Here are a couple of other rules for review re MM and requirements. Trying to get some trades completed today so I don't have time to check to see if these have been amended. The pinksheet proposal, about which I previously posted, relates to requiring pinkie MM's to honor best bid/ask and reporting the best bid/ask. If anyone is interested, I'll try to provide a reference.
My interpretation only is that this rules seems to prevent an OTC BB MM from trading ahead of limit order for equal or better prices, unless they execute within 5 minutes.
Doesn’t apply to AH trades.
The second rule indicates that they can’t put someone else between you – shuffling shares between MM’s in a way to circumvent your order.
otcbb.com
<<6541. Limit Order Protection
a. Members shall be prohibited from "trading ahead" of customer limit orders that a member accepts in securities quoted on the OTCBB. Members handling customer limit orders, whether received from their own customers or from another member, are prohibited from trading at prices equal or superior to that of the customer limit order without executing the limit order. Members are under no obligation to accept limit orders from any customer.
b. Members may avoid the obligation specified in paragraph (a) through the provision of price improvement. If a customer limit order is priced at or inside the current spread, however, the price improvement must be for a minimum of $0.01 or one-half (1/2) of the current inside spread.
For purposes of this rule, the inside spread shall be defined as the difference between the best reasonably available bid and offer in the subject security.
c. Notwithstanding subparagraph (a) of this rule, a member may negotiate specific terms and conditions applicable to the acceptance of limit orders only with respect to such orders that are:
1. for customer accounts that meet the definition of an "institutional account" as that term is defined in Rule 3110(c)(4); or
2. for 10,000 shares or more, and greater than $20,000 in value.
d. Contemporaneous trades
A member that trades through a held limit order must execute such limit order contemporaneously, or as soon as practicable, but in no case later than five minutes after the member has traded at a price more favorable than the customer's price.
e. Application
1. This rule shall apply, regardless of whether the subject security is additionally quoted in a separate quotation medium.
2. This rule shall apply from 9:30 a.m. to 4:00 p.m. Eastern Time.
[Adopted by SR-NASD-00-22 eff. Feb. 8, 2001; amended by SR-NASD-01-39 eff. Aug. 1,2001; amended by SR-NASD-2001-78 eff. Nov. 1, 2001; amended by SR-NASD-2002-153 eff. Jan. 6, 2003.]
otcbb.com
2320. Best Execution and Interpositioning
a. In any transaction for or with a customer, a member and persons associated with a member shall use reasonable diligence to ascertain the best inter-dealer 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. Among the factors that will be considered in determining whether a member has used "reasonable diligence" are:
1. The character of the market for the security, e.g., price, volatility, relative liquidity, and pressure on available communications;
2. the size and type of transaction;
3. the number of primary markets checked;
4. location and accessibility to the customer's broker/dealer of primary markets and quotations sources.
b. In any transaction for or with a customer, no member or person associated with a member shall interject a third party between the member and the best available market except in cases where the member can demonstrate that to his knowledge at the time of the transaction the total cost or proceeds of the transaction, as confirmed to the member acting for or with the customer, was better than the prevailing inter-dealer market for the security. A member's obligations to his customer are generally not fulfilled when he channels transactions through another broker/dealer or some person in a similar position, unless he can show that by so doing he reduced the costs of the transactions to the customer.
c. When a member cannot execute directly with a market maker but must employ a broker's broker or some other means in order to insure an execution advantageous to the customer, the burden of showing the acceptable circumstances for doing so is on the retail firm. Examples of acceptable circumstances are where a customer's order is "crossed" with another retail firm which has a corresponding order on the other side, or where the identity of the retail firm, if known, would likely cause undue price movements adversely affecting the cost or proceeds to the customer.
d. Failure to maintain or adequately staff an over-the-counter order room or other department assigned to execute customers' orders cannot be considered justification for executing away from the best available market; nor can channeling orders through a third party as described above as reciprocation for service or business operate to relieve a member of his obligations. However, the channeling of customers' orders through a broker's broker or third party pursuant to established correspondent relationships under which executions are confirmed directly to the member acting as agent for the customer, such as where the third party gives up the name of the retail firm, are not prohibited if the cost of such service is not borne by the customer.
e. A member through whom a retail order is channeled, as described above, and who knowingly is a party to an arrangement whereby the initiating member has not fulfilled his obligations under this Rule, will also be deemed to have violated this Rule.
f. The obligations described in paragraphs (a) through (e) above exist not only where the member acts as agent for the account of his customer but also where retail transactions are executed as principal and contemporaneously offset. Such obligations do not relate to the reasonableness of commission rates, markups or markdowns which are governed by Rule 2440 and IM-2440.
g.
1. Unless two or more priced quotations for a non-Nasdaq security (as defined in the Rule 6700 Series) are displayed in an inter-dealer quotation system that permits quotation updateson a real-time basis, in any transaction for or with a customer pertaining to the execution of an order in a non-Nasdaq security, a member or person associated with a member, shall contact and obtain quotations from three dealers (or all dealers if three or less) to determine the best inter-dealer market for the subject security.
2. Members that display priced quotations on a real-time basis for a non-Nasdaq security in two or more quotation mediums that permit quotation updates on a real-time basis must display the same priced quotations for the security in each medium.
3. For purposes of this paragraph, the term "inter-dealer quotation system" means any system of general circulation to brokers or dealers that regularly disseminates quotations of identified brokers or dealers.
4. For purposes of this paragraph, the term "quotation medium" means any inter-dealer quotation system or any publication or electronic communications network or other device that is used by brokers or dealers to make known to others their interest in transactions in any security, including offers to buy or sell at a stated price or otherwise, or invitations of offers to buy or see.
5. Pursuant to the Rule 9600 Series, the staff, for good cause shown, after taking into consideration all relevant factors, may exempt any transaction or classes of transactions, either unconditionally or on specified terms, from any or all of the provisions of this paragraph if it determines that such exemption is consistent with the purpose of this Rule, the protection of investors, and the public interest.
[Interpretation adopted eff. May 1, 1968; amended by SR-NASD-97-42 eff. Oct. 22, 1997; amended by SR-NASD-98-57 eff. March 26, 1999.]
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