FINRA Rule 5320
FINRA Rule 5320 (Prohibition Against Trading Ahead of Customer Orders) generally prohibits a member firm that accepts and holds a customer order from trading for its own account at terms that would satisfy the customer order, unless the member immediately thereafter executes the customer order at the same or better price than it traded for its own account. Described below are certain exceptions to this rule and an explanation of how Janney Montgomery Scott, LLC (“Janney” or the “firm”) will handle those exceptions. Please note that consistent with existing regulatory guidance, “not held” orders are outside the scope of the rule.
Large Orders and Institutional Account Exceptions
Large orders (orders of 10,000 or more shares with a total value of $100,000 or more), and/or orders from institutional accounts (including, accounts with total assets of at least $50 million) are exempted from the requirements of Rule 5320. Janney will generally work such orders in accordance with customer instructions. While working such orders, Janney may trade for its own account at prices that would satisfy the customer order.
“No-Knowledge” Exception
Janney maintains Rule 5320 internal controls known as information barriers between its trading units. The information barriers are designed to prevent one trading unit from having knowledge of customer orders held by a different trading unit. With these barriers in place, one trading unit may hold a customer order while another trading unit, including the market making trading unit, executes an order for a Janney account that would satisfy the customer order.
If you object to the way Janney is handling your orders, as described above, please contact your Janney representative.
FINRA Rule 5270
FINRA Rule 5270 (Front Running of Block Transactions) prohibits FINRA member broker-dealers from executing orders to buy or sell certain securities or related financial instruments when the member has material, non-public information concerning an imminent block transaction in those securities, related financial instruments, or securities underlying the related financial instruments prior to the time information concerning the block transaction has been made publicly available or has otherwise become stale or obsolete. The rule permits certain exceptions to this prohibition, including transactions that are undertaken to fulfill or facilitate the execution of a client block order.
Janney may rely on the exceptions to Rule 5270 while effecting block orders for its clients. In connection with the handling of your block orders, Janney may engage in hedging, offsetting, liquidating, facilitating, or positioning transactions (“risk-mitigating transactions”) that may occur at the same time or in advance of your order, and these activities may have an impact on market prices. Beyond these risk-mitigating transactions, Janney will refrain from any conduct that could disadvantage or harm the execution of your orders or that would place the firm’s financial interests ahead of yours.
Unless you inform Janney otherwise in writing (“opt out”), we will conclude that you understand that Janney may engage in risk-mitigating transactions in connection with your orders as described above. If you object to the way Janney is handling your orders, please contact your Janney representative.
“Not Held" Institutional Orders
If a customer designates an order for an institutional account (an “institutional order”) as “not held” or does not designate the order as “held” or “not held,” Janney will handle the order on a “not held” basis. If a customer designates an institutional order as “held,” Janney may reject the order.
Janney believes that handling an institutional order on a “not held” basis allows us to “work” customers’ orders using our judgment and discretion as to the price at which, the time when, or the manner in which such orders will be represented on, exposed to, or executed by a venue to achieve a high-quality execution. Janney appreciates the ongoing dialogue with our customers concerning the handling of their orders. If you have any questions, or do not wish for your orders to be handled in the above-referenced fashion, please contact your Janney representative.
Payment for Order Flow
With regard to retail customer order flow, Janney does not receive any monetary payment, service, property or other benefit that results in remuneration, compensation, or consideration to Janney from any broker or dealer, national securities exchange, registered securities association, or exchange member for execution, including, but not limited to: research, clearance, custody, products or services; reciprocal agreements for the provision of order flow; adjustment of Janney’s unfavorable trading errors, offers to participate as underwriter in public offerings; stock loans or interest accrued thereon; discounts, rebates, or any other reductions of or credits against any fee to, or expense or other financial obligation of, Janney routing such retail customer order flow that exceeds that fee, expense or financial obligation. With regard to institutional customer order flow, Janney may receive remuneration in the form of rebates from its algorithmic trading services providers. However, any such remuneration is generally offset by fees paid by Janney to its algorithmic service providers for services provided to Janney in the execution of institutional customer orders.
Order Routing/Execution Disclosures
SEC Rule 605 - Disclosure of Order Execution Information
SEC Rule 605 requires that Janney publicly disclose, on a monthly basis, standardized information concerning its handling and execution of orders. To view Janney’s published Rule 605 disclosures, please refer to the following web site: https://www.janney.com/wealth-management/disclosures-agreements/disclosures-agreements-service/equities/order-routing-execution-disclosure.
SEC Rule 606 - Disclosure of Order Routing Information
Under SEC Rule 606, Janney is required to disclose, on a quarterly basis, the identity of the market centers to which it routes a significant percentage of its orders. Janney is also required to disclose the nature of its relationships with such market centers, including any internalization or payment for order flow and reciprocal business arrangements.
Under SEC Rule 606(b)(1) Janney will provide details on National Market System (“NMS”) stock and option non-directed orders in NMS securities including the identity of the venue and the time of execution for the prior six months to clients.
Under SEC Rule 606(b)(3) Janney will upon request of a client that places not held orders, provide specific disclosures regarding routing and execution of such orders for the prior six months.
To view Janney’s published Rule 606 disclosures, please refer to the following web site: https://www.janney.com/wealth-management/disclosures-agreements/disclosures-agreements-service/equities/order-routing-execution-disclosure.
Net Trading Disclosure for Institutional Customers
FINRA Rule 2124 (Net Transactions with Customers) defines a “net trade” as a principal transaction in which Janney, as a market maker or block positioner, after having received an order from a customer to buy (sell) an equity security, purchases (sells) the equity security at one price from (to) another broker-dealer or another customer and then sells to (buys from) the original customer at a different price. On occasion, Janney, as a registered market maker or block positioner, may execute your orders as principal on a net basis, as described above. In such cases, the trade price reflected on the confirmation will be the net price of the trade.
In addition, Janney may route your orders as agent to another broker-dealer that may execute your orders as principal on a net basis, as described above. In such cases, the trade price reflected on Janney’s confirmation to you will be the gross price of the trade (exclusive of any commissions, mark-ups, and mark-downs charged by Janney).
If you have no objection to Janney executing orders on a net basis, as described above, you need not respond to this disclosure. If you prefer that the firm not execute your orders on a net basis, please contact your Janney representative.
Indications of Interest and Trade Advertising
Janney uses certain service providers to advertise executions and indications of interest (“IOIs”). Indications of interest are expressions of trading interest that contain one or more of the following elements: security name, side of the market, size, and/or price. When publishing IOIs, Janney will adhere to the guidance issued by regulators and service providers, including the way Janney will designate an IOI as a “natural” IOI. Janney will designate an IOI as “natural” to represent interest on an agency basis (i.e., customer order in hand). You may opt out of Janney advertising your executions and/or publishing IOIs based on your trading interest, to the extent it is represented by Janney on an agency basis, by contacting your Janney representative.
Alpha Capture Systems
Janney representatives communicate trade ideas to certain third-party alpha capture systems (“ACSs”). Under certain circumstances, Janney representatives might deem it appropriate to share trade ideas, in whole or in part, with you and other users on one or more ACSs. As a result, trade ideas provided to you through those platforms may also be shared with other customers that participate in those platforms. In addition, as a registered broker-dealer, Janney reserves the right to review any trade idea submission and reject, close, or modify any such submission. Janney may today, or in the future, do business or enter into transactions on a principal basis for any issuer(s) or financial instrument(s) to which such trade idea(s) directly or indirectly relate, including in response to the trade idea(s). Janney employees may personally hold investments or enter transactions for any issuer(s) or financial instrument(s) to which such trade idea(s) directly or indirectly relate, including in response to the trade idea(s).
If you have any questions, or to the extent that you object to the way the firm is handling the use of trade ideas that are submitted to ACSs, please contact your Janney representative.
Extended Trading Hours
Under FINRA Rule 2265 (Extended Hours Trading Risk Disclosure), Janney may not accept an order from a customer for execution during extended trading hours (as defined therein) without disclosing the potential risks involved in such extended-hours trading. “Extended hours trading” means trading outside of “regular trading hours.” “Regular trading hours” generally means the time between 9:30 a.m. and 4 p.m. Eastern Standard Time. You should consider the following points before engaging in extended hours trading, such as:
- 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 trading 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 trading hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price when engaging in extended hours trading than you would during regular trading 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 trading hours, or upon the opening the next morning. As a result, you may receive an inferior price when engaging in extended hours trading than you would during regular trading 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 trading 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 trading hours. Similarly, important financial information is frequently announced outside of regular trading 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.
Order Handling During Volatile Market Conditions
You should keep the following considerations in mind when routing an order in a security to Janney during periods of high volatility in the security’s prices or trading volumes:
- Delays: High volumes of trading during such periods, whether at market opening or intra-day, may cause delays in execution and executions at prices and sizes significantly away from the market price and size quoted or displayed at the time the order was entered. Quoted or displayed share sizes may also be smaller during such periods, making it harder to execute larger share orders.
- Market Order Prices and Limit Order Liquidity: While you may receive a prompt execution of a market order during such periods, the execution may be at a price significantly different from the current quoted price for that security. While you receive price protection for a limit order because it is executed only at the specified limit price or better, there is the possibility that the order will not be executed during such periods.
- Limited Access: You may suffer market losses during such periods if systems problems result in an inability to place buy or sell orders. Janney will make reasonable efforts to communicate with clients as appropriate in the event of such system problems.
- Trading Halts: In the event the primary listing exchange for the security or FINRA declares a trading halt in the security or across all NMS stocks, Janney may be prohibited from trading the security during such periods.
- Limit Up/Limit Down Price Bands: During such periods, Janney may be prohibited from trading the security at prices below or above the security’s Lower or Upper Price Bands, respectively, disseminated pursuant to the Regulation NMS Plan to Address Extraordinary Market Volatility.
Market Access
SEC Rule 15c3-5 (Risk Management Controls for Brokers or Dealers with Market Access) requires broker-dealers that access or provide access to exchanges or alternative trading systems to establish, document, and maintain a system of risk management controls that are reasonably designed to manage the financial, regulatory, and other risks in connection with market access. Janney has developed controls that may pause or reject select orders that exceed certain predetermined risk parameters. For certain paused orders, Janney will determine if it is appropriate to send the orders to the market based upon a variety of factors, including, but not limited to, order size, price, and volume considerations.
Regulation NMS Order Protection Rule
Rule 611 of Regulation NMS (“Reg NMS”) (commonly known as the Order Protection Rule) establishes intermarket price protection against trade-throughs for all NMS stocks, as defined by Reg NMS, by requiring broker-dealers to attempt to access any better priced protected quotes on automated trading centers when executing at prices that would trade through those protected quotes. (An automated trading center is one that can, among other things, immediately and automatically respond to an immediate-or-cancel order and update its quotes. A protected quote is one that is displayed by an automated trading center, is disseminated pursuant to an effective national market system plan and is the best bid or best offer on that automated trading center.) Rule 611 contains several exceptions, which are designed to make the rule’s intermarket price protection as efficient as possible. One of those exceptions is referred to as the Intermarket Sweep Order (“ISO”) exception. An ISO is a limit order for an NMS stock that is identified with an ISO designation when routed to an automated trading center and, simultaneously with the routing of that limit order, is accompanied by one or more additional limit orders (also marked as ISOs) that will execute against the protected quotations on those automated trading centers. The ISO designation alerts the receiving automated trading center that the order sender itself is executing against any better priced protected quotations at other automated trading centers. A broker-dealer is obligated to send ISOs when the price of a transaction between the broker dealer and a customer, or a transaction between two or more customers, is outside of the current national best bid and offer (“NBBO”) for the NMS stock. If, after sending ISOs to other automated trading centers and receiving fills / partial fills back (or receiving no response after a reasonable period of time), there are still shares of the order left to be executed, the broker-dealer can then execute the remainder at the original order price. A trade for which the ISO exception is being used can be executed in two different ways: (i) at the same time ISOs are routed (the “print and-sweep” approach); or (ii) After ISOs are routed, responses are received, and the original size of the order is reduced to reflect any fills that result from the ISO routes (the “sweep-and-print” approach). Under the print-and-sweep approach, the broker- dealer would complete the customer’s order at the time the ISOs are routed and would take any subsequent ISO fills into its inventory. Under the sweep-and-print approach, the customer would receive the benefit of any better prices obtained by the ISOs. In general, Janney will adopt a sweep-and-print approach (as described above) when executing your orders, which means that any better-priced fills will be allocated to your order. Janney’s equity trading desk, however, may use a print-and sweep approach for its order flow. If you have no objection to Janney’s decision to use a print-and sweep approach for ISOs handled by Janney’s equity trading desk, you need not respond to this disclosure. If you have any questions regarding this approach, please contact your Janney representative. In the event that Janney does not receive a response to an ISO within a reasonable period of time, Janney can consider the ISO to be lost, and any subsequent fills resulting from such lost ISOs will generally be allocated to Janney’s account and taken into inventory.
Business Continuity
Janney Montgomery Scott maintains a business continuity policy and plan to respond to any disruption of business operations. The plan safeguards our employees’ lives, securely protects both firm and client data and information, and ensures that procedures are in place to quickly assess, recover, and resume operations—allowing Janney clients to continue to transact business.
Our plan includes the following:
Backup technical and operational facilities in diverse geographic locations, redundant data centers, alternate standby and processing facilities, secure remote network access, vendor redundancies, and telecommunications provided through diverse carriers.
Continuous systems testing to ensure that critical activities, applications, and processes are functional.
An electronic notification system to communicate with employees through diverse methods, and secure remote network access only for authorized individuals.
A complete test of our business continuity plan occurs at least once a calendar year, incorporating intermittent systems, personnel, and operational testing occurring during the course of the year. Further information regarding the firm’s business continuity plan is available upon request.
Anti-money Laundering (AML)
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, Janney will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents. You hereby expressly consent to allowing Janney to contact credit bureaus and/or other third parties to verify the information you have provided on the Client Application.
Legal entity and institutional clients may be required to provide their employer identification number or tax identification number, corporate formation documents, business license, identification of principal owners and control persons, and ultimate beneficial ownership information.
Canadian Clients - International Dealer Exemption
In accordance with National Instrument 31-103 (Registration Requirements and Exemptions), Janney makes the following representations:
- As Janney is trading with you in reliance upon the international dealer exemption from the dealer registration requirement under NI 31-103, Janney is not registered in Canada and is subject to trading restrictions, including, among other things, that Janney is only permitted to trade “foreign securities” with “permitted clients” resident in Canada. A foreign security is a security issued by an issuer incorporated, formed, or created under the laws of a foreign (i.e., non-Canadian) jurisdiction or a security issued by a government of a foreign jurisdiction. This serves to put you on notice that you should only place orders with Janney for foreign securities in accordance with NI 31-103.
- Janney’s main office is located in Philadelphia, Pennsylvania, USA.
- There may be difficulty enforcing legal rights against Janney because it resides outside of Canada and all of its assets are situated outside of Canada.
- The below list contains Janney’s agent for service of process for each province in Canada.