Quick Answer
Nasdaq's own rules govern market maker registration and how the Nasdaq market center matches orders. NYSE rules give absolute priority to the best-priced order and require crosses at or between the NBBO. A block (10,000+ shares or $200,000+) lets one member cross both sides, but the price limit does not change.
Both exchanges layer their own market-specific rules on top of the general FINRA framework already covered.
What Rules Govern the Nasdaq Stock Market?
What Are the Nasdaq Market Maker Requirements?
- Registration requirements for Nasdaq market makers
- Obligations to maintain continuous two-sided quotes
- Procedures for voluntary and involuntary withdrawal from market making
- A market maker that fails to meet obligations may lose quotation privileges
How Does the Nasdaq Market Center Execute Orders?
- Governs how orders are matched and executed on the Nasdaq market center
- Includes rules for order types, priority, and execution algorithms
What NYSE Rules Govern Trading?
The NYSE has specific rules governing order priority, cross transactions, and DMM (Designated Market Maker) conduct:
| Rule | Key Provision |
|---|---|
| Price priority | Orders at the best price have priority (precedence of highest bid and lowest offer) |
| Priority of cross transactions | Governs execution of cross orders (matching a buy and sell from the same firm) |
| Publicity of bids and offers | Requires public display of trading interest |
| Crossing orders | Rules for executing cross transactions on the exchange floor |
| Prohibited dealings and activities | Prohibits manipulative trading practices |
| DMM conduct | Core obligations of the designated market maker (dealings and responsibilities of DMMs) |
How Does Price Priority Work?
The foundational principle: the best-priced order always goes first. A higher bid has priority over a lower bid; a lower offer has priority over a higher offer.
Exam Tip: Gotchas
- NYSE price priority is absolute. Time priority only breaks ties when two orders are at the same price. The best price always wins, regardless of when the order was placed.
How Do Cross Transactions Work?
- A cross transaction occurs when a firm matches a buy order and a sell order from different customers
- The cross must be executed at or between the NBBO (National Best Bid and Offer)
- Rules ensure the cross does not disadvantage either customer or the public market
Exam Tip: Gotchas
- Cross transactions must be at or between the NBBO. A firm cannot cross orders at a price worse than the best available market price.
What Are NYSE Block Trades?
- A block is at least 10,000 shares, or a quantity with a market value of $200,000 or more, whichever is less
- When a member holds a buy order and a sell order of equivalent size and both are blocks, the member may cross them
- The cross price must be at or within the Exchange best bid or offer, the same limit that applies to an ordinary cross
Why does the block rule exist? Large institutional orders are difficult to fill at a single price without moving the market. The block-cross rule lets one member match both sides in a single print, but it does not buy a better price than the public market shows.
Exam Tip: Gotchas
- Block size does NOT let a cross print outside the NBBO. The size threshold decides whether the member may cross both sides; the price limit is still at or within the best bid or offer. An older NYSE rule did allow block crosses outside the prevailing quotation, and it was deleted.
What Should You Check on Exam Day?
- Do you know NYSE price priority is absolute, and time priority only breaks a tie at the same price?
- Can you state the two size tests that make an order a NYSE block?
- Can you say what a block cross does allow, and confirm that the price limit is still at or within the best bid or offer?