BROWSE

Fast Market Rule

What is 'Fast Market Rule'

A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current. The purpose of the fast market rule is to maintain an orderly market during a time of chaos. Under the rule, market makers must turn off their computerized trading systems, called black boxes. They do not have to quote share prices based on the London Stock Exchange's screen prices while the fast market is in effect, but they are still required to make firm quotes.

Explaining 'Fast Market Rule'

Fast markets are rare and are triggered by highly unusual circumstances. For example, the London Stock Exchange declared a fast market on July 7, 2005, after the city experienced a terrorist attack. Share prices were falling dramatically and trading was exceptionally heavy.


The fast market rule is made possible because circuit breakers are not used. Circuit breakers allow exchanges to temporarily halt trading during sharp price declines to prevent panic selling. With a circuit breaker, the sharper the decline, the longer trading is halted.


Further Reading




Q&A About Fast Market Rule


How does a fast market differ from a circuit breaker?

A circuit breaker halts trading in response to sharp price declines, while a fast market allows for trading outside quoted ranges.

What are some examples where orders would not have been executed under this rule?

Orders would not have been executed under this rule when they were entered in excess of 100 shares; when they were canceled within 5 minutes; when they had incorrect information due technical errors

Why do you not use circuit breakers with the Fast Market Rule?

Circuit breakers allow exchanges to temporarily halt trading during sharp price declines to prevent panic selling. With a circuit breaker, the sharper the decline, the longer trading is halted.

How does this rule affect investors?

This rule allows investors to get better prices for their trades.

When would you declare a fast market?

You would declare a fast market when there are highly unusual circumstances.

What is the purpose of the fast market rule?

The purpose of the fast market rule is to maintain an orderly market during a time of chaos.

What is the Fast Market Rule?

The Fast Market Rule is a rule that requires brokers to execute orders at the best available price.

Is there any exception to this rule?

Yes, there are exceptions. For example, if an investor wants to buy or sell more than 100 shares of stock, then the broker can take up to five minutes before executing the order. If a market maker has posted a quote in Nasdaq's system and it gets canceled or modified within five minutes, then the market maker will be able to cancel or modify its quote without being subject to discipline by Nasdaq's Supervisory staff. Also, if an order is entered into Nasdaq's system with incorrect information such as price and size due to technical error on behalf of Nasdaq or another exchange member then that order may not be subject to discipline by Nasdaq's Supervisory staff. In addition, if an order is entered into Nasdaq's system with incorrect information because of human error on behalf of a broker-dealer firm then that order may not be subject to discipline by NASD Supervisory staff unless it was done intentionally or recklessly disregarding rules and regulations set forth by NASD. Finally, if an order is entered into Nasdaq's system with incorrect information because of human error on behalf of a customer (i.e., retail) then that order may not be subject to discipline by NASD Supervisory staff unless it was done intentionally or recklessly disregarding rules and regulations set forth by NASD."

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