Series 55 Exam Information
Here is some great information on ECNs for the series 55 exam.
Electronic Communication Networks / ECNs
Electronic Communication Networks, or ECNs, operate independently of FINRA. ECNs display and execute third party orders and are allowed access to the NASDAQ Market Center Execution System. ECNs are widely used by broker dealers, market makers and institutional investors to display and execute orders. ECNs are registered as broker dealers with the SEC and have their quotes included in the NASDAQ quote system. ECNs are not required to maintain a two-sided market like a market maker and ECNs do not take positions securities. ECN's will typically charge access fess to its subscribers and for incoming orders that execute against its displayed quotations. Many ECNs will offer rebates to subscribers who provide liquidity by entering non-marketable limit orders that are displayed by the ECN. There are two ways that the ECN may participate in the market. The ECN may be a full participation ECN or it may be an order delivery ECN. Full participation ECNs may:
Enter and accept directed and non directed orders
Accept automatic executions
May send orders for automatic execution through the NASDAQ Market Center Execution System
Full participation ECNs will have their ID followed by “#+” notation. Order entry ECNs may display quotes, enter and accept directed and non-directed orders. The order entry ECN may fill, decline, price improve, or allow an order it has received to expire. If the order sent to the order entry ECN expires, the order will be canceled and sent to the next participant at the inside market by the NASDAQ Market Center Execution System. Order entry ECNs will have their ID followed by a “#” notation.
If an ECN allows customers to enter orders which are broken down into smaller price increments than 1 cent, and that quote is part of the inside market, the NASDAQ system will round the quote to reflect the smallest price increment variation. Bids will be rounded down to the nearest cent and offers will be rounded up.
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