Quick Answer
Only automated quotations may be submitted to the alternative display facility (ADF), and manual quotations shall not be. Three unexcused system outages in five business days mean a trading center may be suspended from quoting in all or certain issues for twenty business days, and the firm carries the burden of proving an outage was outside its control.
The access obligations tell a firm what to offer other broker-dealers. The performance standards tell it what its own systems must do, what counts as a failure, and how quickly it must ask for a failure to be excused.
What Kind of Quotation May Enter the ADF?
ADF trading centers must submit automated quotations, as the national market system rules (Regulation NMS) define that term, to the ADF for posting. Manual quotations shall not be submitted to the ADF, and a manual quotation is simply any quotation that is not an automated one.
An automated quotation is a quotation displayed by a trading center that does five things.
- Permits an incoming order to be marked as immediate-or-cancel.
- Immediately and automatically executes an order marked immediate-or-cancel against the displayed quotation up to its full size.
- Immediately and automatically cancels any unexecuted portion of such an order without routing the order elsewhere.
- Immediately and automatically transmits a response to the sender of such an order indicating the action taken with respect to it.
- Immediately and automatically displays information that updates the displayed quotation to reflect any change to its material terms.
As a precondition to becoming an ADF trading center, a firm must, among other things, certify to FINRA its compliance with this standard, based on reasonable forecasts of peak volume activity and on the establishment of policies and procedures to ensure only automated quotations are submitted.
Exam Tip: Gotchas
- The open list is the list of preconditions, not the basis of the certification. The words among other things sit between must and certify, so certifying is one of several things a firm must do; the certification itself is based on reasonable forecasts of peak volume activity and on the establishment of policies and procedures.
- All five automated-quotation elements must hold. A venue that executes and cancels automatically but routes the remainder elsewhere is displaying a manual quotation.
What Happens After Three Unexcused System Outages?
A system outage, for an ADF trading center, means an inability to post automated quotations in the ADF or an inability to immediately and automatically respond to orders.
Where an ADF trading center experiences three unexcused system outages during a period of five business days, it may be suspended from quoting in the ADF in all or certain issues for a period of twenty business days.
Exam Tip: Gotchas
- The suspension is discretionary, not automatic. The rule says the trading center may be suspended, so three unexcused outages do not by themselves stop the firm quoting.
- A suspension can be issue-specific. The rule allows suspension in all or certain issues, so a firm-wide answer is not the only possibility.
- The outage definition has two independent limbs. Failing to respond immediately and automatically to orders is an outage even where the quotation itself is still posted.
Who Decides Whether an Outage Is Excused?
A FINRA officer may deem a system outage excused upon proof by the ADF trading center that the outage resulted from circumstances not within the control of that trading center. The burden rests with the trading center to demonstrate that an outage should be excused.
A trading center may contact FINRA Product Management and request that an outage be deemed excused, whether or not the outage resulted from circumstances within its control.
However, if FINRA Product Management becomes aware of the outage before the firm's request, it may, at its own discretion, deem the outage unexcused, based on the specific facts and circumstances surrounding the outage.
Exam Tip: Gotchas
- The firm may ask for any outage to be excused, including one it caused. The limit is not on what may be requested; it is on what an officer may grant.
- Asking late costs the firm its position. Once FINRA Product Management learns of the outage first, it may deem the outage unexcused at its own discretion.
- The burden sits with the firm throughout. An officer excuses an outage upon proof from the trading center, not on its own assessment.
What Is the Timetable for Reviewing an Outage?
The review runs on a chain of one-day deadlines.
| Step | Deadline |
|---|---|
| Written request for review to FINRA Product Management | By close of the business day on which the outage occurs, or the following business day if the outage occurs outside of normal market hours |
| Supply any supporting information for the determination to FINRA staff | By close of business on the day following the outage |
| Supply FINRA staff with any information requested to make the determination | On request |
| Written appeal of the officer's determination | By close of business on the day the determination is rendered |
An appeal operates as a stay of the officer's determination.
Exam Tip: Gotchas
- An outage occurring outside normal market hours moves the request deadline by one business day. Inside market hours the request is due the same day.
- The outage appeal stays the determination. That is the opposite of the access complaint track, where the determination remains in effect during any review or appeal.
What Must an ADF ECN Do to Keep Its Certification?
To maintain ADF certification, registered reporting ADF electronic communications networks (ECNs) must post at least one marketable quote or order through the ADF on each side of the market every thirty calendar days.
A quote or order posted through the ADF is presumptively marketable if it is accessed, that is, traded against, by another trading center or market participant other than a subscriber of that same ECN.
An ECN that fails to do so loses its ADF certification at the sole discretion of FINRA staff, and an ECN seeking to regain certification must recertify under this rule.
Exam Tip: Gotchas
- This quoting test binds electronic communications networks only. The access obligations reach every ADF trading center, but the thirty-day marketable quote requirement names ECNs alone.
- A trade against the ECN's own subscriber does not count. The presumption of marketability requires access by another trading center or market participant other than a subscriber of that ECN.
- One quote is not enough. The requirement is at least one marketable quote or order on each side of the market in every thirty-calendar-day period.
What Should You Check on Exam Day?
- Read the outage consequence as permissive: three unexcused outages in five business days mean the firm may be suspended for twenty business days.
- Check who learned of the outage first, because FINRA Product Management may deem it unexcused where it knew before the firm asked.
- Confirm an outage appeal operates as a stay, unlike the access complaint determination.
- On a quoting-maintenance question, confirm the firm is an electronic communications network and that the quote was on each side within thirty calendar days.
- Check whether the party trading against the quote was a subscriber of that same network, which defeats the marketability presumption.