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Regulation NMS





Rule 600 -- NMS Security Designation and Definitions

  1. The term national market system security as used in section 11A(a)(2) of the Act shall mean any NMS security as defined in paragraph (b) of this section.

  2. For purposes of Regulation NMS (Rules 242.600 through 242.612), the following definitions shall apply:

    1. Aggregate quotation size means the sum of the quotation sizes of all responsible brokers or dealers who have communicated on any national securities exchange bids or offers for an NMS security at the same price.

    2. Alternative trading system has the meaning provided in Rule 242.300(a).

    3. Automated quotation means a quotation displayed by a trading center that:

      1. Permits an incoming order to be marked as immediate-or-cancel;

      2. Immediately and automatically executes an order marked as immediate-or-cancel against the displayed quotation up to its full size;

      3. Immediately and automatically cancels any unexecuted portion of an order marked as immediate-or-cancel without routing the order elsewhere;

      4. Immediately and automatically transmits a response to the sender of an order marked as immediate-or-cancel indicating the action taken with respect to such order; and

      5. Immediately and automatically displays information that updates the displayed quotation to reflect any change to its material terms.

    4. Automated trading center means a trading center that:

      1. Has implemented such systems, procedures, and rules as are necessary to render it capable of displaying quotations that meet the requirements for an automated quotation set forth in paragraph (b)(3) of this section;

      2. Identifies all quotations other than automated quotations as manual quotations;

      3. Immediately identifies its quotations as manual quotations whenever it has reason to believe that it is not capable of displaying automated quotations; and

      4. Has adopted reasonable standards limiting when its quotations change from automated quotations to manual quotations, and vice versa, to specifically defined circumstances that promote fair and efficient access to its automated quotations and are consistent with the maintenance of fair and orderly markets.

    5. Average effective spread means the share-weighted average of effective spreads for order executions calculated, for buy orders, as double the amount of difference between the execution price and the midpoint of the national best bid and national best offer at the time of order receipt and, for sell orders, as double the amount of difference between the midpoint of the national best bid and national best offer at the time of order receipt and the execution price.

    6. Average realized spread means the share-weighted average of realized spreads for order executions calculated, for buy orders, as double the amount of difference between the execution price and the midpoint of the national best bid and national best offer five minutes after the time of order execution and, for sell orders, as double the amount of difference between the midpoint of the national best bid and national best offer five minutes after the time of order execution and the execution price; provided, however, that the midpoint of the final national best bid and national best offer disseminated for regular trading hours shall be used to calculate a realized spread if it is disseminated less than five minutes after the time of order execution.

    7. Best bid and best offer mean the highest priced bid and the lowest priced offer.

    8. Bid or offer means the bid price or the offer price communicated by a member of a national securities exchange or member of a national securities association to any broker or dealer, or to any customer, at which it is willing to buy or sell one or more round lots of an NMS security, as either principal or agent, but shall not include indications of interest.

    9. Block size with respect to an order means it is:

      1. Of at least 10,000 shares; or

      2. For a quantity of stock having a market value of at least $200,000.

    10. Categorized by order size means dividing orders into separate categories for sizes from 100 to 499 shares, from 500 to 1999 shares, from 2000 to 4999 shares, and 5000 or greater shares.

    11. Categorized by order type means dividing orders into separate categories for market orders, marketable limit orders, inside-the-quote limit orders, at-the-quote limit orders, and near-the-quote limit orders.

    12. Categorized by security means dividing orders into separate categories for each NMS stock that is included in a report.

    13. Consolidated display means:

      1. The prices, sizes, and market identifications of the national best bid and national best offer for a security; and

      2. Consolidated last sale information for a security.

    14. Consolidated last sale information means the price, volume, and market identification of the most recent transaction report for a security that is disseminated pursuant to an effective national market system plan.

    15. Covered order means any market order or any limit order (including immediateor- cancel orders) received by a market center during regular trading hours at a time when a national best bid and national best offer is being disseminated, and, if executed, is executed during regular trading hours, but shall exclude any order for which the customer requests special handling for execution, including, but not limited to, orders to be executed at a market opening price or a market closing price, orders submitted with stop prices, orders to be executed only at their full size, orders to be executed on a particular type of tick or bid, orders submitted on a ďnot heldĒ basis, orders for other than regular settlement, and orders to be executed at prices unrelated to the market price of the security at the time of execution.

    16. Customer means any person that is not a broker or dealer.

    17. Customer limit order means an order to buy or sell an NMS stock at a specified price that is not for the account of either a broker or dealer; provided, however, that the term customer limit order shall include an order transmitted by a broker or dealer on behalf of a customer.

    18. Customer order means an order to buy or sell an NMS security that is not for the account of a broker or dealer, but shall not include any order for a quantity of a security having a market value of at least $50,000 for an NMS security that is an option contract and a market value of at least $200,000 for any other NMS security.

    19. Directed order means a customer order that the customer specifically instructed the broker or dealer to route to a particular venue for execution.

    20. Dynamic market monitoring device means any service provided by a vendor on an interrogation device or other display that:

      1. Permits real-time monitoring, on a dynamic basis, of transaction reports, last sale data, or quotations with respect to a particular security; and

      2. Displays the most recent transaction report, last sale data, or quotation with respect to that security until such report, data, or quotation has been superseded or supplemented by the display of a new transaction report, last sale data, or quotation reflecting the next reported transaction or quotation in that security.

    21. Effective national market system plan means any national market system plan approved by the Commission (either temporarily or on a permanent basis) pursuant to Rule 242.608.

    22. Effective transaction reporting plan means any transaction reporting plan approved by the Commission pursuant to Rule 242.601.

    23. Electronic communications network means, for the purposes of Rule 242.602(b)(5), any electronic system that widely disseminates to third parties orders entered therein by an exchange market maker or OTC market maker, and permits such orders to be executed against in whole or in part; except that the term electronic communications network shall not include:

      1. Any system that crosses multiple orders at one or more specified times at a single price set by the system (by algorithm or by any derivative pricing mechanism) and does not allow orders to be crossed or executed against directly by participants outside of such times; or

      2. Any system operated by, or on behalf of, an OTC market maker or exchange market maker that executes customer orders primarily against the account of such market maker as principal, other than riskless principal.

    24. Exchange market maker means any member of a national securities exchange that is registered as a specialist or market maker pursuant to the rules of such exchange.

    25. Exchange-traded security means any NMS security or class of NMS securities listed and registered, or admitted to unlisted trading privileges, on a national securities exchange; provided, however, that securities not listed on any national securities exchange that are traded pursuant to unlisted trading privileges are excluded.

    26. Executed at the quote means, for buy orders, execution at a price equal to the national best offer at the time of order receipt and, for sell orders, execution at a price equal to the national best bid at the time of order receipt.

    27. Executed outside the quote means, for buy orders, execution at a price higher than the national best offer at the time of order receipt and, for sell orders, execution at a price lower than the national best bid at the time of order receipt.

    28. Executed with price improvement means, for buy orders, execution at a price lower than the national best offer at the time of order receipt and, for sell orders, execution at a price higher than the national best bid at the time of order receipt.

    29. Inside-the-quote limit order, at-the-quote limit order, and near-the-quote limit order mean non-marketable buy orders with limit prices that are, respectively, higher than, equal to, and lower by $0.10 or less than the national best bid at the time of order receipt, and nonmarketable sell orders with limit prices that are, respectively, lower than, equal to, and higher by $0.10 or less than the national best offer at the time of order receipt.

    30. Intermarket sweep order means a limit order for an NMS stock that meets the following requirements:

      1. When routed to a trading center, the limit order is identified as an intermarket sweep order; and

      2. Simultaneously with the routing of the limit order identified as an intermarket sweep order, one or more additional limit orders, as necessary, are routed to execute against the full displayed size of any protected bid, in the case of a limit order to sell, or the full displayed size of any protected offer, in the case of a limit order to buy, for the NMS stock with a price that is superior to the limit price of the limit order identified as an intermarket sweep order. These additional routed orders also must be marked as intermarket sweep orders.

    31. Interrogation device means any securities information retrieval system capable of displaying transaction reports, last sale data, or quotations upon inquiry, on a current basis on a terminal or other device.

    32. Joint self-regulatory organization plan means a plan as to which two or more self-regulatory organizations, acting jointly, are sponsors.

    33. Last sale data means any price or volume data associated with a transaction.

    34. Listed equity security means any equity security listed and registered, or admitted to unlisted trading privileges, on a national securities exchange.

    35. Listed option means any option traded on a registered national securities exchange or automated facility of a national securities association.

    36. Make publicly available means posting on an Internet Web site that is free and readily accessible to the public, furnishing a written copy to customers on request without charge, and notifying customers at least annually in writing that a written copy will be furnished on request.

    37. Manual quotation means any quotation other than an automated quotation.

    38. Market center means any exchange market maker, OTC market maker, alternative trading system, national securities exchange, or national securities association.

    39. Marketable limit order means any buy order with a limit price equal to or greater than the national best offer at the time of order receipt, or any sell order with a limit price equal to or less than the national best bid at the time of order receipt.

    40. Moving ticker means any continuous real-time moving display of transaction reports or last sale data (other than a dynamic market monitoring device) provided on an interrogation or other display device.

    41. Nasdaq security means any registered security listed on The Nasdaq Stock Market, Inc.

    42. National best bid and national best offer means, with respect to quotations for an NMS security, the best bid and best offer for such security that are calculated and disseminated on a current and continuing basis by a plan processor pursuant to an effective national market system plan; provided, that in the event two or more market centers transmit to the plan processor pursuant to such plan identical bids or offers for an NMS security, the best bid or best offer (as the case may be) shall be determined by ranking all such identical bids or offers (as the case may be) first by size (giving the highest ranking to the bid or offer associated with the largest size), and then by time (giving the highest ranking to the bid or offer received first in time).

    43. National market system plan means any joint self-regulatory organization plan in connection with:

      1. The planning, development, operation or regulation of a national market system (or a subsystem thereof) or one or more facilities thereof; or

      2. The development and implementation of procedures and/or facilities designed to achieve compliance by self-regulatory organizations and their members with any section of this Regulation NMS and part 240, subpart A of this chapter promulgated pursuant to section 11A of the Act.

    44. National securities association means any association of brokers and dealers registered pursuant to section 15A of the Act.

    45. National securities exchange means any exchange registered pursuant to section 6 of the Act.

    46. NMS security means any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.

    47. NMS stock means any NMS security other than an option.

    48. Non-directed order means any customer order other than a directed order.

    49. Odd-lot means an order for the purchase or sale of an NMS stock in an amount less than a round lot.

    50. Options class means all of the put option or call option series overlying a security, as defined in section 3(a)(10) of the Act.

    51. Options series means the contracts in an options class that have the same unit of trade, expiration date, and exercise price, and other terms or conditions.

    52. OTC market maker means any dealer that holds itself out as being willing to buy from and sell to its customers, or others, in the United States, an NMS stock for its own account on a regular or continuous basis otherwise than on a national securities exchange in amounts of less than block size.

    53. Participants, when used in connection with a national market system plan, means any self-regulatory organization which has agreed to act in accordance with the terms of the plan but which is not a signatory of such plan.

    54. Payment for order flow has the meaning provided in Rule 240.10b-10 of this chapter.

    55. Plan processor means any self-regulatory organization or securities information processor acting as an exclusive processor in connection with the development, implementation and/or operation of any facility contemplated by an effective national market system plan.

    56. Profit-sharing relationship means any ownership or other type of affiliation under which the broker or dealer, directly or indirectly, may share in any profits that may be derived from the execution of non-directed orders.

    57. Protected bid or protected offer means a quotation in an NMS stock that:

      1. Is displayed by an automated trading center;

      2. Is disseminated pursuant to an effective national market system plan; and

      3. Is an automated quotation that is the best bid or best offer of a national securities exchange, the best bid or best offer of The Nasdaq Stock Market, Inc., or the best bid or best offer of a national securities association other than the best bid or best offer of The Nasdaq Stock Market, Inc.

    58. Protected quotation means a protected bid or a protected offer.

    59. Published aggregate quotation size means the aggregate quotation size calculated by a national securities exchange and displayed by a vendor on a terminal or other display device at the time an order is presented for execution to a responsible broker or dealer.

    60. Published bid and published offer means the bid or offer of a responsible broker or dealer for an NMS security communicated by it to its national securities exchange or association pursuant to Rule 242.602 and displayed by a vendor on a terminal or other display device at the time an order is presented for execution to such responsible broker or dealer.

    61. Published quotation size means the quotation size of a responsible broker or dealer communicated by it to its national securities exchange or association pursuant to Rule 242.602 and displayed by a vendor on a terminal or other display device at the time an order is presented for execution to such responsible broker or dealer.

    62. Quotation means a bid or an offer.

    63. Quotation size, when used with respect to a responsible brokerís or dealerís bid or offer for an NMS security, means:

      1. The number of shares (or units of trading) of that security which such responsible broker or dealer has specified, for purposes of dissemination to vendors, that it is willing to buy at the bid price or sell at the offer price comprising its bid or offer, as either principal or agent; or

      2. In the event such responsible broker or dealer has not so specified, a normal unit of trading for that NMS security.

    64. Regular trading hours means the time between 9:30 a.m. and 4:00 p.m. Eastern Time, or such other time as is set forth in the procedures established pursuant to Rule 242.605(a)(2).

    65. Responsible broker or dealer means:

      1. When used with respect to bids or offers communicated on a national securities exchange, any member of such national securities exchange who communicates to another member on such national securities exchange, at the location (or locations) or through the facility or facilities designated by such national securities exchange for trading in an NMS security a bid or offer for such NMS security, as either principal or agent; provided, however, that, in the event two or more members of a national securities exchange have communicated on or through such national securities exchange bids or offers for an NMS security at the same price, each such member shall be considered a responsible broker or dealer for that bid or offer, subject to the rules of priority and precedence then in effect on that national securities exchange; and further provided, that for a bid or offer which is transmitted from one member of a national securities exchange to another member who undertakes to represent such bid or offer on such national securities exchange as agent, only the last member who undertakes to represent such bid or offer as agent shall be considered the responsible broker or dealer for that bid or offer; and

      2. When used with respect to bids and offers communicated by a member of an association to a broker or dealer or a customer, the member communicating the bid or offer (regardless of whether such bid or offer is for its own account or on behalf of another person).

    66. Revised bid or offer means a market makerís bid or offer which supersedes its published bid or published offer.

    67. Revised quotation size means a market makerís quotation size which supersedes its published quotation size.

    68. Self-regulatory organization means any national securities exchange or national securities association.

    69. Specified persons, when used in connection with any notification required to be provided pursuant to Rule 242.602(a)(3) and any election (or withdrawal thereof) permitted under Rule 242.602(a)(5), means:

      1. Each vendor;

      2. Each plan processor; and

      3. The processor for the Options Price Reporting Authority (in the case of a notification for a subject security which is a class of securities underlying options admitted to trading on any national securities exchange).

    70. Sponsor, when used in connection with a national market system plan, means any self-regulatory organization which is a signatory to such plan and has agreed to act in accordance with the terms of the plan.

    71. SRO display-only facility means a facility operated by or on behalf of a national securities exchange or national securities association that displays quotations in a security, but does not execute orders against such quotations or present orders to members for execution.

    72. SRO trading facility means a facility operated by or on behalf of a national securities exchange or a national securities association that executes orders in a security or presents orders to members for execution.

    73. Subject security means:

      1. With respect to a national securities exchange:

        1. Any exchange-traded security other than a security for which the executed volume of such exchange, during the most recent calendar quarter, comprised one percent or less of the aggregate trading volume for such security as reported pursuant to an effective transaction reporting plan or effective national market system plan; and

        2. Any other NMS security for which such exchange has in effect an election, pursuant to Rule 242.602(a)(5)(i), to collect, process, and make available to a vendor bids, offers, quotation sizes, and aggregate quotation sizes communicated on such exchange; and

      2. With respect to a member of a national securities association:

        1. Any exchange-traded security for which such member acts in the capacity of an OTC market maker unless the executed volume of such member, during the most recent calendar quarter, comprised one percent or less of the aggregate trading volume for such security as reported pursuant to an effective transaction reporting plan or effective national market system plan; and

        2. Any other NMS security for which such member acts in the capacity of an OTC market maker and has in effect an election, pursuant to Rule 242.602(a)(5)(ii), to communicate to its association bids, offers, and quotation sizes for the purpose of making such bids, offers, and quotation sizes available to a vendor.
    74. Time of order execution means the time (to the second) that an order was executed at any venue.

    75. Time of order receipt means the time (to the second) that an order was received by a market center for execution.

    76. Time of the transaction has the meaning provided in Rule 240.10b-10 of this chapter.

    77. Trade-through means the purchase or sale of an NMS stock during regular trading hours, either as principal or agent, at a price that is lower than a protected bid or higher than a protected offer.

    78. Trading center means a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent.

    79. Trading rotation means, with respect to an options class, the time period on a national securities exchange during which:

      1. Opening, re-opening, or closing transactions in options series in such options class are not yet completed; and

      2. Continuous trading has not yet commenced or has not yet ended for the day in options series in such options class.

    80. Transaction report means a report containing the price and volume associated with a transaction involving the purchase or sale of one or more round lots of a security.

    81. Transaction reporting association means any person authorized to implement or administer any transaction reporting plan on behalf of persons acting jointly under Rule 242.601(a).

    82. Transaction reporting plan means any plan for collecting, processing, making available or disseminating transaction reports with respect to transactions in securities filed with the Commission pursuant to, and meeting the requirements of, Rule 242.601.

    83. Vendor means any securities information processor engaged in the business of disseminating transaction reports, last sale data, or quotations with respect to NMS securities to brokers, dealers, or investors on a real-time or other current and continuing basis, whether through an electronic communications network, moving ticker, or interrogation device.


Regulatory History


70 FR 37496, 37620, June 29, 2005; 70 FR 45529, Aug. 8, 2005

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