Description of U.S. Stock Exchange Practices
Below is a summary of some issues that are an important part of the standard trading and
brokerage business practice within the U.S market.
·
Auction Market: The New York Stock Exchange (NYSE) operates as an auction
where trading takes place by verbal outcry of bids and offers by Exchange
members acting as agents for institutions or individual investors. Buy and sell
orders meet directly on the trading floor, and prices are determined by the
interplay of supply and demand. This process is managed by Specialists,
intermediaries which are mandated to match buyers and sellers and maintain a
"fair and orderly market." Orders may also be placed through SuperDOT (Super
Designated Order Turnaround System), a system that automatically transmits
member firms’ market and day limit orders, up to specified sizes in virtually all
listed stocks, through the Common Message Switch (CMS) to the proper trading
floor workstation. Specialists receiving orders through SuperDOT execute them in
the trading crowd at their posts, as quickly as market interest and activity permit,
and return reports to the originating firm's offices via the same electronic circuit
that brought them to the floor.
Please be aware that NYSE Rule 123B for SuperDOT allows Specialists and brokers to
change a price up to 12 noon (Eastern Standard Time) on Trade Date + 1. Price
adjustments may occur when the Specialist discovers, upon reviewing the previous day’s
transactions, that clients were given a wrong price. This practice, where investors will be
given and must accept the corrected price, may be different from other marketplaces.
·
Dealer Market: In contrast, NASDAQ (National Association of Securities
Dealers Automated Quotation) is an Over-The-Counter (OTC) market where the
price is determined by a market maker, a dealer who buys and sells out of
inventory. In the OTC market, the market maker may not support the entire
position because they are not required to maintain a "fair and orderly market."
NASDAQ is a global intranet providing brokers and dealers with price quotations
on securities that are traded over-the-counter, orders are paired and executed on a
computer network or "electronic trading floor".
1. What stock ticker definitions should I be familiar with?
In the US market, ticker symbols will be modified with suffix letters indicating the status
of the security. In some cases, this will include corporate actions or other aspects unique
to the trading of this security. All clients should be familiar with the most common
suffixes*:
Q: Bankruptcy reorganization issue. Example: TCMSQ (TransCoastal Marine Services)
E: Issue with deficient or late filing with the SEC. Example: MVEE or MVEEE (First
Miracle Group)
SP: Special: indicates that some unusual condition exists for the security.
RT: Rights: represent the privilege to subscribe, in proportion to the number of shares
owned, to new or additional securities, usually at the market price. Rights have their own
market value and can be actively traded.*
WI: When Issued: indicates a transaction in a security authorized for issuance, but not yet
actually issued. These transactions are on an "if" basis, to be settled if and when the
actual security is issued. Similarly, WD means When Distributed.
WS: Warrant (giving its holder the right to purchase securities at a specific price, either
within a given time period or perpetually.
CL: Called: an issue being redeemed by issuing corporation under definite conditions
before maturity.
CV: Convertible: a preferred share which its owner may convert into common stock or
another security (usually of the same company), in accordance with the terms of the issue.
PR: Preferred class of stock with priority of over common stock with regard to earnings
and/or liquidations. May be followed by a class definer suffix, ie. PRA (for Preferred
Class A).
*If you wish to exercise the rights, check with your assigned Trading Representative on
the last day of exercise. The closing is usually few days prior to the last trading day of
rights. After the closing date, you will not be able to exercise any rights which you may
still possess.
2. When can I cancel a trade?
Not all trades can be cancelled in the US market because with electronic order delivery,
trades may be executed immediately. Particularly at the market open, trade cancellations
may be difficult to control due to the market focus on executing all clients’ trades. Please
be aware that if your order has been executed, but the electronic confirmation did not
reach you immediately, the trade is still considered to be valid. Thus your cancellation
request can be confirmed as WITHDRAWN or DONE. If your request remains as
PENDING WITHDRAWAL, you can call our Night Desk for assistance.
3. Why did I receive a changed price (different from my confirmed execution) after
trade date?
NYSE Rule 123B for SuperDOT allows specialists and brokers to change a price up
Trade Date + 1. Price adjustments may occur when the Specialist discovers, upon
reviewing the previous day’s transactions, that brokers were given a wrong price. This
practice, where investors will be given and must accept the corrected price, may be
different from other marketplaces.
4. What causes price differences?
Price differences may occur because of one of the following reasons:
1. We may have been advised of a price adjustment after Trade Date, which we
cannot manually adjust our POEMS system.
2. A trade entry error may have occurred at the US broker. Certain types of trades,
for instance large share sizes, limit orders that were delivered electronically, may
be more prone to input errors because these transactions can require manual
trading.
3. Your order may be filled at various different prices and you may have only
received/only viewing the price of the last partial trade execution through POEMS;
your contract is generated with the average price.
5. Why was my trade not executed?
When your order price was submitted at the market price – There are potential exceptions,
which include :
a.
b.
c.
d.
thinly traded issues;
when trading has been halted;
if the order was not received by our US broker prior to market close; or
if the order was rejected.
When the market traded through your limit price – orders will be executed whenever the
stock price (the bid/ask price spread) trades at or through the price limit and the depth of
the market provides for execution of your order, subject to standard market practices.
However, in the OTC market, which is a dealer market, the market makers may not
always support an entire position because they are not required to. The reported price
may be a transaction executed outside NYSE & NASDAQ.
If an execution occurred in error (because the client’s limit price never actually traded
through the range), then an execution may be taken down (i.e., there is no execution) on
T+1.
6. Why was my trade executed, but later cancelled?
The orders are routed to market makers who in many cases manually fill the orders. In
some of those cases, errors can occur, and such errors are typically obvious as they are
outside the price range for those stocks on that day. It is a common practice in the US
market to take the trade from you when such an error occur, as you should not be put in a
position of disadvantage or otherwise.
Although we will contact you on best effort basis to inform you of the cancellation, you
must check your previous day’s orders prior to the next trading day for such cancellations.
7. Why was my trade executed, but I did not receive a confirmation?
It is possible for you to deliver an order through POEMS and have it executed, without
you receiving the same day electronic confirmation of the trade. This can occur when the
electronic link is not available for incoming or outgoing message delivery. Every effort is
made to monitor communications availability, but in isolated cases the connectivity may
fail and prevent messages from being sent or received.
In these situations, we will contact you on best effort basis to inform you of the executed
trades if the electronic confirmation was not successfully transmitted. You can provide us
with your email address so that we have another available channel to communicate with
you. You are also required to check your previous day’s orders prior to the next market
opening in case of late reporting.
8. Why was my order status shown as Pending Withdrawal?
All requests to withdraw orders must be confirmed by our US broker as orders may be
fulfilled but the trade confirmation has not reached you. In most cases, the PENDING
WITHDRAWAL (PW) status will be reported as WITHDRAWN or DONE within a
short time. There may be isolated incidents where PW is not updated, this occurs when
the electronic link is not available for incoming or outgoing message delivery. In this
case, you can call our Night Desk for assistance.
9. What happens if my order is Pending Withdrawal and I submit a Replacement
Order?
It is possible that your order has been executed but the electronic confirmation did not
reach you yet. If your withdrawal request is not confirmed as WITHDRAWN, it may be
possible that you will receive 2 separate and valid contracts in the event that both your
original and replacement orders are fulfilled.