STREETSMART Pro DIRECT ACCESS TRADING. powered by CyberTrader. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1

Transcription

1 STREETSMART Pro powered by CyberTrader DIRECT ACCESS TRADING Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 1

2 Table of Contents Jump to the topic in the Table of Contents below by putting your mouse over the page number, and then click it when the hand symbol appears. Direct Access 1 SmartEx and Direct Access Quotes and Trading 4 Special Eligibility Requirements for Direct Access Trading 5 About Routing Channels 6 Action Types, Order types, and Order Conditions 7 Order Execution via Direct Access 9 Order Verification 11 Trade Execution Options 12 Placing a Direct Access Order 13 Order Conditions Checkboxes 14 Canceling Direct Access Orders 15 SuperMontage Order Routing 16 Other SuperMontage Features 18 SelectNet/SM DIRECTED 19 Level II Views 20 ARCA (Archipelago) 21 ARCA (Archipelago) in Extended Hours Trading 23 BRUT (Brass Utility LLC) 24 BTRD (Bloomberg Tradebook) 25 ISLD (Island) 26 MKXT (MarketXT) 27 NTRD (NexTrade) 28 SelectNet 29 Delta Limit Orders 30 Changing Delta Values 31 More Information About Delta Limit Orders 32 Broadcast Orders 33 Preference Orders 34 About SOES and SuperSOES 35 SOES 36 SuperSoes 37 SuperSoes Orders (when an ECN is at the Inside) 38 Odd-Lot Orders 39 Splitting Orders 40 Orders Priced at the Spread 41 About Market Maker Reserve Amounts 42 Partial Fills 43 Order Handling and Day Trading Rules 44 Two Minute Rule Examples 45 Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 2

3 Margin Requirements 46 Day Trading Buying Power and Margin Call 47 Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 3

4 Direct Access Order Execution on StreetSmart Pro SmartEx and Direct Access Quotes and Trading StreetSmart Pro s integrated trading platform offers additional information and control to help you make smarter investing decisions with order executions via SmartEx and Direct Access. For more information about SmartEx, please refer to Information about SmartEx. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 4

5 Special Eligibility Requirements for Direct Access Trading Direct Access is Schwab s trading platform for eligible clients who want more control over the routing of their orders. Direct Access trading entails certain risks and responsibilities. Because of the risks, challenges and opportunities of Direct Access trading, we have established the special eligibility requirements for Direct Access Trading. These eligibility requirements are posted on the StreetSmart Pro Center of Schwab.com, in the section called "Trade Routing." With Direct Access, you can direct your Nasdaq stock orders to a variety of electronic communication networks (ECNs) and Market Makers (MMs) giving you a new level of flexibility, control, and responsibility. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 5

6 About Routing Channels Note: You must have StreetSmart Pro with QuoteView (formerly Level II) quotes to participate in Direct Access Trading. ECNs Electronic Communication Networks (ECNs) are order books that automatically match bids and offers. ECNs pair up buyers and sellers directly, eliminating the need for a "middle man." StreetSmart Pro Direct Access users have access to a variety of ECNs including: ISLD, INCA, BRUT, NTRD, ARCA, MKXT, and BTRD. Orders can be sent to other ECNs using SelectNet. Listed are the rules and explanations for each ECN to which StreetSmart Pro has Direct Access. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 6

7 Action Types, Order types, and Order Conditions During the specified trading times for each routing channel, Direct Access allows you to enter buy and sell orders for Nasdaq National Market (NNM), OTC, and Small Cap stocks. The table below shows a list of all the action types allowed with Direct Access. Action Types Buy Sell Cancel The change order function is not accepted when routing orders via Direct Access. Each routing channel has different order types, hours of operation, and order conditions. The table below shows a quick reference guide for each destination including the following information: hours of operation, maximum number of shares, order types, and order conditions. For more information about each destination, see About Routing Channels at the end of this manual. Drop Down Destination Type of Channel Hours of Operation Eastern Time Max Number of Shares Order Types Order Conditions ARCA Limit, ECN 8:00am- 8:00pm 100,000 (Archipelago) Market IOC BRUT Limit, ECN 7:05am- 6:30pm 100,000 (Brass LLC) Market IOC BTRD (Bloomberg) ECN 7:05am- 6:30pm 100,000 Limit IOC INCA (Instinet) ECN 7:00am- 6:30pm 100,000 Limit, Market ISLD (Island) ECN 7:02am- 8:00pm 50,000 Limit IOC, SUB MKXT (MarketXT) ECN 7:02am- 8:00pm 100,000 Limit IOC NTRD (NexTrade) ECN 8:00am- 6:00pm 100,000 Limit AON, Invisible SNET (SelectNet) MM/ECN 8:00am- 6:30pm 999,999 Limit Delta Limit MM/ECN 9:00am-6:30pm 999,999 Limit SOES (Small Order Execution System) MMs only 9:30am- 4:00pm Tier Limits Apply Limit, Market All Preference orders are automatically sent with a MAQ order condition. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 7

8 SuperSoes (option in dropdown is SOES) SuperMontage MMs only 9:30am- 4:00pm 999,999 MMs and Participating ECNs 9:30am- 4:00pm 999,999 Limit, Market Limit, Market Note: For descriptions of the routing channels, go to About Routing Channels or SuperMontage Order Routing. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 8

9 Order Execution via Direct Access Direct Access is Schwab s new trading technology that gives eligible clients more control over the routing of their orders. With Direct Access, you can direct your Nasdaq orders to a variety of Electronic Communication Networks (ECNs) and Market Makers (via SuperSoes/SOES and SelectNet). One of the major benefits of Direct Access trading is more trade execution choices. However, with more choices comes more responsibility. You are responsible for your own trading decisions. The Direct Access trading method will not protect you from sudden changes in the market or poor trading decisions. During the specified trading times for each routing channel, you may only enter buy and sell orders in Nasdaq National Market (NNM), over-the-counter (OTC), and Small Cap (SC) equities using Direct Access. Most MMs and ECNs only accept day limit orders with some exceptions, which are detailed later in this manual. Stop and stop limit order types and all orders for listed stocks and options are not eligible for Direct Access. However, you can still enter orders for these securities and order types using SmartEx. Note: During non-trading hours, the Direct Access routing options are not visible. SETTINGS > GENERAL Execution Settings Warning & Informational Messages StreetSmart Pro automatically provides Order Verification and Warning & Informational Messages related to your order. The default setting is active. Set Share Size to Open Position When you enter a quote for a security you hold, the number of shares you own automatically fill in. For example, if you enter a quote for IBM and you own 500 shares, it will display 500. To activate, go to Settings General and select Set Share Size to Open Position. Save Current Share Size Always Changes the default of 1000 shares to any quantity you choose. For example, if you prefer to trade in quantities of 2000 shares, you can change the default to However, this quantity amount can be changed if you change the amount from one stock to another. To activate, enter the number of shares you want into the quantity field. Go to Settings General and select Save Current Share Size Always. Default Island Orders to Immediate or Cancel* Automatically submits Direct Access orders to Island as Immediate or Cancel (IOC). If the order is partially filled, remaining shares in your order will cancel immediately. Default Market Maker Double Click to SOES* When a MM is double clicked, the order route is SOES. If not checked, double clicking on a MM will populate SelectNet. Delta Value* The amount to be added to or subtracted from the inside bid/ask price. If you are buying, StreetSmart Pro will send out your order at the current inside ask price plus the amount you set in the Delta Value. If you are selling, StreetSmart Pro will send out the order at the current bid price minus the amount set in the specified Delta Value. Price Increment Change the price increments controlled by the up/down arrows to any amount you choose. To activate, go to Settings General and select Price Increment. Enter the price increment you want. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version 2.1 9

10 Time Outs Data Feed SOES Auto Cancel* Auto Cancel times are expressed in seconds. The number of seconds that SOES orders are live before the system automatically cancels them. Regardless of your settings, SOES returns orders not filled after 90 seconds. SNET Auto Cancel* The number of seconds that SNET orders are live before the system auto cancels them. The default auto cancel time is 180 seconds (3 minutes). Enter the value, zero, to disable auto cancel. ECN Auto Cancel* The number of seconds that direct ECN orders are live before the system auto cancels them. The default auto cancel time is 180 seconds (3 minutes). Enter the value, zero, to disable auto cancel. Use Level I Bid/Ask Provides Level I quotes. Exclude Non-Refreshed Quotes Check to view Market Makers and ECNs that have refreshed their bid/ask during the day. An "L" will be displayed next to any Market Maker or ECN that has not refreshed its quote. Time & Sales (T&S) Trades Back Change the T&S trades back only if you want to see the previous Time & Sales trades when loading a new stock. It s recommended you leave this setting at 0 as it speeds up the data display in the Time & Sales. You can review up to 40 trades of previous T&S in one minute increments). Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

11 Order Verification The Direct Access routing choices also provide you with Order Verification and Warning & Informational Messages related to your order. These two settings are found in the General Execution Settings box and the default settings are checked to activate these important features. Note: The General Settings box includes additional features for Direct Access and other display settings. See Change General Software Settings for information about updates to the General Settings dialog box. The Order Verification in StreetSmart Pro applies to all orders regardless of whether you route your order to SmartEx or one of the Direct Access destinations. After you click on the Buy or Sell action buttons (when routing an order using a Direct Access channel), a pop-up window automatically displays your order so you can verify its accuracy before submitting it. The Order Verification window gives you: Details of your order Warning and informational messages Error messages related to the order Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

12 Trade Executions Options Note: QuoteView (formerly Level II) quote access is a pre-requisite for trading with Direct Access. StreetSmart Pro Direct Access gives you more trade execution options by allowing you to route your orders to ECNs and Market Makers. The graphic below shows the updated Trading window for Direct Access trading with SuperMontage options. Depending on the ECN or Market Maker that you select to route your order, you may be presented with more conditions to specify before your order is sent.. See SuperMontage Order Routing information regarding your Direct Access choices. Note: The Special Conditions (Spec Cond) box and Short and Save buttons are disabled because they are not allowed in Direct Access trading. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

13 Placing a Direct Access Order When placing an order using Direct Access, you may use one of a variety of ECNs, SOES /SuperSoes or SelectNet (Broadcast, Preference). When SelectNet is present in the order routing drop down, an input field appears allowing you to Preference you order to a specific MM or ECN. For more information about the types of SelectNet orders you can send, see Using SelectNet. Also, depending on the order route you select, the checkboxes allow you to further define your order s attributes. When you re ready to place a Direct Access order: Go to the Trading window, enter the symbol into the Symbol field and hit the Enter key on your keyboard. NOTE: If you don t hit the Enter key, the Trading window will not update quotes for the security you entered. The symbol field should be white. (If it is blue, the window has not been updated with the quote information for the new symbol.) Select the share size, limit price, and routing channel for your order. StreetSmart Pro will send a limit order unless you check the Market check box, if available, for the routing channel you have chosen. You may also select other variables depending on the channel selected. (See the Order Conditions Check Boxes section for more information.) If you wish to exit a position entirely, check the Sell All check box. Click the Buy or Sell buttons in the Trading window to verify or submit the order. Note: The Special Cond Checkbox and the Save and Short buttons are disabled because they are not available with Direct Access trading. To place Stop, Stop Limit order types, or orders with special conditions, use Smart Ex. If you wish to Sell Short, either use SmartEx or call your Schwab Platinum Broker. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

14 Order Conditions Checkboxes Each electronic communication network (ECN) has different order conditions. Checking the SUB box will mark your order as a Subscriber order when placing an order using the ISLD ECN. Checking the Market box will mark your order as a Market order when placing an order using the ECNs INCA, and ARCA. Checking the IOC box will mark your order as an Immediate or Cancel order when placing an order using the ECNs: ISLD, BTRD, ARCA, MKXT, and BRUT. Checking the AON box will mark your order as All or None order, and checking the Invisible box will mark an order as Invisible when placing an order using the ECN NTRD. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

15 Canceling Direct Access orders Open Direct Access orders can be canceled using the same procedure for SmartEx orders. Because of the speed of execution and the short life span of Direct Access orders, canceling these orders may not always be possible. Direct Access does not allow you to change your orders. If you change a SmartEx order, a pop-up box will appear prompting you to modify your order. Open Direct Access orders can be canceled using the same procedure for SmartEx orders. Because of the speed of execution and the short life span of Direct Access orders, canceling these orders may not always be possible. Direct Access does not allow you to change your orders. If you change a SmartEx order, a pop-up box will appear prompting you to modify your order. Direct Access Auto Cancel Settings Most Direct Access orders, while designated as day orders, are only active in the market place for up to 3 minutes in most cases. While each channel has its own rule regarding how long an order remains active until it is outed unfilled (see About Routing Channels), StreetSmart Pro provides an automatic order cancel feature for your Direct Access orders. This cancel feature may protect you in a fast market and will also provide you with protection in the event of a network or system outage. Auto cancel settings for SOES/SuperSoes, SelectNet, and all ECNs can be changed by going to the General pop-up box located in the Trading window under Settings General. See Trading Window Settings for more details about these important settings. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

16 SuperMontage Order Routing SuperMontage SM is Nasdaq's new display and order execution system designed to help reduce market fragmentation, provide best execution, expand the number of choices to Market Participants, and better handle the growth of the market. The order routing and execution segment of SuperMontage will gradually replace SuperSOES and SOES SM orders in three phases, with each phase making additional SuperMontage-enabled stocks available. All stocks, including Small Caps, are scheduled to be traded on SuperMontage by the end of November In the meantime, to tell whether a stock is trading on SuperSOES/SOES or SuperMontage, look at the order routing options for that stock. Overview SuperMontage system will attempt to match your order with the best price available at the time it is received. Orders cannot be posted to SuperMontage and therefore must be marketable. Odd lots are accepted, but will be grouped with other odd lots to create round lots before being executed. Hours of trading for Non-Directed SuperMontage orders are 9:30 a.m.-4:00 p.m. Eastern. Hours of trading for Directed SuperMontage orders are 9:30 a.m.-4:00 p.m. Eastern. Hours of trading for SelectNet orders are 9:05-9:30 a.m. and 4:00-6:30 p.m. Eastern. Hours of trading for SM Directed orders are 9:30 a.m.-4:00 p.m. Eastern. No Tier Limits. Unlike SOES, SuperMontage does not utilize a tier limit system. As such, tier limit restrictions are no longer applicable for any Nasdaq National Market Securities (NMS) or Nasdaq SmallCap Market SM Securities (SC). Over The Counter Bulletin Board stocks cannot be traded via SuperMontage order routing or by CyberTrader software. Please call your Schwab Platinum Broker for assistance with OTC BB trades. Order Types SuperMontage order routing replaces SuperSOES/SOES and updates SelectNet to create three new order types within the SuperMontage family. Non-Directed Orders This order type is similar to SuperSOES in that orders are sent as market or marketable limit without specification of a particular Market Participant (i.e. non-preferenced). Also, Market Participants are obligated to comply with the Firm Quote Rule, which means they must execute an order presented to it at a price at least as favorable as its displayed quote, up to its quoted size. This is also called a Liability order. Trading activity is restricted to the inside bid/ask or better. In other words, SM Non-Directed orders must either be sent as Market or, if sent as Limit, the limit price has to be at or better than the inside price. Non-Directed Preferenced Orders StreetSmart Pro allows you to preference specific market participants. Note that if sending a SM Non-Directed Preferenced order, your preferenced participant must be posting at the inside price. To preference a market participant on a SuperMontage order, click on the quote in QuoteView (formerly Level II) that you wish to preference. Doing so will load the price and the Market Participant ID into appropriate fields. If the preferenced participant is at the inside when the Preferenced Order is next in line to be executed, the system will automatically execute up to the amount of the displayed and reserve size of the preferenced Market Participant. Any unexecuted portion of the order will be rejected. SelectNet/SM Directed Orders The only difference between SM Directed and SelectNet orders is that Directed orders are available during market hours and SelectNet orders are available in Extended Hours sessions. Both are sent to a Market Participant that you specify. Both require that your order be at least 100 shares greater than the size of the quote of the Market Participant to which the order is directed. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

17 Both require a 5 second waiting period before the order can be canceled. SuperMontage, SelectNet, SOES, Nasdaq National Market, and Nasdaq SmallCap Market are registered trademarks of the Nasdaq Stock Market Inc. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

18 Other SuperMontage Features Non-Attributed Orders (SIZE) Market Makers and ECNs can now post to QuoteView (formerly Level II) anonymously by sending Non-Attributed orders to the market. Non-Attributed orders are displayed in the Level II montage with the SIZE identifier. For each price level, all nonattributed orders are aggregated under this identifier. While the make-up of a real SIZE order is not available, it is important to understand how the non-attributed postings are achieved. In the chart below, you see a non-attributed posting of 4000 shares. To the right, you can see the Attribution that the SIZE order is composed of. If your order is filled by a non-attributed participant, you will see the participant's ID when the transaction is complete. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

19 SelectNet/SM DIRECTED Order Handling SelectNet /SuperMontage SM Directed sends orders directly to Market Makers and ECNs, either directly or broadcast to all market participants at once. Order share sizes must be 100 shares over the size the Market Maker is posting. Otherwise your order may be rejected. For example, if a Market Maker is posting 900 shares and you wish to purchase 1000, you may send your order for If the Market Maker is posting 1000, you must send your order for 1100 or find a Market Maker who is posting 900. No counterparty is obligated to fill SelectNet/Directed orders. There is no tier limit on a SelectNet/Directed order. If your order is directed to a Market Maker at its posted price, it has 15 seconds to either fill the order, reject the order, or move off of the price. Orders cannot be cancelled for 5 seconds after being sent (the Messages Window will display how many seconds remain from the time the order was sent as you try to cancel it). The 100-Share-Above rule does not apply to preference orders routed to ECNs, to orders in SmallCap securities or orders sent outside standard market hours (9:30 a.m. to 4 p.m. EST). SelectNet /SuperMontage SM Directed orders can also be submitted away from the inside in lieu of the 100 shares over the size the Market Maker is posting requirement. Hours 9:00 a.m. to 6:30 p.m. Eastern Time Default Auto-Cancel times SelectNet/SM Directed orders have a default auto-cancel time of 180, which means the order will remain live for 180 seconds (3 minutes). Older accounts may have different timeout parameters. Go to the Stock Box Settings General window to change the default Auto-Cancel times. SuperMontage and SelectNet are registered trademarks of the Nasdaq Stock Market Inc. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

20 Level II Views QuoteView QuoteView SM is nearly identical to the traditional Level II montage, showing each Nasdaq participant s best bid and ask. Nasdaq SuperMontage quotes are in upper-case and integrated ECN book quotes are in lower-case. Other non-nasdaq quotes are noted with an asterisk (*). SuperMontage, Nasdaq, QuoteView, are registered trademarks of the Nasdaq Stock Market Inc. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

21 ARCA (Archipelago) General Information: Trading Hours 8:00 a.m. to 8:00 p.m. for Limit orders. Maximum share size per order: 100,000. Odd lots allowed. If a better price is available, it will target such price. Minimum decimal increment in order price:.001. Day order available if Auto Cancel time is set to 0. StreetSmart Pro default cancellation time: 180 seconds. All ARCA orders will be cancelled at 8:00 p.m. ET. IOC (Immediate or Cancel) order condition available. Market order condition available (check the Market field to make it a Market order. Otherwise, default is a limit order. The Market checkbox will be visible in the Trading window once ARCA is chosen as the order route. ARCA book available to StreetSmart Pro users. ARCA Order Routing There are two different types of ARCA orders: Limit and Market. Limit Orders Orders will search QuoteView (formerly Level II) for ARCA. If ARCA is not available, it will split among available participants (if necessary) within the limit price, set by the trader. Because ARCA has direct access to ISLD and INCA, it will then search for ISLD and INCA. If there is a partial match or no match at all, it will search for other ECNs (using SNET) and Market Makers (using SuperSoes). If there is no fill, ARCA will post on QuoteView (formerly Level II). As with ISLD, your price may not cross or lock the market. Market Orders Orders will send the total order to Nasdaq QuoteView (formerly Level II) participants at the inside market, based on time priority. It will send the full requested amount to one participant at a time (vs. dividing the order based on how much each counter-party is displaying). It will first search for ARCA, ISLD, INCA, then any available ECN (using SNET) and lastly, Market Makers (using SuperSoes). Criteria for routing orders: % fill history, time, and size shown. Trading hours: 8:30 a.m. to 5:15 p.m. ET. Market orders are not accepted after 3:59 p.m. ET. Notes: According to ARCA, sending an order as an ARCA "market" order in a fast market can result in a slower fill at a worse price than a limit order. Keep in mind that if ARCA is routing to any ECN (with no direct access to) it will use SNET, which means you will be unable to cancel your order until it has been live for at least 10 seconds. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

22 Orders going to Nasdaq QuoteView (formerly Level II) participants at the inside market will be based on time priority. They WILL NOT split among participant display. Splitting Orders - Splitting an order among available participants refers to splitting orders according to the number of shares a particular Market Maker or ECN is displaying. Example1: If you sent a Limit order to buy 2000 shares of a particular stock at 18.17, it would split the order by sending 900 shares to NDBC, 100 to GSCO, and 1000 to SHON. Example 2: Conversely, if you send a Market order to buy 2000 shares of a particular stock at 18.17, it would NOT split the order. It would send the full 2000-share request to NDBC. This would not be to the trader s advantage in a fast moving market/stock, per ARCA. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

23 ARCA (Archipelago) Beginning in June 2002, the Electronic Communication Network (ECN) that Charles Schwab & Co. uses for Extended Hours Trading, the REDIBook ECN, started to merge its operations with the Archipelago ECN. During the course of this merger, individual stocks will steadily migrate from being traded on the REDIBook ECN to trading exclusively on the Archipelago ECN and Archipelago Exchange (during this time Archipelago will also be moving listed securities from the ECN to the exchange). Charles Schwab & Co. will ensure that the Extended Hours quotes you receive will always come from the ECN or exchange to which your order will be routed. Additionally, Schwab will ensure that your order is routed to the correct location. For regulatory reasons, orders for listed securities routed to the Archipelago exchange will not become eligible for execution until 8:00 AM ET. Schwab clients will still be able to enter Pre-Market Orders for all securities at 8:05 PM ET the day prior to the trading session and over weekends and holidays. OTC securities and listed securities still trading on the REDIBook ECN during the transition will continue to become eligible for execution at 07:30 AM ET. Once the migration of trading to Archipelago is complete, all listed securities will begin trading in the pre-market session at 08:00 AM ET. During the transition, you should monitor Order Status, as well as the quotation and trading activity, to determine whether trading in a given listed security began at 07:30 or 08:00 AM ET. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

24 BRUT (Brass Utility LLC) General Information: Trading Hours 7:05 a.m. to 6:30 p.m. ET. Max number of shares per order 100,000. BRUT does not accept any odd lot orders and it will not breakup orders. Orders must be in multiples of 100. Partial orders that are left as odd lots will be cancelled. BRUT does NOT search for price improvement. Day orders are available if Auto Cancellation time is set to 0. StreetSmart Pro default cancellation time: 180 seconds. IOC (Immediate or Cancel) conditional is available. BRUT does not accept order prices with fractions lower than BRUT Order Routing Order goes directly to the BRUT order book. If there is no match, order will post on QuoteView (formerly Level II) (must not cross or lock the market). Does NOT route to other ECNs or Market Makers. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

25 BTRD (Bloomberg Tradebook) General Information: Trading hours: 7:05 a.m. to 6:30 p.m. ET. Maximum number of shares per order 100,000. BTRD does NOT accept odd lot orders. Minimum decimal increment possible in order price:.01. Will search for price improvement. Day order available if Auto Cancellation time set to 0. StreetSmart Pro default cancellation time: 180 seconds. IOC (Immediate or Cancel) order condition available. The BTRD order book is not available for viewing in StreetSmart Pro. BTRD Order Routing Order goes directly to the BTRD order book. If there is not match, order will post on QuoteView (formerly Level II) (must not cross or lock the market). Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

26 ISLD (Island) General Information: Trading hours are 7:02 a.m. to 8:00 p.m. ET. Maximum number of shares per order: 50,000. ISLD orders will search for price improvement if available. Day order available if Auto Cancellation time set to 0. StreetSmart Pro default cancellation time: 180 seconds. ISLD Order Types Immediate or Cancel (IOC): By checking IOC, if only a portion of your order fills (partial fill), all remaining shares of the order will cancel. Subscriber or "Non-Display": Orders that are tagged Subscriber or Non-Display will post in the ISLD order book, but NOT in the QuoteView (formerly Level II). Auto Subscriber Order: Orders that are sent with crossed or locked prices will be automatically resent as Subscriber Orders (appearing in the book and not on QuoteView (formerly Level II)). Nasdaq cancels all ECN orders that cross or lock the market. As of February 1, 2001 ISLD no longer accepts "Subscriber-Only" orders onto the book for a group. Subscriber-Only orders mean that if you send an order for one of the securities on the list tagged as a "subscriber order," it will not post in the QuoteView (formerly Level II) or in the ISLD order book. It will, however, be considered "invisible" to be matched if possible. For more detailed information, and a listing of participating securities, visit the Island website and ISLD Order Routing Orders sent will go directly to the ISLD order book. If your price is the best available, and it is not crossing/locking the market, it will post in QuoteView (formerly Level II). Subscriber orders will only post in the book unless your order is for a security that falls under the SEC rules discussed above. If there is no match, your order will post on QuoteVIew (formerly Level II) (exceptions to follow). Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

27 MKXT (MarketXT) General Information: Trading hours are from 7:02 a.m. to 8:00 p.m. ET. Maximum amount of shares possible per order: 100,000. Odd lots (orders not divisible by 100) ARE accepted. Minimum decimal increment on order price: Day order available if Auto Cancellation time set to 0. StreetSmart Pro default cancellation time: 180 seconds. MarketXT order book available for viewing in StreetSmart Pro. MKXT Order Routing Order routing algorithm searches for the best execution price, evaluating variables such as price and latency. It may route your order directly to other ECNs or to other market participants (e.g., SelectNet). Shares not filled via the algorithm are posted to the MKXT order book. The Algorithm is available daily beginning at 09:30 AM ET. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

28 NTRD (NexTrade) General Information: Trading hours are from 8:00 a.m. to 6:00 p.m. ET. Maximum number of shares per order 100,000. Odd lots are NOT allowed. If a better price is available, it will target that price. Minimum decimal per order: Day order available if Auto Cancellation time set to 0. StreetSmart Pro default cancellation time: 180 seconds. INV (Invisible order) condition is available. AON (All or None) condition is available. The NTRD order book is not available for viewing in StreetSmart Pro. NTRD Order Routing Order goes directly to the NTRD order book and searches for a match. If the client s price is not available in the book, it will post on QuoteView (formerly Level II) as NTRD. If there is no match, the order will post on QuoteView (formerly Level II) (must not cross or lock the market). Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

29 SelectNet SelectNet (SNET) is a Nasdaq-owned and operated order delivery system. Unlike SuperSoes, SelectNet does not automatically execute orders. It allows users to directly send bids or offers to Market Makers and ECNs. General Information: Trading Hours: 8:00 a.m. to 6:30 p.m. ET. Three separate sessions: 8:00 to 9:30 a.m.; 9:30 a.m. to 4 p.m.; and 4 to 6:30 p.m. ET Limit on number of shares per order: 999,999. Pre and/or Post Market orders follow the same rules required during regular market hours. All orders must remain live for a minimum of 10 seconds before being able to cancel. StreetSmart Pro is set to automatically cancel SNET orders after 3 minutes. To change the Auto Cancellation go to the Trading window > Settings > General. The auto cancel settings are located at the bottom of that window. Types of SelectNet Orders There are different types of SelectNet orders: Broadcast, Preference (via ECN or Market Maker), and Delta Limit. Using SelectNet As mentioned previously, you can send three different types of SelectNet orders (Broadcast, Preference, and Delta Limit.) The sections below further define each routing option. As mentioned previously, you can send three different types of SelectNet orders (Broadcast, Preference, and Delta Limit.) The sections below further define each routing option. Broadcast Orders An order routed to any MM/ECN who is currently displaying a quote at your Limit price or better. There is no obligation on the part of the market participants to fill broadcast orders. Preference Orders For NNM securities (between- 9:30am to 6:30pm ET), you may preference your order to a specific market maker only if you send a non-liability order. For orders sent to a Market Maker in an NNM stock during standard market hours (9:30 a.m. to 4:00 p.m. ET), you must submit an order for at least 100 shares more than the size displayed in the QuoteView (formerly Level II) quote you are targeting. Alternatively you can increase your ask price or decrease your bid price by.01 or a cent or more on either side. When you are ready to use SelectNet to preference an order: Click on SelectNet in the Order Routing drop down. The Preferencing box will appear below the Limit Price box. Click on the Market Maker or ECN you want to target in QuoteView (formerly Level II) display. (The symbol appears inside the Preferencing box.) When necessary, adjust the quantity to equal 100 shares or more than the quantity displayed in that MM QuoteView (formerly Level II) quote. Click the Buy or Sell buttons in the Trading window. Note: For more information about Preferencing an order, go to About Routing Channels. Note: To route an order to the Attain (ATTN) or GlobeNet (GNET) ECNs, you must use a preferenced SelectNet order. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

30 Delta Limit Orders A Delta Limit order is a StreetSmart Pro feature that allows you to send out a SelectNet broadcast order at the inside bid minus/ask plus a specified "delta value." This is a Limit order versus a Limit or better order. Also, this feature is most useful in fast moving markets. While Delta Limit is another option available in the Routing Channel drop down, using this option will send your order to SelectNet and will be subject to SelectNet s rules. To place a Delta Limit order, select Delta Limit as your routing designation. For more information about Delta Limit orders, go to About Routing Channels. Note: When you place a Delta Limit order, the limit price displayed in the Order Verification window will reflect the delta value. See About Routing Channels for information on Delta Values. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

31 Changing Delta Values The Delta Value is the change amount that is automatically applied to the limit price used for your order. The order will then be submitted at a current inside Bid/Ask -/+ Delta Value. See Change General Software Settings for information about updates to the General Settings dialog box. When you are ready to change the Delta Value: From the Trading window, choose the Settings menu and select General. (The General box displays). Find the Delta Value box in the Execution Settings section. Enter the desired amount in the Delta Value box. This amount can be entered either in fraction or decimal format. Click OK to apply the changes. The amount designated will be added to any Ask Limit price or subtracted from a Bid Limit price when the Delta Limit selection is made in the Routing Channel drop down. All Delta Limit orders are routed to SelectNet and are subject to their order handling rules. Note: The default value is.01. Some traders prefer to change this setting to.001 allowing you to set a price that is just slightly better than the market. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

32 More Information About Delta Limit Orders SelectNet Delta is a StreetSmart Pro feature and not an industry term. 999,999 maximum number of shares per order. The Delta Limit routing choice will send your order as a SelectNet Broadcast order. Like other SelectNet orders you must wait 10 seconds before canceling. SelectNet does not give price improvements and "or better" treatment. Changing Delta Value To set or change the Delta Value: Go to Settings in the Trading window and select General. In the bottom of the General box, input the Delta Value. The default value is.01. Some traders prefer to change this setting to.001 allowing you to set a price that is just slightly better than the market. Changing Delta Value Example: If you want to buy MSFT, the inside offer is By setting the delta limit to.001 you would be sending an order to buy at , just slightly better than the inside offer. The same holds true if you wish to sell and the inside bid is With a delta limit of.001, you would be sending an order to sell at Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

33 Broadcast Orders Broadcast orders are represented by an asterisk (*) in the preference field that appears in the Trading window when SelectNet is chosen. There is no obligation on the part of the market participants to fill broadcast orders. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

34 Preference Orders Market Makers and ECNs may be preferenced. To preference a Market Maker or ECN, the Market Maker/ECN abbreviation must be inserted in the Preference field located below the limit price. Clicking on the Market Maker or ECN on the QuoteView (formerly Level II) area will also automatically insert the Market Maker or ECN symbol. Preferencing ECNs It may not to your advantage to use SelectNet to route to an ECN to which StreetSmart Pro already has access. To access the ATTN and GNET ECNs, you must have a preferenced SelectNet order sent to you. Preferencing Market Makers One of the goals of introducing SuperSoes is to discourage retail traders from using SelectNet. As a result, the routing rules for SelectNet Preference orders have changed to decrease its attractiveness, particularly for market maker orders. All SNET orders which are preferenced to a Market Maker must be for 100 shares more than what that Market Maker is posting on QuoteView (formerly Level II). Or, the price entered must be at least.001 cent above the offer or.001 cent below the bid. By doing this, you are making your order a non-liability order that the Market Maker is not required to fill. For example, if you want to preference GSCO who is posting at least 1000 shares at 50, then your order must be for 1100 shares at 50. If you do not outsize your order it will be rejected by Nasdaq. It is possible to get filled for 1100 shares. This rule applies, regardless of whether the limit price is marketable or away from the market. Market Makers are no longer obligated to fill the trader s SelectNet order or move off the price. If you wish to preference a particular Market Maker for the number of shares he is posting, and avoid having your order rejected, you must adjust the price of your order above or below what he is posting in QuoteView (formerly Level II). For example, if GSCO is posting 1000 shares at and you wish to buy only 1000 shares from him, you may adjust the price to 15.75, or below. By doing this, you are sending a non-liability order that the Market Maker is not obligated to fill. It depends on how much you are willing to pay for the 1000 shares, unless you are willing to send the order for 1100 at the currently posted price of The 100-Share-Above rule does not apply to preference orders routed to ECNs, to orders in SmallCap securities or orders sent outside standard market hours (9:30 a.m. to 4 p.m. ET). Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

35 About SOES and SuperSOES SOES and SuperSoes are Nasdaq-owned and operated order execution systems that route orders to the best Market Maker bid or ask. SuperSoes is used for NNM stocks, while SOES continues to be used for Nasdaq Small Cap and OTC equities. A given stock is eligible for either one or the other, but not both. The SOES routing channel will automatically enter your order into either SOES or SuperSoes as appropriate. They both accept marketable limit or market orders and may send either type of order to multiple Market Makers to be collectively filled. When a SuperSoes order is submitted, Nasdaq checks the inside price (the inside bid in the case of a sell order, and the inside ask in the case of a buy order) to determine if the security is trading at $5 or greater, or less than $5. If the security is $5 or greater, SuperSoes will reject orders that are priced more than 25% away (in either direction) from the inside price. If the security is less than $5, SuperSoes will reject orders that are priced more than 20% away (in either direction) from the inside price. Since ECNs are not full SOES participants, SOES orders that are sent while an ECN is at the inside market will be rejected. In addition, SOES Limit orders that are sent to a market maker, who is at the inside market, and then after the order being sent is "bumped" by an ECN (i.e., where the ECN establishes a new, better NBBO), will cancel. SOES Market orders that are sent to a Market Maker who is at the inside market, and then after the order being sent is bumped by an ECN, will go into a "queue" for up to 90 seconds. It will automatically resend the order if the ECN leaves the inside market or a market maker joins the ECN or establishes a new NBBO within 90 seconds. SOES orders will reject after 90 seconds if not filled. SOES orders are filled on a first-in, first-out basis in price order, meaning orders are queued based on the time they were received first come, first served. Any unfilled SOES orders will cancel after 90 seconds, unless you have set your auto-cancel default to a different time period. See Trading Settings in Part One for more information about the auto cancel feature. Trading hours for SOES orders are 9:30am to 4:00pm Eastern Time. SOES orders may be entered beginning at 7:30 am ET, but will not be executed until trading begins at 9:30 am. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

36 SOES Small Cap & OTC equities traded directly with the Market Makers using SOES will route differently than NNM Securities. Orders for these equity types will continue to use the SOES order routing rules that, prior to the introduction of SuperSoes, applied to all Nasdaq equities. If an order is filled through SOES, you cannot trade that same security, in the same direction for a period of 5 minutes after the order is filled.for example, you cannot buy 1000 shares of FNCM using SOES, then buy 1000 additional shares of FNCM 4 minutes after the first order was filled.. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

37 SuperSoes SuperSoes is Nasdaq s order entry system used for accessing Market Makers exclusively and is for NNM equities only. General Information Trading Hours: 9:30 a.m. to 4:00 p.m. ET. Max number of shares per order 999,999. Odd Lots are accepted. It will search for price improvement if available. Odd Lots are accepted. Orders may be canceled at any time. It will search for price improvement if available. All SuperSoes orders are routed to Market Makers. SuperSoes orders are limit-or-better. Time restrictions no longer apply when adding to your position, (elimination of the two-minute rule). Market Makers have.05 to.08 seconds to fill orders. SOES orders are filled on a first-in, first-out basis in price order, meaning orders are queued based on the time they were received first come, first served. Default StreetSmart Pro Auto Cancel Time is set to "0". Regardless of the current Auto Cancel Time in StreetSmart Pro, all SOES orders are cancelled after 90 seconds. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

38 SuperSoes Orders (when an ECN is at the Inside) Orders may be sent even when there is an ECN at the inside market. Orders will go into a queue for 90 seconds until the ECN is no longer at the inside. SuperSOES limit orders sent to a Market Maker who is at the inside market and is then bumped by an ECN will go into the queue for 90 seconds. Orders will automatically resend from the queue (within the specified 90 seconds). After 90 seconds, unexecuted orders will be cancelled. Example: Client sends out an order to buy 1000 shares of XYZA Stock. Note: There is an ECN (INCA) at the inside. The QuoteView (formerly Level II) Ask display shows: MMID Price Qty INCA GSCO FLTT The order for this example will route as follows: The order would go into the queue for 90 seconds. If the ECN leaves, the order will then route to GSCO, or which ever Market Maker comes into the best inside price. If the ECN does not leave after 90 seconds, the order will cancel. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

39 Odd-Lot Orders on SuperSOES Bucket Orders: Odd lots are placed into a "bucket". All odd lots are combined to make an even lot and are then posted. Example: A trader sent out an order to buy 750 shares of XYZA stock. The QuoteView (formerly Level II) Ask display shows: MMID Price Qty INCA GSCO FLTT shares will go to the Market Maker GSCO. The remaining 50 will go into the Odd-Lot bucket to be combined with other odd-lot orders. Once combined into a round lot amount (i.e., 100), the order is routed to the Market Maker at the inside. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

40 SuperSOES Splitting Orders An order routed by SuperSoes, which exceeds the amount that the inside Market Maker is posting, will be split among other Market Makers at that price level according to the amount of shares they are posting. For example: A trader sends out an order to buy 3000 shares of XYZA stock. The QuoteView (formerly Level II) Ask display shows: MMID Price Qty NITE GSCO FLTT The order will route: 1000 to NTTE 1000 to GSCO 1000 to FLTT Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

41 Orders Priced at the Spread Orders placed at prices below the inside Ask and above the inside Bid will be rejected, this is considered the spread. Example: As the following figure below shows, an order to Buy priced at would be in the spread. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

42 About Market Maker Reserve Amounts Reserve amounts are the shares that a Market Maker has set aside to sell (or buy). Market Makers must post a minimum of 1000 on QuoteView (formerly Level II) if they have a reserve amount. Market Makers must dip into reserve amounts if necessary to complete a client s order. Example: A trader sends out an order to buy 3000 shares of XYZA stock. The QuoteView (formerly Level II) Ask display shows: MMID Price Qty NITE GSCO The order will route: 1000 shares to NITE 1000 to GSCO NITE will then be targeted again for the remaining 1000 Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

43 Partial Fills An order routed through SmartEx or Direct Access may have partial fills. With SmartEx, Schwab will continue attempting to fill the order until it s completed. Regardless of the number of executions it takes to fill the order, there is only one commission charge and one order number assigned to it unless you change your order (changed orders require a new order number). With Direct Access, it is your responsibility to make sure your order is filled to your satisfaction. Partially filled orders require a decision on your part to either enter an additional order for the remaining shares or not. You may incur additional commissions if you decide to enter a new order and it executes. All orders and executions can be viewed in the Order Status window or in the Detail Window if there was more than one fill. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

44 Order Handling and Day Trading Rules The following table lists a description of some order handling and day trading rules and procedures for each routing channel. You must be mindful of these rules when placing Direct Access orders. RULE DESCRIPTION 5 second SelectNet rule A SelectNet order must remain outstanding for 5 seconds before you may cancel it. Short sale/up tick rule A given equity security must be on an uptick (i.e. the last sale price must be higher than the security s immediately preceding sale price) before a trader can short the stock. For preferenced SelectNet orders to market makers during normal market hours in NNM securities, traders must make their orders either: SelectNet rule for Preferencing orders 100 shares greater than the preferenced Market Maker is displaying, or at least a.001 cent difference from the Market Maker's quote with an AON or MAQ order. StreetSmart Pro automatically appends your SNET Preference order with the MAQ condition. Locked and Crossed markets Nasdaq system will generally reject orders that would lock or cross the displayed NBBO. A locked market happens when the best displayed bid matches the best ask price. A crossed market occurs when the best displayed bid is higher than the lowest ask price. Non marketable orders that would normally display in QuoteView (formerly Level II), but lock or cross the market will, in most cases, be rejected by Nasdaq. Margin buying power rule (See Margin Requirement Table) Traders must hold a certain percentage of equity for any margin purchase of shares. With Schwab, traders must have at least 35% equity with any margin trades and for certain securities, this amount may be higher. For persons with more than four round trip trades in a five-day period, there may be different restrictions. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

45 Two Minute Rule Examples: The following are some examples to better explain the two-minute rule: Scenario: Stock WXYZ, with a SOES tier limit of 1000 CANNOT: Buy 1000 shares of WXYZ through SOES, and then buy 1000 more shares through any other execution avenue, within two minutes. CANNOT: Buy 1000 shares of WXYZ through any type of execution, and then buy 1000 more shares through SOES within two minutes. CANNOT: Buy 1000 shares of WXYZ through SOES, sell 1000 shares of WXYZ through SOES, then short 1000 shares of WXYZ within two minutes through any method of execution. CANNOT: Buy 1000 shares of WXYZ through SOES, sell 1000, then short 1000 of the same stock through SOES. CANNOT: Short 1000 shares of WXYZ through any type of execution, Buy 1000 shares through SOES then Buy 1000 more of the same stock through any type of execution. CAN: Buy 1000 shares of WXYZ through SOES, sell 1000 through ISLD (or any other avenue of execution other than SOES), then short 1000 through ISLD (or any other avenue of execution other than SOES). CAN: Short 1000 shares of WXYZ through SOES then Buy 2000 of the same stock through any avenue of execution other than SOES (position reversal). CAN: Buy 500 shares of WXYZ through SOES, and then buy 500 more shares of WXYZ through SOES or any other avenue of execution, within two minutes (keep in mind, this is not exceeding the SOES tier limit). CAN: Buy 1000 shares of WXYZ through SOES, sell 1000 shares of WXYZ through any avenue (in other words, close the position), and buy 1000 shares of WXYZ through SOES or any avenue of execution, within two minutes. CAN: Buy 1000 shares of WXYZ through any type of execution other than SOES, Buy 1000 more through any type of execution other than SOES, and so on as long as SOES is not part of any of the executions. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

46 Margin Requirements The following table describes the margin requirements for the Margin Buying Power rule. These requirements apply to your overall account and are not affected by having QuoteView (formerly Level II) or Direct Access. Pattern day trader definition Requirement/Rule New time to meet day trade margin calls: five business days Definition Anyone who executes four or more round-trip intraday trades within five business days, provided that the number of trades is more than 6% of the total trades in the account during that period. Clients who are pattern day traders must comply with the new day trade margin requirements when day trading. See example in Day Trading Buying Power section. The time to meet day trade margin calls is now five business days from the date the margin deficiency occurred (reduced from seven business days). New non-withdrawal time period: minimum two business days. Funds delivered to meet day trading margin calls or minimum equity requirements must remain in the account for a minimum of two business days or longer in accordance with Schwab's other hold times for incoming funds. Minimum margin equity requirement: $25,000 Pattern day traders must now have a minimum of $25,000 margin equity. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version

47 Day Trading Buying Power (DTBP) and Margin Call For information about Day Trading Buying Power (DTBP) and Margin Calls, please consult your Schwab Platinum team for more information. Also, please contact your Schwab Platinum team for more information regarding: NYSE excess figure, which is updated once a day before the market opens. When your margin account contains other types of securities such as options, municipal bonds, or treasuries. Charles Schwab & Co., Inc., Nov StreetSmart Pro Version