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Replies to post #54524 on Health Sciences Group Inc (HESG)
01/12/10 2:54 AM
"Sell short to fill a customer market or marketable limit buy order at a price lower than by a sub-penny increment in order to provide price improvement."broker-dealer may convert the price to U.S. dollars, rounding appropriately (down in the case of an order to buy, and up in the case of an order to sell) to an allowable price increment. Price may not extend beyond four decimal places, is not allowable price increment If the broker-dealer employs a vendor or facility manager to provide its order handling capabilities, then the vendor or facility manager must follow the requirements of the Rule, or the broker-dealer will not be in compliance all short sales effected pursuant to the exemption must be marked as "short exempt" in accordance with Rule 200(g) of Regulation SHO.
Division of Market Regulation:?Responses to Frequently Asked Questions Concerning Rule 612 (Minimum Pricing Increment) of Regulation NMS
Responses to these frequently asked questions were prepared by and represent the views of the staff of the Division of Market Regulation ("Staff"). They are not rules, regulations, or statements of the Securities and Exchange Commission ("Commission"). Further, the Commission has neither approved nor disapproved these interpretive answers.
For Further Information Contact: Michael Gaw, Assistant Director, at (202) 551-5602, Division of Market Regulation, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-6628.
I. Introduction
On April 6, 2005, the Commission adopted Regulation NMS, a series of initiatives designed to modernize and strengthen the national market system for equity securities. Regulation NMS was published in Securities Exchange Act Release No. 51808 (Jun. 9, 2005), 70 FR 37496 (Jun. 29, 2005) ("NMS Release"). One part of Regulation NMS is Rule 612 ("the Rule"), which specifies minimum pricing increments for NMS stocks. In general, the Rule prohibits market participants from displaying, ranking, or accepting quotations, orders, or indications of interest in any NMS stock priced in an increment smaller than $0.01 if the quotation, order, or indication of interest is priced equal to or greater than $1.00 per share. If the quotation, order, or indication of interest is priced less than $1.00 per share, the $minimum pricing increment is $0.0001. The Commission has extended the initial compliance date for the Rule from August 29, 2005 until January 31, 2006 in Securities Exchange Act Release No. 52196 (Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005).
An exemption from Rule 10a-1's tick test permits registered market makers and exchange specialists publishing two-sided quotes in a security to sell short to facilitate customer market and marketable limit buy orders at the consolidated national best offer (NBO), regardless of the last trade price.
See Letter re: Bernard L. Madoff Investment Securities LLC (February 9, 2001).) Can such a registered market maker or exchange specialist sell short to fill a customer market or marketable limit buy order at a price lower than the NBO by a sub-penny increment in order to provide price improvement? For example, can a registered market maker or exchange specialist execute a short sale at $0.129 (providing price improvement) to facilitate a customer market or marketable limit buy order if the NBO is $0.13?
The exemption provides relief from Rule 10a-1's tick test to permit registered market makers and exchange specialists publishing two-sided quotes in a security to sell short to facilitate customer market and marketable limit orders at the consolidated national best offer, regardless of the last trade price. If the NBO is $0.13, as in the example above, then the registered market maker or exchange specialist may execute a short sale to fill a customer market or marketable limit buy order at $0.129 or any other increment within a sub-penny below the NBO, regardless of the last sale price reported pursuant to an effective transaction reporting plan, and still be considered within the exemption. This exemption continues to be strictly limited to registered market makers and exchange specialists in instances where they are providing liquidity in response to customer market and marketable limit buy orders. In addition, all short sales effected pursuant to the exemption must be marked as "short exempt" in accordance with Rule 200(g) of Regulation SHO.
If a customer gives an order in an NMS stock to a broker-dealer that is not explicitly priced in an impermissible sub-penny increment but involves instructions or information intended to permit the broker-dealer to determine an explicit price, may the broker-dealer accept the order and determine the appropriate explicit price, rounding if necessary to a permissible increment?
Answer: Yes. The Rule does not prohibit a broker-dealer from performing calculations to obtain the price of a customer order that is not explicitly priced in an impermissible sub-penny increment when received. For example, if an order is originally priced in a foreign currency, a broker-dealer may convert the price to U.S. dollars, rounding appropriately (down in the case of an order to buy, and up in the case of an order to sell) to an allowable price increment. Other examples would include an order with a price dependent on the price of another security, an order priced at the previous day's closing price, or an order with a specified percentage variation from the current price of the security (e.g., a "stop price" set at 10% above or below the current price). In each case a broker-dealer would be permitted to determine the actual explicit price for the order, rounding appropriately.
If a broker-dealer uses a service bureau or other vendor to provide order handling services on its behalf, does the vendor have to provide the same capabilities to reject or round orders that the broker-dealer would have to provide for itself, or can it rely on the market centers to reject and/or round orders not permitted under the Rule?
The obligation to comply with the Rule lies with the broker-dealer. If the broker-dealer employs a vendor or facility manager to provide its order handling capabilities, then the vendor or facility manager must follow the requirements of the Rule, or the broker-dealer will not be in compliance.
An exemption from Rule 10a-1's tick test permits registered market makers and exchange specialists publishing two-sided quotes in a security to sell short to facilitate customer market and marketable limit buy orders at the consolidated national best offer (NBO), regardless of the last trade price. (See Letter re: Bernard L. Madoff Investment Securities LLC (February 9, 2001).) Can such a registered market maker or exchange specialist sell short to fill a customer market or marketable limit buy order at a price lower than the NBO by a sub-penny increment in order to provide price improvement? For example, can a registered market maker or exchange specialist execute a short sale at $0.129 (providing price improvement) to facilitate a customer market or marketable limit buy order if the NBO is $0.13?
The exemption provides relief from Rule 10a-1's tick test to permit registered market makers and exchange specialists publishing two-sided quotes in a security to sell short to facilitate customer market and marketable limit orders at the consolidated national best offer, regardless of the last trade price. If the NBO is $0.13, as in the example above, then the registered market maker or exchange specialist may execute a short sale to fill a customer market or marketable limit buy order at $0.129 or any other increment within a sub-penny below the NBO, regardless of the last sale price reported pursuant to an effective transaction reporting plan, and still be considered within the exemption. This exemption continues to be strictly limited to registered market makers and exchange specialists in instances where they are providing liquidity in response to customer market and marketable limit buy orders. In addition, all short sales effected pursuant to the exemption must be marked as "short exempt" in accordance with Rule 200(g) of Regulation SHO.
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07/28/11 10:45 AM
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