Execution Analytics and Compliance Solution

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The SEC’s new short sale rule is designed to restrict the prices at which a stock can be sold short. If the price of that security decreases by 10 percent or more from the security’s closing price (as determined by the listing market for the security as of the end of regular trading hours on the prior day), a circuit breaker is triggered for that security. Under recent amendments to the SEC’s Short Sale rule, policies and procedures must be implemented to prevent placement or execution of an order that does not comply with the new short sale restriction.

ECS Solution

The ECS Short Sale compliance module provides an in-depth look at each Short Sale and reviews the state of the circuit breaker at the time for the stock in question. Short Sales not marked "Short Sale Exempt" will be flagged if the breaker was engaged at the time. Those marked exempt without a qualifying 201(d) reason will be flagged if the breaker was not engaged. Those marked exempt by the 201(c) Broker-Dealer Provision or no exemption reason will be subjected to the price test if the breaker was engaged, and flagged if the price did not exceed the National Best Bid at the time.

Rule 611 requires a broker-dealer to demonstrate that trades have been executed at non-trade-through prices or that the trades qualify for one of the exemptions from the Rule as documented within the SEC’s Responses to FAQs. To claim the Intermarket Sweep Order (ISO) Exemption, the broker-dealer is required to route, simultaneously with the execution of the block trade, an ISO to execute against the full displayed size of any protected quotation with a price superior to the block trade price. In either case, trade prices should be compared with protected quotations at the time of execution, as reliably documented, to affirm that such quotations were not traded through or that the ISOs were routed appropriately.

ECS Solution

The ECS ISO Order Routing and Quote Analysis module will evaluate your daily ISOs against your snapped quote data, and optionally compare your quotes with the relevant "Network Data" to determine compliance with Rule 611. ECS will provide a detailed report identifying each ISO as "Compliant," "ISO Invalid," "ISO Mispriced," "ISO Misdirected," "Quotes Invalid," "Quotes Missing" or "Quotes Mismatched."

Rule 611 requires any broker-dealer that internalizes trades, or acts as an OTC market maker or block positioner to establish, maintain, and enforce written policies and procedures to prevent trade-throughs of protected quotations.

ECS Solution

The ECS Trade-Through module will evaluate your daily executions by comparing them to the day’s "Network Data" to determine whether or not each transaction is compliant with the Order Protection Rule. Transactions will be identified as either "Compliant," "Trade-Through (Non-Exempt)" or "Trade-Through (Exempt)".

NASD Rule 2320 "In any transaction for or with a customer or a customer of another broker-dealer, a member and persons associated with a member shall use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions."

ECS Solution

The ECS Best Execution/NBBO module will evaluate your daily executions, comparing them to the NBBO in force at the time and determine whether or not each transaction is "Inside," "At," "Outside (Improved)" or "Outside (Inferior)" to the identified NBB or NBO.".

Rule 606 requires broker-dealers to make publicly available for each calendar quarter a report on its routing of non-directed orders in NMS securities during that quarter.

ECS Solution

The ECS 606 report provides a complete solution for compliance with the rule including a percentage breakdown, by venue, of all non-directed orders, and by market orders, limit orders, or other orders. ECS will also provide clients with a public URL to their 606 reports as well as private access to more detailed routing information than required by the Rule.

For additional information on Jordan & Jordan's Execution Analytics and Compliance Solution, contact Michael O'Conor, 212-655-2953.