NASD Notice to Members 00-26
May 2000
167
NASD Notice to Members 00-26
OATS Limit
Order Display
Indicator
NASD Regulation
Reiterates Requirement
That Members Correctly
Report Order Audit Trail
Information
The Suggested Routing function is meant to
aid the reader of this document. Each NASD
member rm should consider the appropriate
distribution in the context of its own
organizational structure.
Legal & Compliance
Operations
Senior Management
Training
Limit Order Display
Order Audit Trail System (OATS)
Executive Summary
The purpose of this Notice is to
reiterate to members one of the
requirements of the National
Association of Securities Dealers,
Inc. (NASD
®
) Rules 6950 through
6957 (Order Audit Trail System
(OATS
SM
) Rules). When recording
and reporting information on certain
customer orders, members must
indicate whether or not the
customer provided instructions
concerning the display or non-
display of limit orders. It has come
to the attention of NASD
Regulation, Inc. (NASD
Regulation
SM
) staff that several
member rms consistently
misreport this information to the
NASDs OATS.
Questions/Further Information
Questions regarding this Notice
should be addressed to the OATS
Support Center at (800) 321-NASD
(6273); or the Legal Section of the
Market Regulation Department at
(301) 590-6410.
Limit Order Display Indicators
As outlined in OATS Rule 6954(b),
member rms that receive or origi-
nate orders in Nasdaq
®
securities
must report certain information
about these orders to OATS via a
New Order Report.
1
One of the
data elements required in the New
Order Report is the Limit Order Dis-
play Indicator (indicator). The indi-
cator provides information to NASD
Regulation as to whether the cus-
tomer provided specic instructions
concerning the display/non-display
of the limit order. OATS allows two
permissible values in the indicator
eld, Y and N.
Y Indicator
The Y indicator means that a
customer provided:
(a) specic instructions not to
display a limit order that
generally should be displayed
under the terms of the Limit
Order Display Rule
2
; or
(b) specic instructions to display a
block size order (orders with at
least 10,000 shares or with a
market value of at least
$200,000) that is not subject to
the Limit Order Display Rule.
In both cases, the customer gave
instructions regarding the display of
an order, therefore the value
reported in the indicator eld should
be Y.
3
N Indicator
The N indicator means that a
customer did not provide specic
instructions on:
(a) not displaying a limit order that
generally should be displayed
under the terms of the Limit
Order Display Rule; or
(b) displaying a block size order
that is not subject to the Limit
Order Display Rule.
Incorrect Use Of The
Indicators
Many rms currently are assigning
an incorrect value in the indicator
eld. This may be caused by setting
Y as a default or by incorrectly
reporting N when the customer
asks that the order not be
displayed.
INFORMATIONAL
SUGGESTED ROUTING
KEY TOPICS NASD Notice to Members 00-26
May 2000
168
The NASD Regulation Market
Regulation Department uses,
among other things, automated
surveillance systems to surveil for
compliance with the Limit Order
Display Rule. When rms
incorrectly report the value in the
indicator eld, it impedes the
Market Regulation Departments
ability to use OATS data for this
purpose. Additionally, these types
of errors can cause a signicant
waste of NASD Regulations
regulatory resources and the rms
resources in responding to
unnecessary inquiries.
Please be advised that when
Market Regulations automated
systems identify rms as not
complying with the Limit Order
Display Rule based on incorrectly
reported values in the indicator
eld, the staff may bring a
disciplinary action for violation of
the OATS Rules. Such violations
will be resolved by imposing
appropriate sanctions to address
the seriousness of the violation.
Intentional misreporting of this
information will be resolved through
the imposition of sanctions.
Member rms are urged to review
their systems and procedures to
ensure that they are reporting the
data appropriately.
Endnotes
1
Orders in Nasdaq securities originated in
the normal course of market making are
exempt from OATS reporting. All other
proprietary orders in Nasdaq securities are
reportable to OATS.
2
Securities and Exchange Commission Rule
11Ac1-4. Specialists and OTC Market
Makers must display the following: customer
limit orders for exchange-traded securities,
Nasdaq National Market and SmallCap
SM
securities. A customer may request that its
order not be displayed. Odd-lot orders, all or
none orders, orders that are executed
immediately upon receipt, and block size
orders (at least 10,000 shares or with a
market value of at least $200,000) need not
be displayed.
3
Values allowed in the Limit Order Display
Indicator eld are dened in Appendix A, the
Data Dictionary, of the OATS Reporting
Technical Specications (Technical
Specications) dated July 29, 1999. The
specications for the Limit Order Display
Indicator are found on page A-5 of the
Technical Specications. The Technical
Specications are available via the OATS
Web pages located at the NASDR Web Site
(www.nasdr.com) or by calling the OATS
Support Desk at (800) 321-NASD (6273).
© 2000, National Association of Securities Dealers,
Inc. (NASD). All rights reserved. Notices to Mem-
bers attempt to present information to readers in a
format that is easily understandable. However,
please be aware that, in case of any misunder-
standing, the rule language prevails.
NASD Notice to Members 00-26