Quote and Order Access Requirements

Displaying a quotation in the ADF is a promise that other firms can reach it. The ADF quote and order access rule turns that promise into a list of obligations, a set of access definitions, and a document the firm executes, and must continue to comply with, before it may display anything.

What Must an ADF Trading Center Provide for Each Security It Quotes?

The obligations attach for each security in which an ADF trading center displays a bid and offer, in the case of a registered reporting ADF market maker, or a bid or offer, in the case of a registered reporting ADF electronic communications network (ECN).

For each such security, the trading center must do seven things.

1. Provide other ADF trading centers direct electronic access.
2. Provide registered broker-dealers that are not ADF trading centers direct electronic access, and allow for indirect electronic access.
3. Provide a level and cost of access to its quotations in a national market system (NMS) stock displayed in the ADF that is substantially equivalent to the level and cost of access to quotations displayed by self-regulatory organization (SRO) trading facilities in that NMS stock.
4. Demonstrate that it has sufficient technology to automatically update its quotations and immediately respond to orders for execution directly against that trading center's best bid or offer.
5. Ensure that it does not impose unfairly discriminatory terms that prevent or inhibit any person, through a registered broker-dealer, from obtaining efficient access to those quotations.
6. Provide at least fourteen calendar days advance written notice before denying any registered broker-dealer direct electronic access, on the terms in the section below.
7. Comply with the minimum performance standards this rule sets and the terms agreed to in the certification record.

Exam Tip: Gotchas

• A market maker displays a bid and offer; an ECN displays a bid or offer. The obligations reach an ECN quoting only one side, which is a conjunction difference the rule states in its opening sentence.
• The substantial-equivalence test covers level and cost, not level alone. A firm matching the speed of an exchange facility while pricing access far above it has not satisfied that obligation.
• The technology obligation is stated as a demonstration. The firm must demonstrate sufficient technology to update automatically and respond immediately, so an untested claim does not meet it.

What May an ADF Trading Center Never Do About Indirect Electronic Access?

The obligation to allow indirect electronic access comes with two flat prohibitions. In any event, an ADF trading center is prohibited from doing either of the following.

• In any way directly or indirectly influencing or prescribing the prices that its customer broker-dealer may choose to impose for providing indirect access.
• Precluding or discouraging indirect electronic access, including through the imposition of discriminatory pricing or quality of service with regard to a broker-dealer that is providing indirect electronic access.

Exam Tip: Gotchas

• The pricing prohibition protects the customer broker-dealer's own pricing decision. The trading center may not set, suggest, or indirectly steer what that firm charges its own clients for indirect access.
• Quality of service is named alongside price. Degrading service for a firm that provides indirect access is discouragement, whatever the fee schedule says.

How Does a Firm Deny Direct Access to a Broker-Dealer?

Denying a registered broker-dealer direct electronic access requires at least fourteen calendar days advance written notice, sent via facsimile, personal delivery, courier or overnight mail, to FINRA Market Operations.

The notice must be based on the good faith belief of the ADF trading center that the denial of access is appropriate and does not violate any of that trading center's obligations under FINRA rules or the federal securities laws.

Any notification or publication of an intent to deny access has no bearing on the merits of any claim between the trading center and any affected registered broker-dealer, and it does not insulate the trading center from liability for violations of FINRA rules or the federal securities laws, such as the quotation rule under Regulation NMS.

The fourteen-day period begins on the first business day that FINRA Market Operations has receipt of the notice.

Exam Tip: Gotchas

• The clock starts on receipt, not on sending. The period runs from the first business day FINRA Market Operations has the notice, so a courier delay is the firm's problem.
• The good faith belief has two limbs joined by and. It is not enough that the denial seems appropriate; the firm must also believe it violates none of its own obligations.
• Filing the notice buys no protection. The rule says the notification does not insulate the trading center from liability and has no bearing on the merits of a claim.

What Is Direct Access, and What Is Indirect Access?

The two access definitions differ in who stands between the order and the quotation.

ADF trading centers must provide direct electronic access, in conformity with the rule, through the use of a communications service or services that FINRA deems sufficient.

An ADF trading center shall not impose unfairly discriminatory terms that prevent or inhibit any person from obtaining efficient access to a quotation through a FINRA member, subscriber broker-dealer, or customer broker-dealer.

A FINRA member that is providing indirect electronic access remains responsible for orders routed through it as though those orders were the firm's own orders.

Exam Tip: Gotchas

• The indirect route must run through a non-affiliate. An intermediary affiliated with the ADF trading center does not satisfy the indirect access definition.
• The intermediary owns the orders it passes along. A FINRA member providing indirect access is responsible for those orders as though they were its own.
• FINRA decides which communications service is sufficient. Direct access must be provided through a service FINRA deems sufficient, so the firm does not pick the pipe unilaterally.

What Does the Certification Record Do?

ADF trading centers are required to specify, as part of their certification record, the method and terms by which they will comply with the rule's requirements.

FINRA will not allow an ADF trading center to display quotations in the ADF unless the method and terms it provides comply with this rule and the applicable provisions of Regulation NMS.

Acceptance by FINRA of a certification record does not relieve the trading center of any of its ongoing obligations. FINRA's acceptance also does not constitute an estoppel as to FINRA, and it does not bind FINRA in any subsequent administrative, civil or disciplinary proceeding.

Exam Tip: Gotchas

• The certification record is a precondition to display, not a filing made afterwards. FINRA will not allow display unless the method and terms already comply.
• Acceptance is not a clean bill of health. It leaves every ongoing obligation in place and binds FINRA in no later proceeding.

What Should You Check on Exam Day?

• Match the quotation obligation to the participant type: a bid and offer for a market maker, a bid or offer for an electronic communications network.
• On an access denial, run the fourteen calendar days from the first business day FINRA Market Operations receives the notice.
• Check both limbs of the good faith belief, since the firm must also believe the denial breaches none of its own obligations.
• Confirm an indirect access route runs through a firm that is not an affiliate of the trading center.
• Treat FINRA's acceptance of a certification record as changing nothing about the firm's ongoing obligations or liability.