Nasdaq and NYSE Trading Rules
Building on the general FINRA (Financial Industry Regulatory Authority) framework, both Nasdaq and the NYSE (New York Stock Exchange) have their own specific rules governing trading on their platforms.
Nasdaq Stock Market Rules
Rule 4600 Series: 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
Rule 4750 Series: Nasdaq Market Center Execution Services
- Governs how orders are matched and executed on the Nasdaq market center
- Includes rules for order types, priority, and execution algorithms
NYSE Rules for Trading
The NYSE has specific rules governing order priority, cross transactions, and DMM (Designated Market Maker) conduct:
| Rule | Name | Key Provision |
|---|---|---|
| Rule 71 | Precedence of Highest Bid and Lowest Offer | Orders at the best price have priority |
| Rule 72(d) | Priority of Cross Transactions | Governs execution of cross orders (matching a buy and sell from the same firm) |
| Rule 74 | Publicity of Bids and Offers | Requires public display of trading interest |
| Rule 76 | "Crossing" Orders | Rules for executing cross transactions on the exchange floor |
| Rule 77 | Prohibited Dealings and Activities | Prohibits manipulative trading practices |
| Rule 104 | Dealings and Responsibilities of DMMs | Core obligations of the designated market maker |
Price Priority (Rule 71)
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 Rule 71 is pure price priority. 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.
Cross Transactions (Rules 72(d) and 76)
- 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.
NYSE Block Trades (Rule 127)
- A block trade is typically 10,000 shares or more, or $200,000 or more in market value
- Block trades may execute at prices outside the current NBBO under certain conditions to facilitate institutional executions
- Governs block crosses that occur outside the prevailing NYSE quotation
Why does this exception exist? Large institutional orders are difficult to fill at a single price without moving the market. Block trade rules allow flexibility while still requiring fairness.
Exam Tip: Gotchas
- Block trades CAN execute outside the NBBO. This is an exception to the normal rule that trades must occur at or between the NBBO. The threshold is 10,000+ shares or $200,000+ in market value.