Definition

FIX Role in Order Protection Compliance

As it is related to Reg NMS, FIX support for order protection compliance focuses on the following identifiers:

· Order Identifiers (for electronic trade communication)

o Intermarket Sweep Order Identifiers (for orders and execution reports)

o Single Execution Requested for block trade

· Quote Identifiers (for market data feeds)

o Manual Quote Identifiers

· Trade Identifiers (for market data feeds)

o Manual Trade Identifiers

o Intermarket Sweep Trade Identifiers

At this time FIX does not address the other Order Protection Rule exemptions.

Intermarket Sweep Order Identifier

According to the SEC filing: Intermarket sweep order means a limit order for an NMS stock that meets the following requirements: (i) When routed to a trading center, the limit order is identified as an intermarket sweep order; and (ii) Simultaneously with the routing of the limit order identified as an intermarket sweep order, one or more additional limit orders, as necessary, are routed to execute against the full displayed size of any protected bid, in the case of a limit order to sell, or the full displayed size of any protected offer, in the case of a limit order to buy, for the NMS stock with a price that is superior to the limit price of the limit order identified as an intermarket sweep order. These additional routed orders also must be marked as intermarket sweep orders.

An intermarket sweep order functions like an Immediate or Cancel limit order (or other order type and time in force), but it indicates that the firm sending the order has taken responsibility for price protection, and the firm receiving the order should execute it immediately, if possible, without concern for price protection of other markets.

As such the ExecInst field (tag 18) now includes a new value which would be used for order handling and could be echoed on the execution report for this order:

ExecInst

MultipleValueString

Instructions for order handling on exchange trading floor. If more than one instruction is applicable to an order, this field can contain multiple instructions separated by space.

Valid values:

f = Intermarket sweep

The Execution Reports do not need to identify intermarket sweep trades in the scenario where an incoming order was executed against an intermarket sweep order since the original incoming order had not been designated as an intermarket sweep order.

Single Execution Requested for Block Trade

Additionally, the SEC addressed the situation where a customer knowingly consents to not receive the benefits of the Intermarket Sweep Orders (ISOs) for block trade, opting instead to receive a single execution at the previously agreed price.

Under Rule 611(b)(6), the broker-dealer is required to route, simultaneously with execution of the block trade, an ISO to execute against the full displayed size of any protected quotation with a price superior to the block trade price. To meet this requirement, the broker-dealer will need to utilize an automated system that is capable of ascertaining current protected quotations and simultaneously routing the necessary ISOs. As part of the broker-dealers periodic surveillance under Rule 611(a)(2), ISOs should be compared with the protected quotations at the time of execution to affirm that the ISOs were properly routed. The Staff does not believe that it would be possible for manual routing of ISOs to comply with the requirement in Rule 611(b)(6).

The extent to which a routed ISO will receive an execution at the destination trading center cannot be known at the time of routing (for example, the protected quotation may already have been executed against or cancelled prior to arrival of the ISO). As a result, a broker-dealer could face practical issues in implementing the block trade for its customer, including (1) transferring to the customer the benefit of any better prices obtained through executed ISOs, (2) handling the residual size of ISOs that did not receive a fill, and (3) reporting the block trade to the relevant SRO.18 The Staff believes that there are several ways for a broker-dealer reasonably to address these practical issues, depending on the preferences of its customers.

If, for example, a customer consents to not receiving the benefit of any better prices obtained by the ISOs, the broker-dealer could report the block trade immediately on the routing of the ISO orders because the block trade size would not be affected by any fills of the ISOs. By giving its informed consent, the customer would, in effect, recognize that the block price was determined, at least in part, by a judgment of the extent to which the broker-dealer would receive fills of the ISOs at better prices.

If, however, the broker-dealers customer wished to receive the benefit of any better prices obtained by the ISOs, reporting the block trade is more problematic because its ultimate size will not be known until responses are received to the ISOs (i.e., any fills will reduce the size of the block trade). If the ISOs are also marked as IOC, the Staff believes that the reporting of the block trade could await responses to the IOC/ISOs for a reasonable time (e.g., five seconds or less). At that point, the size of the block trade would be reduced to reflect any fills of the ISOs, and the block trade could be reported to the relevant SRO as an ISO execution. Importantly, however, all material terms of the block trade would need to have been finally agreed upon at the time when the ISOs were routed, subject only to adjusting the block trade size to reflect ISO fills. Under these circumstances, the Staff would consider the broker-dealer to have met the simultaneous routing requirement of Rule 611(b)(6). Therefore, the broker-dealer would not be required to route any additional ISOs when the block trade is reported to the relevant SRO.

Further complications could arise if the broker-dealer does not receive a response within a reasonable time to all of the ISOs. To address this situation (which should not occur frequently because of the immediate response requirement for IOC orders), the customer could agree, in advance, to consider the lost IOC/ISO to be unexecuted and to include its size in the block trade at the block price. Alternatively, the block trade could be reported at a reduced size to reflect the lost IOC/ISO, pending its ultimate resolution.

This section should describe the business problem or workflow that is the source for the proposed changes to the FIX Protocol. The decriptions should help the Global Technical Committee understand the business areas and context, and should be described in business or layman's terms. Business flow diagrams would also be helpful.

In terms of the business flow, firms initiating block trades can choose to either:

(1) receive a single price execution from the executing broker dealer

(2) wait for multiple fills as a result of intermarket sweep orders (ISOs) that the executing broker dealer is required to send if the block trade is executed at a price inferior to protected quotations.

Firms will indicate their preference for a single execution on each order sent to an executing broker dealer.

This section can be in table form or numbered list form. It should contain issues and important discussion points that came up during the sub-committee or working group's effort in putting the gap analysis proposal together. Resolutions of the issues and discussion points also need to be documented. This will aid in understanding the thought process and tracks the decisions made.

Adding a value to the Execution Instruction tag (ExecInst) would be consistent with the Reg NMS changes made for intermarket sweep order routing. In order to allow a firm to indicate their consent to receive a single price execution on a block order, a new value has been assigned to the ExecInst tag (Tag 18).

ExecInst

MultipleCharValue

Instructions for order handling on exchange trading floor. If more than one instruction is applicable to an order, this field can contain multiple instructions separated by space.

Valid values:

j = Single execution requested for block trade

Quote & Trade Identifiers

Reg NMS differentiates between fast quotes, which are executed automatically, and slow quotes which are executed manually. Reg NMS affords certain price protections to fast quotes that are not available to slow quotes.

To differentiate between slow quotes, trades resulting from slow quotes, and trades resulting from intermarket sweep orders in market data feeds the following fields and the associated new values can be used for this purpose:

QuoteCondition (tag 276)

· value "L" (captial L) to designate a manual or slow quote

TradeCondition (tag 277)

· value "Y" (capital y) to designate a trade resulting from a manual or slow quote

· value "Z" (capital z) to designate a trade resulting from an intermarket sweep

276

QuoteCondition

MultipleValueString

Space-delimited list of conditions describing a quote.

Valid values:

L = Manual/slow quote

277

TradeCondition

MultipleValueString

Space-delimited list of conditions describing a trade

Valid values:

Y = Trade resulting from manual/slow quote

Z = Trade resulting from intermarket sweep

Interoperability with Other Standards

Currently the CTA^{^[1]} and UTP^{^[2]} Plans have outlined flags A, B, and H as follows:

Quote Condition Code	Current Definition	New Definition
A	Depth on Ask	Manual Ask, Automatic Bid
B	Depth on Bid	Manual Bid, Automatic Ask
H	Depth on Bid and Ask	Manual Bid and Ask

The basic data element in the CTA and UTP Plans is a two-sided quote, while the FIX Protocol represents a bid and ask pair as two distinct one-sided data elements. So these three values can map to QuoteCondition(276) = L on the respective bid or ask Market Data Entries.

Additionally, the CTA Plan has redefined sales condition F to reflect that an order was executed as an intermarket sweep order.^{^[3]} This can map to a Market Data Entry representing the trade and having TradeCondition(277) = Z

[1] For full details on CTA quote conditions, see http://www.nysedata.com/announce.asp?id=41

[3] For full details on the F sales condition, see http://www.nysedata.com/announce.asp?id=66