Quick Answer
Members must make every effort to execute a marketable customer order fully and promptly, and to cross one not immediately executed with any opposite-side order, up to the held order's size, at or inside the best bid and offer when that later order arrives, consistent with the orders' terms. Members generally may limit an order's life to normal market hours.
The last two items of Supplementary Material under the trading ahead of customer orders rule are not exceptions. They are handling procedures, and they tell a desk what to do with an order it is already holding.
What Does a Member Owe a Marketable Customer Order?
A member must make every effort to execute a marketable customer order that it receives fully and promptly. That is the base duty, and its timing word is "promptly."
Exam Tip: Gotchas
- The standard is "every effort," and it has two objects. The member must make every effort to execute the order fully and promptly, so a prompt partial fill with no further effort does not answer the sentence.
- The duty attaches to a marketable order. For a resting limit order away from the market, the minimum price improvement standards set how much a member must improve to trade for its own account while holding that order without having to execute it.
When Must a Member Make Every Effort to Cross a Held Customer Order?
A member holding a customer order that is marketable and has not been immediately executed must make every effort to cross that order with any other order the member receives on the other side of the market. The crossing duty carries its own limits.
| Limit | What the rule says |
|---|---|
| Size | Up to the size of such order, which is as far as the crossing duty runs |
| Price | No less than the best bid and no greater than the best offer at the time the subsequent order is received by the member |
| Terms | The cross must be consistent with the terms of the orders |
Where a member is holding multiple orders on both sides of the market that have not been executed, it must make every effort to cross or otherwise execute those orders in a manner that is reasonable and consistent with the objectives of the rule and with the terms of the orders.
A member can satisfy the crossing requirement by contemporaneously buying from the seller and selling to the buyer at the same price.
Exam Tip: Gotchas
- The price band is measured at one moment. It runs from the best bid to the best offer at the time the subsequent order is received by the member, so a later move in the quote does not reset the band.
- The multi-order sentence sets a standard, not a queue. With unexecuted orders on both sides, the rule asks for crossing or execution that is reasonable and consistent with its objectives and with the orders' terms.
- The rule names a way to satisfy the crossing requirement. Contemporaneously buying from the seller and selling to the buyer at the same price meets it.
Which Hours May a Member Limit an Order's Life To, and When Do the Protections Apply?
Members generally may limit the life of a customer order to the period of normal market hours of 9:30 a.m. to 4:00 p.m. Eastern Time.
If the customer and member agree to the processing of the customer's order outside normal market hours, the protections of the rule apply to that customer's orders at all times the customer order is executable by the member.
The disclosure a customer must receive before trading outside regular hours, and the session that disclosure covers, are handled in the unit on meeting obligations to customers regarding orders.
Exam Tip: Gotchas
- The permission is about the order's life, not about the protection. A member may generally limit how long the order lives, and that is a different question from how far the rule's protections reach.
- An agreement to trade outside normal hours pulls the protection with it. Once the customer and member agree to processing outside those hours, the protections apply at all times the order is executable by the member.
- The agreement is mutual. The rule names the customer and the member, so a firm cannot extend or withhold the protection unilaterally once the order is executable.
What Should You Check on Exam Day?
- Ask whether the held order was marketable; the full-and-prompt duty and the crossing duty are both written for a marketable order.
- On a cross, check the size crossed against the held order's size, and check the price against the best bid and best offer at the time that later order arrived.
- Confirm the cross was consistent with the terms of both orders, not only with the price band.
- Check whether the customer and member agreed to processing outside normal market hours, which extends the protections to all times the order is executable.
- Treat a limit on an order's life as a separate question from whether the rule protects the order during the hours it is live.