October 30, 2014
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Limit Order Protection Pilot Amended

On June 7, 2001, Nasdaq submitted to the SEC amendments to the Limit Order Protection Pilot for the OTC Bulletin Board (OTCBB), which prohibits member firms from "trading ahead" of customer limit orders that a member accepts in designated OTCBB securities. Members handling customer limit orders are prohibited from trading at prices equal or superior to that of the customer limit order without executing the limit order. Nasdaq amended NASD Rule 6541 for a three month pilot period to reduce the minimum price improvement increment from $0.05 to $0.01 (as described below).


  • Price Improvement - Members cannot avoid this obligation through price improvement unless:
    1. for customer limit orders priced at or inside the current inside spread, the price improvement is for a minimum of the lesser of $0.01 or one-half (1/2) of the current inside spread; or
    2. for customer limit orders priced outside the current inside spread by $0.01 or less, the market amker executes the incoming order at or better than the inside bid (for held buy orders) or inside offer (for held sell orders); or
    3. for customer limit orders priced more than $0.01 outside the inside spread, no obligation is imposed.
  • Contemporaneous Execution - A member that trades through a customer limit order must execute that order contemporaneously - as soon as possible but in no case later than 5 minutes after the member has traded at a price more favorable than the customer's price.
  • Order Size - The limit order protection will extend up to the size of the limit order as long as it does not exceed the size of the proprietary trade.
  • Pilot Securities - 325 OTCBB securities will be subject to this rule during the pilot study. A complete list of the pilot securities is available on OTCBB.com. During the pilot study, all subject securities will be identified with a "##" following the security name on the Nasdaq Workstation II. The securities selected for the pilot will be chosen so that the OTCBB can test the effects of Limit Order Protection on a wide range of securities. 200 of the most actively traded securities will be included. An additional 100 securities will be selected from a cross section of all remaining securities. The remaining 25 securities will be selected on a case-by-case basis after the pilot begins, likely from securities delisted from Nasdaq or an exchange.
  • Implementation - The NASD has issued a Notice To Members describing the amendments to the Limit Order Protection Pilot. The new rule will become effective 30 days after the publication of the Notice To Members. The first group of 200 pilot securities will be phased in on August 1st, the second group of 100 securities will be phased-in to the rule on August 15th.

Further information on the Limit Order Protection Pilot will be available on the OTCBB.com website as it becomes available. Click the link below to view the complete SEC approval order.

SEC Approval Order for Amended Pilot Program

List of the pilot securities


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