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Limit Order Protection Extended to all OTCBB Securities - Head Trader Alert #2002-204

**Please show this alert to your Head of OTCBB Trading**

Summary

  • SEC approves Limit Order Protection filing (SR-NASD-2002-153) for all OTCBB securities
  • NASD Rule 6541 prohibits member firms from “trading ahead” of customer limit orders
  • Rule change effective January 13, 2003
  • Additional information

Overview: SEC Approves Limit Order Protection Proposal for OTCBB On Tuesday, December 24, 2002, the Securities and Exchange Commission (SEC) approved NASDAQ’s Limit Order Protection rule proposal (SR-NASD-2002-153). The Rule, which applies basic customer limit order protection principles to all securities that are quoted on the OTC Bulletin Board® (OTCBB), replaces the Limit Order Protection Pilot in effect since February 2001. The approval order was published in the Federal Register on December 24, 2002, and the rule will be effective starting Monday, January 13, 2003.

Rule Reinforces Limit Order Protection Principles on Customer Orders The Limit Order Protection Rule (NASD Rule 6541) prohibits member firms from "trading ahead" of customer limit orders that a member accepts in OTCBB securities. Members handling customer limit orders are prohibited from trading at prices equal or superior to that of the customer limit order without also executing that order at the limit price. Members may trade ahead of a customer limit order if the trade for their own account provides a minimum level of price improvement over the limit order price. For customer limit orders priced at or inside the current inside spread, the minimum price improvement required is the lesser of (i) one cent or (ii) one-half of the current inside spread. For customer limit orders priced outside the current inside spread, any degree of price improvement will be sufficient.

Federal Register Posting Additional information regarding the Limit Order Protection rule can be found in the Federal Register, December 24, 2002. The complete filing SR-NASD-2002-153 is also available.

Contact Information Questions about this rule or any questions regarding the OTCBB market can be directed to Liz Heese, OTCBB Product Manager, at 301.978.8263 or liz.heese@nasdaq.com.


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