Practice Note 13.4.1 — Customer Orders — Precedence
|Issue Date||Cross Reference||Enquiries|
1 July 20051 July 2005,
3 April 20083 April 2008
23 January 200923 January 2009
and 1 July 20161 July 2016.
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1.1 This Practice Note explains the application of Rule 13.4.1.
1.2 Rule 13.4 states that a Trading Member or a Trading Representative must not deal in securities or trade in Futures Contracts for his or her own account or for a Prescribed Person's account if the Trading Representative has an unexecuted order on the same terms from a customer. However, this Rule does not apply if the Trading Representative does not have access to customer's order flow information while executing for his own account or for the Prescribed Person's account.
2 Application of Rule 13.4.1
2.1 An order includes an order for a single stock futures contract or Futures Contracts.
2.2 An unexecuted order from a customer includes an order that has been received but not entered into the Trading System.
2.3 "On the same terms" includes:—
(1) orders for the same counter, same buy/sell instruction and limit price;
(2) a price limit order and a careful discretion order in the same counter and same buy/sell instruction; and
(3) an order for the underlying security on the one hand and an order for single stock futures or Marginable Futures Contracts over that underlying security on the other.
2.4 Rule 13.4.2(4) includes a person, group of persons, a Corporation or a group of Corporations or family trusts, whom the Trading Member, Director, employee or Trading Representative of the Trading Member is associated with or connected to under the definition of "Prescribed Person", However, this does not apply where the Trading Member, Director, employee or Trading Representative of the Trading Member has no control or influence over the associated or connected person, group of persons, Corporation or group of Corporations, or family trusts.
2.5 The Trading Member or Trading Representative must ensure that customers' orders are not compromised when squaring off a house error position on the same terms. Where the customer's order is a careful discretion order, trades allocated to the customer's account must not be worse off to that allocated to the house error account (such accounts being accounts carried on the books of the Trading Member).
2.6 In considering whether Rule 13.4.1 has been complied with, the following factors are relevant:—
(a) the Trading Member or the Trading Representative acts in accordance with the Trading Member or the Trading Representative's customers' instructions;
(b) orders that do not involve the exercise of discretion by the Trading Representative are entered in the sequence in which they are received, and otherwise as expeditiously as practicable;
(c) in the situation where the time the orders were received cannot be clearly established and one of the orders is for the Trading Member or the Trading Representative's own account, the Trading Member or the Trading Representative gives preference to the order of a customer over any order for the Trading Member or the Trading Representative's own account;
(d) the Trading Member or the Trading Representative who is aware of a customer's unexecuted instructions ensures that he or she does not use that information to:—
(i) the disadvantage of the customer; or
(ii) the Trading Member or the Trading Representative's own benefit.