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What The New Order Handling Rules Mean To You |
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Essentially, the new Order Handling Rules created the basis for equality in the financial markets, with the same rights and privileges for all. Rather than making distinctions between participants as institutional, individual, dealer, market maker, professional, informed, nonprofessional, casual, active, retail, wholesale, inside, outside, informationless, specialists, locals, day traders, international, domestic, and the like, all participants in the market will be considered to be "trading entities." As long as the color of their money is green (or for that matter any color that can be converted into green), they will be welcome to participate on the same terms as everyone else in a fair and equitable manner. While most people would probably agree that this is a wonderful development, there are others whose blood is curdling from these developments. |
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One of the new SEC Order Handling Rules prohibits market makers from making better bids and offers in Instinet and other secret systems than their bids and offers published on Nasdaq. The adoption of this rule broke forever the stranglehold that Instinet had on the best price. Instinet will no longer be a hidden market you cannot see or access. Second, the SEC requires that limit orders from the public at prices at or in between the spread be displayed on Nasdaq and be available for execution. Thus, any DAET bid and offer in between the spread will become the new best bid or offer. Market makers will have to compete with your DAET bid or offer or let it be executed against. Today, dealers are required to either accept a customer's limit order or ship that limit order to an ECN for display to the entire world. |
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Under an entirely different new rule, customer limit orders take priority over the market maker's standing. For example, if a market maker is bidding $12 ½ for a stock and receives a customer limit order at the same price, the customer has standing; and if the market maker buys stock for $12 ½, the trade would belong to the customer rather than the market maker's trading account. Isn't it a miracle that the customer finally comes first! |
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