Order Entry and Execution Practices

Exchange and facility pricing schedules pay per order and per report. This rule stops a desk from manufacturing extra orders or extra reports to harvest those payments.

What Does the Order Entry and Execution Practices Rule Prohibit?

The prohibition opens "No member or associated person shall", so both actors are named. The splitting it describes has two halves, and either one satisfies that element of the rule.

• The order-entry half. Splitting any order into multiple smaller orders for execution.
• The transaction-reporting half. Splitting any execution into multiple smaller executions for transaction reporting.

The mental element is written as a disjunction: conduct that has the intent or effect of splitting. Conduct whose effect is the split is described even where the split was not what the desk set out to do.

Exam Tip: Gotchas

• The reporting side is inside the rule. Breaking one execution into smaller reported executions is described even though no order was ever split, which is the half students most often miss.
• Effect stands beside intent. A desk that did not plan the split can still be describing this conduct, because the rule does not require the split to have been the object.
• Both actors are named. The member and the associated person are each bound, unlike the trading ahead of research reports rule, which binds the member alone.

What Counts as a Monetary or In-Kind Amount?

The rule defines the term itself, and the definition is open. A monetary or in-kind amount is defined to include, but not be limited to, any credits, commissions, gratuities, payments for or rebates of fees, or any other payments of value to the member or associated person.

Exam Tip: Gotchas

• The definition is not confined to cash. In-kind value is named in the term itself, and gratuities and fee rebates are listed beside commissions.
• The list is opened by "include, but not be limited to". A benefit nobody listed is still inside the definition if it is a payment of value to the member or associated person.
• The recipient is named and so is the source. The amount is one to be received by the member or the associated person as a result of the execution of those orders or the transaction reporting of those executions, so a benefit flowing only to a customer is not what the rule describes.

When Is Splitting an Order or an Execution Not a Violation?

The qualifier that limits the rule is "for the primary purpose of maximizing" the amount. The rule does not describe splitting done for a legitimate reason that also happens to earn a credit, because in that case maximizing the payment is not the primary purpose.

The sentence then ties the amount to the splitting itself. It must be an amount to be received by the member or associated person as a result of the execution of such orders or the transaction reporting of such executions, so a payment earned on something else is outside the words.

This rule has no subsections and no Supplementary Material, so nothing below the paragraph narrows or widens it.

Exam Tip: Gotchas

• Primary purpose is one of two limits on this side. A split with a genuine execution rationale is outside the rule even where a rebate follows from it, and the amount must also be one to be received as a result of the execution of those orders or the transaction reporting of those executions.
• A single paragraph is the entire rule. A scenario that turns on an interpretive item under this rule is describing something else.

What Should You Check on Exam Day?

• Ask whether the split was of an order for execution or of an execution for transaction reporting; either satisfies the splitting element.
• Check the purpose. Only a split whose primary purpose is maximizing the payment is described.
• Do not require proof that the split was intended; conduct whose effect is the split is inside the words. The primary purpose of maximizing the payment is still required.
• Confirm the amount is one to be received by the member or associated person as a result of those executions or reports, and remember it need not be cash.