Extended Hours Trading
Customers should note the following risks in connection with trading outside of regular market hours:
- Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular market hours. As a result, your order may only be partially executed, or not at all.
- Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading than you would during regular market hours.
- Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening of the next morning. As a result, you may receive an inferior price in extended hours trading than you would during regular market hours.
- Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
- Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
- Risk of Wider Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
- Risk of Lack of Calculation or Dissemination of Underlying Index Value or Intraday Indicative Value (“IIV”). For certain Derivative Securities Products, an updated underlying index value or IIV may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and IIV are not calculated or widely disseminated during the pre-market and post-market sessions an investor who is unable to calculate implied values for certain Derivative Securities Products in those sessions may be at a disadvantage to market professionals.
Handling of Block Orders Under FINRA’s Front Running Rule
The following is being provided pursuant to FINRA Rule 5270 regarding Front Running of Block Transactions. We are required to provide clients with the following information concerning the placing of block trading orders and how those block orders are handled: MKM Partners LLC and its trade routing destinations may trade principally at prices that would satisfy your block trading order when the principal trades are unrelated to your block order. When the principal trades are not unrelated, we or our trade routing destinations may trade principally ahead of, or alongside, your block order for the purpose of fulfilling, or facilitating the execution of, your order. For these orders you may instruct us that you do not wish us or our trade routing destinations to trade principally ahead of, or alongside, your order. However, such instruction will limit the range of execution alternatives that we are able to offer. A copy of Rule 5270 can be obtained at FINRA. Please contact your MKM Partners sales representative if you require more information regarding how your block orders are handled.
For more information, please contact MKM Partners Compliance Department at (203) 861-9060.
FINRA Rule 5320 – Client Order Handling Policies and Procedures relating to Equities Products in the U.S.
Rule 5320 consolidates two rules: the National Association of Securities Dealers, Inc. (NASD) Manning Rule and New York Stock Exchange (NYSE) Rule 92, which was commonly known as the “trade along” rule. These rules governed execution of client orders. Rule 5320 generally provides that a broker-dealer handling a client order in an equity security is prohibited from trading that security for its own account at a price that would satisfy the client order, unless the firm immediately executes the client’s order up to the size of its own order at the same price or better. While the rule applies broadly to all types of clients and order sizes, it provides exemptions that permit broker-dealers to trade for their own account provided certain conditions are met. If you are an institutional account client, we are permitted under Rule 5320 to trade for our own account while handling your order, unless you inform us otherwise. Please note that you may notify us that you do not consent (opt-out of consent) by contacting your MKM Partners sales representative or by sending an email to Compliance@MKMPartners.com. Your election may be applied on an order-by-order or blanket basis.
For more information, please contact MKM Partners Compliance Department at (203) 861-9060.
A net transaction is a principal transaction whereby MKM, after having received an order to buy (sell) an equity security, purchases (sells) the security at one price and then sells to (buys from) you at a different price. The price difference represents the compensation that MKM receives for facilitating your order. If you do not wish to have your orders handled on a net basis, please inform your MKM representative in writing and/or send an email to Compliance@MKMPartners.com.
We understand that you are in institutional account as defined in FINRA Rule 4512(c). FINRA Rule 4512(c) defines an institutional account as (i) a bank, savings and loan association, insurance company, or registered investment company; (ii) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or (iii) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million. In the event that you are not now, or ever cease to be, an “institutional account” as defined above, you must notify us in writing immediately.
SEC Rule 607 – Payment for Order Flow
The Securities and Exchange Commission Rule 607 requires that all broker dealers disclose their policies regarding the receipt of payment for order flow, the nature of order routing policies for orders subject to payment for order flow and the degree to which these orders can receive price improvement. MKM routes orders to various exchanges alternative trading systems including electronic communications networks and other market centers including other Broker Dealers, some of which may provide MKM with payment for order flow. Certain market centers offer cash credits for orders that provide liquidity to their books and charge explicit fees for orders that extract liquidity from their books. Periodically, the amount of credits that MKM receives from one or more such market centers may exceed the amount that MKM is charged. Such payments would constitute payment for order flow. Please be advised that for orders received by MKM, MKM may receive order flow payments in varying amounts from US option exchanges market makers pursuant to the published marketing fee programs that have been adopted by the exchanges and approved by the SEC. Several option exchanges have also adopted a maker taker market structure in which exchange members are charged for orders that take liquidity from the exchange and receive a rebate for orders that provide liquidity to the exchange. The charges imposed or rebates offered by these exchanges affect the total cost of execution. The source and amount of any compensation received by MKM in connection with any transaction for your account is available upon written request. MKMs routing decisions are based on a number of factors including but not limited to price, liquidity, venue reliability, cost of execution, likelihood of execution and potential for price improvement. The Firm provides its practices in accordance with SEC Rule 607 to its customers through the Firms website. In addition the Firm sends the Rule 607 disclosure to its customers in a yearly communication and upon the opening of a new account.
Order Routing Information
MKM Partners has prepared reports pursuant to a U.S. Securities and Exchange Commission rule requiring all brokerage firms to make publicly available quarterly reports on their order routing practices. The reports provide information on the routing of “non-directed orders” – any order that the client has not specifically instructed MKM Partners to route to a particular venue for execution. For these non-directed orders, MKM Partners has selected the execution venue on behalf of its clients. Each report identifies the venues most often selected by MKM Partners, sets forth the percentage of various types of orders routed to the venues, and discusses the material aspects of MKM Partners relationship with the venues.
Click here to proceed to IHS Markit website to view MKM Partners Rule 606 data (Current Report)
Click here to proceed to VistaOne website to view MKM Partners Rule 606 data (Historical Reports – prior to 6/1/20)
Click here to view MKM’s Option Exchange Fees/Rebates Table with Bank of America Securities
If you would like to receive an exchange rulebook for the exchanges in which MKM is currently a member, please email Compliance@mkmpartners.com. Alternatively, click on the appropriate link below to view:
IEX Link to Rule Book
NYSE ARCA Link to Rule Book
Nasdaq Stock Market Link to Rule Book
The following topics are specific to option orders.
- Solicited Order Mechanisms on ISE and CBOE. When handling an order of 500 options contracts or more on a client’s behalf, MKM may solicit other parties to execute against the client’s order and may thereafter execute the order using the ISE Solicited Order Mechanism and/or the CBOE Solicitation Mechanism. This functionality provides a single-price execution only, so that the entire order may receive a better price after being exposed to the exchange’s participants, but will not receive partial price improvement. For further details on the operation of these mechanisms, please refer to ISE Rule 716 available here and CBOE Rule 6.74B available at here.
- Account Origin Codes. Option exchange rules require all option orders to be marked with the appropriate account origin code, such as Customer, Broker-Dealer, Professional Customer, or Firm. Therefore, you must ensure your option orders are marked with the correct account origin code when routing option orders electronically or telephonically to the Firm, please notify your MKM Salesperson of any applicable changes.
- Professional Customer Designation. A Professional customer is any person or entity that is not a broker or dealer in securities and who places more than 390 options orders per day on average during a calendar month. “Professional” customer orders are not treated with the same marketplace advantages given to public customer orders. MKM will designate your options orders as “Professional” orders if the Firm determines you meet the requirements of a “Professional” customer. Once you meet the standard for a Professional customer, all of your options orders will be marked as Professional for the quarter following the month in which the threshold was exceeded. Furthermore, if by your own determination, you are to be deemed a Professional customer, you must notify your MKM Salesperson in writing so that MKM can properly document your designation and appropriately mark your options orders as “Professional.”
- Opening or Closing Transaction. Option exchange rules require all option orders to be marked as either opening (buy/sell to open) or closing (buy/sell to close) transactions. Therefore, you must ensure your option orders are marked appropriately when routing option orders electronically or telephonically to the Firm.
- Statement of Risk. Options, structured derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky and may be appropriate only for sophisticated investors. Past performance is not necessarily indicative of future results. Prior to buying or selling an option, and for a thorough description of risks relating to options, US investors must receive a copy of “The Characteristics and Risks of Standardized Options.” You may read the document at https://www.theocc.com/Company-Information/Documents-and-Archives/Publications or ask your MKM Salesperson for a copy.
- Uncovered Options Writers. FINRA Rule 2360(b)(16)(E) requires MKM to develop, implement and maintain specific written procedures governing the conduct of such business which include establishing the following minimum client account standards:
- Total Estimated Annual Income: $250,000
- Net Liquid Assets: $1,000,000
- Prior Investment Experience: At least 1 year of options trading
- Investment Objective: Speculation
- Minimum Net Equity in account: $50,000