previously disseminated pursuant to an effective national market system (NMS) plan.

The definitions paragraph is written for these rules as a set, not for the locking and crossing prohibition alone, and it borrows seven terms from Regulation NMS: automated quotation, national market system plan, intermarket sweep order, manual quotation, NMS stock, protected quotation, and trading center.

A protected quotation is a protected bid or a protected offer, which is a quotation in an NMS stock that is displayed by an automated trading center, is disseminated pursuant to an effective national market system plan, and is an automated quotation that is the best bid or best offer of a national securities exchange or of a national securities association.

Exam Tip: Gotchas

• Locking is an equal price and crossing is a through price. A bid above a resting offer crosses; a bid at the offer locks.
• The reference quotation must already have been disseminated. A quotation posted first is not locked or crossed by an earlier one.
• The window runs to 6:30 p.m. Eastern Time. Both definitions cover the extended session, not just regular trading hours.

What Does the Prohibition Actually Require?

Except for quotations that fall within the exceptions below, members shall reasonably avoid displaying, and shall not engage in a pattern or practice of displaying, two things.

• Any quotations that lock or cross a protected quotation.
• Any manual quotations that lock or cross a quotation previously disseminated pursuant to an effective national market system plan.

FINRA prohibits the display of manual quotations in the ADF. However, if a member displays a manual quotation in another FINRA facility that locks or crosses a quotation previously disseminated pursuant to an effective national market system plan, that member shall promptly either withdraw the manual quotation or route an intermarket sweep order (ISO) to execute against the full displayed size of the locked or crossed quotation.

Quote dissemination obligations more generally are covered in the unit on disseminating quotes and trade advertisements.

Exam Tip: Gotchas

• This is not a flat ban. The duty pairs reasonably avoid with no pattern or practice, so a single inadvertent lock is not automatically a violation.
• The two limbs of the prohibition have different reference quotations. The first reaches a protected quotation; the second reaches any manual quotation locking or crossing a quotation disseminated under a plan.
• The repair obligation is a choice of two. Withdraw the manual quotation or route an intermarket sweep order against its full displayed size.

When Is a Locking or Crossing Quotation Excepted?

Four exceptions apply, and two of them turn on the timing of an intermarket sweep order.

1. The locking or crossing quotation was displayed at a time when the trading center displaying the locked or crossed quotation was experiencing a failure, material delay, or malfunction of its systems or equipment.
2. The locking or crossing quotation was displayed at a time when a protected bid was higher than a protected offer in the NMS stock.
3. The locking or crossing quotation was an automated quotation, and the member displaying it simultaneously routed an intermarket sweep order to execute against the full displayed size of any locked or crossed protected quotation.
4. The locking or crossing quotation was a manual quotation that locked or crossed another manual quotation, and the member displaying it simultaneously routed an intermarket sweep order to execute against the full displayed size of the locked or crossed manual quotation.

Exam Tip: Gotchas

• The exceptions demand a simultaneous sweep order while the repair paragraph demands only a prompt one. Those are two different timing standards inside the same rule.
• The fourth exception needs manual quotations on both sides. A manual quotation locking an automated one does not qualify under it.
• A market already crossed excuses the display. Where a protected bid was higher than a protected offer, the locking or crossing quotation falls within an exception.

What Should You Check on Exam Day?

• Read the prohibition to its wording: reasonably avoid, and no pattern or practice, rather than an absolute ban.
• Compare the prices in the right direction, since equal prices lock and a bid through an offer crosses.
• Check whether the sweep order in the scenario was simultaneous, which an exception requires, or merely prompt, which the manual-quotation repair allows.
• Confirm the facility, because manual quotations may not be displayed in the ADF at all.
• Treat 4:00 p.m. Eastern Time as the earliest permitted close, not the required one.