Series 55

AAA

Trading Over The Counter And NASDAQ Securities - Registering As A Market Maker

All broker dealers who wish to register as a market maker must file an application with FINRA and demonstrate that they are in good standing with the authority 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. 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. 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 allowed to use supplemental MPIDS to display quotes in securities must meet the same requirements as quotes entered under the firm’s primary MPID. However, quotes entered under the supplemental MPID are not subject to the two sided quote rule or the excused withdrawal requirements. 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. Firms can use up to 10 supplemental MPIDs to be used for displaying quotes or for non display purposes. Some of the uses of MPIDs are:

  • Proprietary business
  • Prime brokerage sponsorship
  • Sponsored access
  • Program business
  • Statistical and index arbitrage business

Registering as a Market Maker In an OTC BB Security

Securities that are quoted in the OTCBB do not have to meet any listing requirements and may be quoted by broker dealers who are registered as OTC market makers. Market makers must obtain detailed information regarding the issuer as required by SEC Rule

15c2-11. Prior to quoting or resuming a quote in an OTC BB security the market maker must have at least one of the following:

  • Form 10K, 10Q, and 8K
  • An offering circular effective within 40 days
  • A prospectus effective within 90 days
  • Other detailed financial information
  • Foreign financial filings for foreign firms

The market maker entering the quote must maintain a file containing the following:

  • A copy of any SEC trading suspension or public release relating to any of the issuer’s securities within the last 12 months
  • A record of the name of the person or people for whom the quote is published and a record of any information provided to the dealer by that person.
  • A copy of other information relating to the issuer that the dealer becomes aware of.

The dealer is required to file form 211 with FINRA at least 3 business days prior to entering a quote. The firm is also required to provide the Association with the informa- tion required under SEC Rule 15C2-11.

The filing should also include:

  • The name of the issuer
  • The dealer’s initial or resumed quote
  • The basis for the quote
  • The type of security
  • How the firm will display the quote
  • A demonstration of the dealer’s compliance with SEC Rule 15C2-11
  • The previous name of the company if the issuer was party to a merger

TAKE NOTE!

If the dealer’s initial quote is not priced and is subsequently changed to a priced quote the dealer must update their filing and must include their new quote and the basis for the quote.

FINRA will respond to the dealer’s application within three business days and will notify the dealer if the application has been cleared, denied, or if the Association needs additional information.

TEST FOCUS!

SEC Rule 15C2-11 only relates to Non NASDAQ securities. A dealer may be exempt from the requirements of SEC Rule 15 C 2-11 if:

  • The Quote is being entered based on an unsolicited customer order
  • The security is listed on an exchange or trades on NASDAQ
  • The dealer is “piggybacking” another dealer’s quote.
Piggybacking A Quote
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