Series 24 market maker registration and responsibility

Here are some of the key points that you need to know about market maker registration and responsibility to help you pass you series 24 exam. All broker dealers that wish to register as a market maker must file an application with FINRA and demonstrate that they are in good standing with FINRA and that the firm meets the capital requirements to become a market maker. The broker dealer’s registration will become effective upon notification by FINRA. Once approved, a broker dealer must register in each security it wishes to make a market in, prior to quoting that security. The firm will request to quote a security over the NASDAQ work station and will receive same day approval to enter quotes. If the security to be quoted has been listed on NASDAQ in the last five days the firm may quote the security immediately. Once approved to quote a security the firm must enter an initial quote within 5 days. If the firm has not entered a quote within this time it must reapply to quite that security. Broker dealers may not receive any consideration from the issuer or from promoters for making a market in the security. Once a broker dealer is approved as a market maker, it will be assigned a market participant identifier (MPID). The firm’s MPID is the symbol by which its bids and offers are identified in the Nasdaq Market Center Execution System (NMCES). The initial MPID assigned to the firm will be known as the firm’s primary MPID. Firms may be assigned supplemental MPIDs to be displayed in the Nasdaq Market Center. Firms may not use supplemental MPIDs to engage in passive market making, stabilization, or to quote a security if the firm fails to meet the requirements to quote a security under its primary MPID. Take note! All approved NASDAQ market makers must be display continuous two sided quotes and be open for business during normal business hours 930AM – 4:00 PM Est. market makers are not required to quote pre or post market. The NASDAQ Market Center Execution System also known as “NMCES” accepts market orders and immediately executable limit orders for both customer and firm accounts. Orders may be entered for up to 999,999 shares per order. The orders will immediately be routed to dealers on the inside market for automatic execution. Larger orders may be split up to meet the maximum order volume. However a broker dealer may not split orders that would otherwise be able to be entered into the NASDAQ system in an effort to increase fees or rebates. This would be considered “order shredding” and is a violation. Orders executed through the NASDAQ Market Center Execution System are automatically reported to ACT. Orders executed through the NASDAQ Market Center Execution System are executed based on the priority of price and time. Orders will be executed against the market maker that is quoting the best price first. If more than one market maker is quoting the same price, orders will be executed against the market maker who quoted the best price first. Orders may be entered in the NASDAQ Market Center Execution System by both market makers and order entry firms. Firms may modify the way that their orders are routed to market makers by selecting:

Modified price and time; this option will take into consideration access fees that may be charged by the counter parties

Price, size, time which takes into consideration the size of the counter parties quote

Maker makers who quote securities through the NASDAQ Market Center Execution System must display the price for their quote as well as the size of their quote. The NASDAQ Market Center Execution System will also allow market makers to maintain additional shares to buy or sell in “reserve”. This reserve size is not seen by other market participants and must be for at least one round lot or 100 shares. If a market maker’s quote is reduced to below one round lot or to zero, the market maker is required to update their quote. Any order that reduces the size of the market maker’s quote is said to decrement the quote. Market makers may manually update their quotes or may select the automatic quote refresh (AQR) feature. Market makers may select the price and size that will be automatically entered through the AQR system. This will allow the market maker to set the system’s AQR feature to operate in a way that is consistent with the firm’s trading patterns. However, if the firm has entered multiple quotes for the security into the NASDAQ Market Center Execution System and one of the other quotes is better than the quote that would automatically be created by the AQR feature, the better-priced quote would be displayed