This document is part of UBS' ongoing efforts to provide transparency to clients about its business practices related to US equity products for Institutional Clients. These procedures are current as of April 2020 and are subject to change at the discretion of UBS.
If you need further information or have additional questions, please contact your UBS Salesperson.
General Order Handling & Best Execution. In order to fulfill our best execution obligation, we use reasonable diligence to ascertain the best market for customers' orders so that the resultant price is as favorable as possible under prevailing market conditions. When handling and executing customer orders, we consider a number of factors, such as: the customer's order objectives and constraints, our understanding of the current order book, security price, order size, trading characteristics of the security, speed of execution, the expected cost and difficulty of executing an order in a particular market, transaction costs, the potential for price improvement, and the reliability of and our historical experience routing to liquidity sources.
UBS closely monitors the quality of internal and external liquidity sources when accessing external liquidity from the broader marketplace. UBS operates an ATS ("UBS ATS") for crossing orders in U.S. equities and generally preferences UBS ATS as a routing destination when consistent with the Firm's best execution obligation. The UBS ATS (registered with the SEC) facilitates the matching of non-displayed orders in National Market System securities, which includes retail and institutional orders, orders from UBS Trading Desks, as well as order flow from other broker dealers, market makers and other active traders . If you wish to apply crossing restrictions to your orders in the UBS ATS or opt out of trading in the UBS ATS, please contact your UBS Salesperson. Additional information about the UBS ATS, including FAQs, Specifications, and Form ATS can be found on the UBS ATS website, www.ubs.com/ATS. If you would like more information about the UBS ATS, please contact your UBS Salesperson.
Business Continuity Planning and Market Disruptions. UBS Securities LLC is responsible for maintaining and carrying out business continuity plans in the event of disruptions. These plans enable the Firm to continue performing critical business functions, such as the facilitation of customer transactions and other capital markets activities, in the event of localized or industry-wide crises, emergencies, pandemics or other events that result in adverse market conditions. Examples of actions the firm may undertake include, but are not limited to, the following:
- Relocating personnel to designated recovery locations and/or permitting certain personnel to work remotely from home;
- Implementation of bespoke controls and supervisory protocols reasonably designed to ensure compliance with applicable rules and regulations; and
- Deployment and reallocation of personnel and resources depending on the nature of the event and its impact to the Firm's various business lines.
While the Firm has taken significant steps to carefully develop and implement these plans, we cannot guarantee that the Firm's systems will function at normal capacity during a disruption or the Firm will be capable of processing the volume of activity during the then-existing market conditions. As a result, increased latency and other factors may negatively impact execution quality and the ability of the Firm to accept certain types of orders, but the Firm will continue to use reasonable diligence to satisfy its regulatory obligations, including its duty of best execution.
Additionally, the Firm has adopted procedures governing the handling and execution of customer orders during extreme market conditions consistent with FINRA guidance. If the Firm invokes its extreme market conditions procedures, customers will be informed and provided details concerning the securities and activities impacted.
For more information on the Firm's business continuity plans, please visit our Business Continuity Planning website.
Information Barriers and Access to Customer Identifying Order/Execution Information. As stated in UBS's Code of Conduct, UBS will only share customer details with personnel who have a bona fide business "need to know" (as defined by UBS policy) to serve customers' best interests. .
All orders (including high touch originated orders) routed through the UBS Electronic Trading Infrastructure are monitored by personnel on the UBS Electronic Trading Desk to ensure the Firm's algorithms and Smart Order Router ("SOR") operate effectively. The Electronic Trading Desk also monitors for orders paused or rejected by UBS market access and other risk management controls. To help UBS clients maximize liquidity opportunities within UBS, the Electronic Trading Desk monitors orders handled by UBS algorithms for potential crossing opportunities. In situations where a potential crossing opportunity is identified (e.g., high touch client order to sell using VWAP algorithm and offsetting low touch client order to buy using POV algorithm), an agency sales trader on the Electronic Trading Desk could initiate contact with the client to discuss the potential crossing opportunity. If you would like to opt out of this service, please contact your UBS Salesperson.
When handling facilitation orders in ETFs that contain non-equities components (i.e., corporate bonds, US Treasuries, precious metals, etc.), the UBS Equities ETF trading desk will typically share the clients' order information with personnel on the relevant UBS Fixed Income, Rates & Credit trading desk to ensure UBS properly prices and hedges such transactions.
UBS's Central Risk Book Desk ("CRB Desk") facilitates orders from customers (e.g., portfolio risk bids, ETF risk trades, and orders for customers that leverage the firm's internalization offering), and helps to centrally manage the market risk that UBS trading desks take on when trading with customers as principal/dealer/market maker in cash equity securities and related derivatives. For example, the CRB Desk may internally facilitate a UBS Trading Desk by acquiring a position established in connection with a customer facilitation by such desk and then holding or trading out of the risk position. Furthermore, principal order activity originating from other UBS Trading Desks (e.g., cash equities hedge for an OTC derivative) is eligible for internalization by the CRB Desk. To assist the CRB Desk in efficiently pricing risk capital offered to customers through principal facilitations, the CRB Desk is provided with certain customer identifying information on a "need to know" basis. More specifically, for customer child orders that are internalized by the CRB Desk or eligible for internalization (i.e., orders that are acknowledged), CRB Desk personnel will receive basic, non-client identifying order and execution information in real time and aggregated information on a historical basis. For directed customer order flow internalized by CRB, CRB personnel will have access to certain client identifying information.
Besides information available to CRB in connection with internalization, the CRB Desk will have access to order and execution information on a T+1 basis for high-touch single stock cash equities customer order flow facilitated in any capacity by UBS. Customer related information is made available to the CRB Desk in a controlled manner to enable the CRB Desk to appropriately manage its risk in a commercially prudent manner and provide UBS customers with fair and competitive risk prices.
Requests for Order Information. UBS provides order information to third parties to the extent required to process, settle or clear client transactions or for the purpose of complying with regulatory obligations. Consistent with its practice of cooperating with regulators, UBS provides information on client activities to regulators upon request, where validly made in connection with inquiries, investigations or examinations, or as otherwise required by law or regulation. UBS also provides information when required or subpoenaed, as part of administrative, civil or criminal proceedings.
Pre-Trade Controls (SEC Market Access Rule 15c3-5). UBS subjects all orders to certain financial and regulatory risk management controls before submitting them to market centers in compliance with the SEC Market Access Rule 15c3-5. The Firm's financial risk management controls include, but are not limited to: credit & capital threshold checks, price checks, and erroneous and duplicative order controls. If a customer order triggers one of these pre-trade controls, UBS may either reject or execute it on a delayed basis after further review. Where UBS reviews your order, a UBS employee may contact you to request more information about your transaction to verify that the transaction was not erroneous.
Order Routing Disclosure (SEC Rule 606). UBS is required to publicly disclose its order routing and execution practices on a quarterly basis, available at https://www.ubs.com/global/en/investment-bank/regulatory-directory/sec-reports.html . As a customer2, you may request from your UBS Salesperson a written report detailing specific information for the previous six months about the routing and execution of your orders, including the market centers to which your orders are routed.
Payment for Order Flow ("PFOF"). UBS does not accept PFOF from other broker-dealers. UBS accepts payment in the form of rebates from market centers that use either the "Maker-Taker" or inverted fee model. These payments generally offset fees for accessing orders or for other services provided by market centers. Any net payments are retained by UBS and are used to reduce overall expenses in providing services to clients. UBS makes routing decisions on the basis of the quality of execution and not on the receipt of payments. However, UBS considers costs, including rebates and fees, in comparing market centers with comparable performance.
Held/Not Held Orders. Generally, client orders will be handled as "not held" (including all orders sent to a UBS algorithm) unless they are sent to UBS via direct market access or the client instructs otherwise (i.e., a "held" order). A “not held” order is one in which the client gives UBS discretion as to the time and price at which to execute the order. A “held” order is when the client instructs UBS to immediately submit the order for execution at the best available market prices, subject to size and limit price constraints. When handling a “not held” order, UBS uses professional judgment to seek the best possible overall quality of execution under the circumstances in accordance with the order instructions. Please see the General Order Handling & Best Execution section above for the factors UBS takes under consideration when handling a "not held" order.
Duration of Orders. UBS deems all received orders as "day" orders unless otherwise designated, and any unfilled portion of an order will expire at the end of the trading day (4:00 p.m. EST). UBS accepts good-till-date ("GTD") orders and good-till-cancelled ("GTC") orders. GTD and GTC orders will remain open until executed, cancelled by the client that placed the order, or cancelled by UBS. UBS maintains GTC orders in equities on file for one year only. If a GTC order has not been executed or cancelled during this period, it will automatically expire at the conclusion of the trading session of the one-year anniversary of the order's original entry date.
Clearly Erroneous/Obvious Errors (FINRA Rule 11890). If a transaction is eligible for review under FINRA Rule 11890 and related equities and options exchange rules, UBS will contact its client for the purpose of gathering information to confirm an obvious error for any term of the underlying order, such as price, number of shares or other unit of trading, or identification of security, prior to filing. UBS will file a Clearly Erroneous petition where the Firm has a factual basis for believing the trade is clearly erroneous and the execution price is outside the clearly erroneous price bands.
Trading Ahead of Customer Orders (FINRA Rule 5320). FINRA Rule 5320 generally provides that a broker-dealer handling a customer order in an equity security is prohibited from trading that security on the same side of the market for its own account at a price that would satisfy the customer order, unless the firm immediately executes the customer order up to the size of its own order at the same or better price. However, Rule 5320 also provides exemptions that permit broker-dealers to trade for their own account provided certain conditions are met. UBS may trade for its own account while handling a customer's order without providing price protection where the order is from an "institutional account"3 or where the order is large-sized (i.e., 10,000 shares or more and greater than $100,000 in value). You may opt-in to Rule 5320 protections with respect to all or any portion of your order, or on an order-by-order basis, by providing UBS with written notice outlining your dissent of UBS trading while handling your orders.
Additionally, Rule 5320 permits UBS to trade for its own account provided the principal trading desk has "no knowledge" of a customer order that would trigger price protection. Consistent with the "no knowledge" exemption under Rule 5320, UBS has implemented internal controls, including information barriers, to prevent principal trading desks from obtaining knowledge of orders outside of their trading unit.
Front Running of Block Transactions (FINRA Rule 5270). FINRA 5270 prohibits a broker-dealer from trading for its own account while taking advantage of knowledge of an imminent customer block transaction. There are exemptions to this prohibition, one of which permits UBS to trade for its own account for the purpose of fulfilling or facilitating the execution of a customer's block transaction. UBS is also permitted to engage in hedging when the purpose of the trading is to fulfill the customer order and UBS has disclosed such trading activity to the customer. This hedging activity may coincidentally impact the market prices of the securities or financial instruments the customer is trying to buy or sell, however UBS endeavors to conduct this trading in a manner designed to limit market impact and consistent with its best execution obligations.
Order Protection Rule (Reg NMS Rule 611). The Order Protection Rule requires trading centers to have procedures to prevent the execution of trades in NMS securities at prices inferior to protected quotes (i.e., "trade-throughs"), subject to certain exceptions. One exception allows firms to use an Intermarket Sweep Order ("ISO") to attempt to access better priced protected quotes when executing at a price that would trade through protected quotes. When UBS sends ISOs in the course of facilitating client orders, UBS will provide the client with the benefit of any better priced ISO executions UBS receives.
Indications of Interest ("IOIs"). UBS may publish indications of interest ("IOIs") related to client orders, which generally include security name/symbol, size, price parameters and side. UBS disseminates IOIs through certain service providers and will adhere to the guidelines issued by these service providers when labeling IOIs as "natural". Natural IOIs may represent customer agency orders or firm customer commitments to trade, UBS interest established as the result of principally facilitating a customer order, and hedging activity in relation to customer order activity, among other scenarios. Regardless of the underlying type of trading interest, UBS policy requires IOIs to be identified and tagged according to the relevant service provider guidelines.
Please note that these service providers may modify their IOI guidelines from time to time. Clients may opt out of having their order flow advertised by UBS through IOIs.
Microcap Securities. Microcap Securities. UBS has identified certain categories of microcap and low-priced securities to pose a higher risk for market manipulation and/or where the sale of such securities could result in an unregistered offering. UBS has elected to systematically block and reject transactions in microcap securities that fall within "high risk" categories, such as:
- OTC Pink securities;
- "Caveat Emptor" securities, as defined by OTC Markets Group which designates a symbol as such when there is a public interest concern associated with the company, security, or control person which may include but is not limited to a spam campaign, questionable stock promotion, investigation of fraudulent or other criminal activity, regulatory suspensions, or disruptive corporate actions;
- OTC securities issued by shell companies that have no or nominal operations that lack transparency and pose a higher risk for money laundering.
- "Grey Market" securities for which broker-dealers are not willing or able to publicly quote because of a lack of investor interest, company information availability or regulatory compliance; and
- Securities on the DTC's Deposit Chill or Global Locks lists and securities suspended by the SEC pursuant to Section 12(j) or 12(k) of the Securities and Exchange Act of 1934.
As part of UBS' due diligence review of client orders in microcap securities, the Firm may reach out to the client for more information about the client's transaction, the client's relationship with the issuer (e.g., insider/affiliate), as well as how and when the client acquired the security. The "high risk" categories above are not exhaustive; UBS may at its discretion block transactions in microcap and low-priced securities that do not fall within the categories identified above but display other factors that indicate the transaction and/or the security may be higher risk.
Net Transactions/Guaranteed Orders. A “net” transaction is one in which UBS, after receiving a client order to buy (sell) a security, buys (sells) the security at one price from (to) another party and then sells to (buys from) the client at a different price, with the difference representing the Firm’s compensation for executing the transaction. You must consent to any trade executed by UBS as a net transaction. A “guaranteed order” is one in which UBS has agreed to execute, as principal, a trade with a client in a specified or unknown security at a price based on an agreed-upon benchmark or other pricing formula, such as the closing price or volume-weighted average price of the security. When UBS accepts a guaranteed order, UBS may also engage in hedging, facilitation, or other risk-mitigating trading activity, which could potentially impact the market for the security involved in the transaction. As noted above in the section discussing FINRA Rule 5270 and the Firm's practices thereunder, UBS endeavors to conduct its hedging activity in a manner designed to limit market impact and consistent with its best execution obligations.
Additionally, in connection with guaranteed price commitments for customer sell orders, UBS will generally treat such transaction as an unconditional and binding contract to purchase the underlying equity securities for purposes of Rule 200(b)(2) of Regulation SHO.
Market Buy Orders in IPO Stocks. UBS does not accept held market orders for the purchase of shares issued in an initial public offering ("IPO") of a security until secondary market trading in that security has commenced. Clients may submit to UBS "held" limit orders and "not held" orders before and after secondary trading has commenced.
Directed Market Orders. In order to employ reasonable efforts to minimize potential market impact arising from the handling of market orders, UBS will apply marketable limit prices to client's directed market orders. The Firm seeks to balance its best execution obligations while ensuring orders do not disrupt price formation or create undue market impact.
Risk Bids. If a client requests UBS to bid on a basket or program of securities, and such bid is accepted, the Firm will execute the basket based on the agreed upon terms. In anticipation of winning a bid and in order to minimize the Firm's risk, UBS may engage in bona fide hedging or positioning activity prior to execution of the order. Prior to UBS engaging in such hedging or positioning activity, UBS will obtain the client's consent. UBS may attempt to hedge its anticipated position in the basket by trading in the same security or related derivatives product on the same side of the market as the basket. While UBS will make all efforts to minimize the market impact of its hedge, the underlying agreed-upon benchmark price may be affected by the Firm’s trading activity. Furthermore, even if UBS does not win the bid, a hedge placed in anticipation of winning the bid might affect the price the client receives from the broker-dealer selected to execute the order.
Please note that UBS treats accepted risk bids on baskets or programs of securities as guaranteed orders, and will handle them in the manner described in the "Net Transactions/Guaranteed Orders" section above.
Stop and Stop Limit Orders. Clients may designate whether their stop and stop limit orders are triggered off the quote or the last sale ("stop price"). When the stop price is triggered and a stop order is triggered, it will be treated as a market order and executed at the current market price. The price at which a stop order is executed may be very different from a client's specified stop price.
While a client may receive a prompt execution of a stop order, during volatile market conditions, the execution may be at a significantly different price from the stop price if the market is moving rapidly. The price of a stock can also move significantly in a short period of time during volatile market conditions and trigger the execution of a stop order. Clients should understand that if their stop orders are triggered under these circumstances, they may sell at an undesirable price even though the price of the stock may stabilize during the same trading day.
The activation of sell stop orders may add downward price pressure on a security. If triggered during a precipitous price decline, a sell stop order also is more likely to result in an execution well below the stop price.
Placing a limit price on a stop order may help mitigate some these risks. By using a stop limit order instead of a regular stop order, a client may receive additional certainty with respect to the price received for the stock if the stop is triggered. However, clients should be aware, because UBS cannot sell for a price that is lower (or buy for a price that is higher) than the limit price selected, there is a possibility that the stop limit orders will not be executed at all.
Transactions in Foreign Equity Securities and Foreign Currencies. If a client transacts in a foreign equity security and chooses to settle the transaction in a currency different than the currency in which the transaction was executed, UBS will effect a foreign currency transaction for that client's account to facilitate settlement of the transaction unless instructed otherwise. The foreign currency transaction is generally executed by a UBS affiliate on a principal basis and the affiliate stands to earn a profit from the foreign currency transaction in the form of a spread.
Fees Related to Depositary Receipts. UBS is typically assessed a fee by a depositary bank or cross book broker where UBS creates or converts a depositary receipt in the course of facilitating an order for a client. This fee will be passed through to the client as part of the transaction when a client order for depositary receipts is facilitated by trading the underlying local shares.
Extended Hours Trading. “Extended hours” are hours before and after the official market hours of the primary listing exchange (typically 4:00 a.m. to 9:30 a.m. EST and 4:00 p.m. to 8:00 p.m. EST). Clients who would like their orders executed during this time period must specifically designate the order as eligible for extended hours trading. Clients should contact their UBS Salesperson to ensure they are set up to transact in the extended session, and for information on the times UBS systems are operational during these sessions. Additionally, clients should be aware of the following risks associated extended hours trading:
- Risk of Lower Liquidity. Liquidity refers to market participants' ability 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. 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, thus, client 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, a client's order may only be partially executed, receive no execution, or may receive a price that is inferior to the price it may have received during regular market hours.
- Risk of Changing Prices. The price 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, a client may receive an inferior price, or a price that is inferior to the price it would have received 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 systems dealing in the same securities. As a result, a client may receive a price that is inferior to the price the client may have received during regular market hours.
- 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. During extended hours trading, these announcements may occur without a halt in trading. Without the benefit of a market halt, and in combination with the lower liquidity and higher volatility than during normal market hours, a client order may be significantly impacted by an exaggerated and unsustainable effect on the price of a security.
- Risk of Wider Spreads. The spread refers to the difference in the available prices at which a client can buy or sell a security. 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.
Purchases Prohibited under SEC Regulation M (Rule 105). Regulation M prohibits a person from purchasing securities in a registered offering if that person has sold short the same securities during the five (5) day period before pricing of the offering (i.e., the restricted period) or the period of time between the initial filing of the related registration statement and ending with the pricing of the distribution, whichever is shorter. Therefore, a client must not request an allocation from UBS in an offering if the client is subject to this prohibition under Regulation M.
Short Selling under SEC Regulation SHO.
- Order Marking. Rule 200 of SEC Regulation SHO requires every sell order must be marked as "long" or "short." It is the client's responsibility to properly mark sell orders sent to UBS to comply with Rule 200. In accordance with Reg SHO, sell orders may only be marked "long" to the extent of the seller's net long position. Furthermore, when placing sell long orders with UBS, the client represents that the client owns the security and can be reasonably expected to deliver that security no later than settlement date.
- Locate Requirement. Rule 203 of SEC Regulation SHO prohibits UBS from accepting a short sale order in any US equity security unless it has been documented that there are reasonable grounds to believe that the security can be borrowed by settlement date to make delivery (i.e., a "Locate"). For short sale orders sent to UBS, the client must obtain and indicate in their order instructions a Locate source for the full order quantity. Where deemed necessary, UBS may require additional information regarding the client's Locate source. A Locate provided by UBS is not a confirmation or guarantee that UBS has borrowed or will be able to borrow the security to make delivery on the required settlement date.
- Mandatory Buy-In. Under Regulation SHO Rule 204, UBS may be required to effect a market buy-in of any short or long sale transaction that results in a fail to deliver on settlement date. Should UBS execute a buy-in on a client's short or long sale, the client's trading activity in the subject security either executed or cleared through UBS on that trade date must end the day either net flat or net long.
Sales in Unregistered, Restricted and/or Control Securities. Clients seeking to sell stock originally issued pursuant to an exemption from registration (sometimes referred to as "restricted stock") or that could be deemed "control stock" based on the client's relationship with the issuer must notify their sales coverage and receive UBS' approval before placing the order with UBS. UBS must conduct certain due diligence on a pre-trade basis prior to executing an order to sell securities that are subject to resale restrictions.
As part of the Firm's due diligence process, UBS may ask for information regarding your relationship to the issuer, details pertaining to any restrictive legends, the methodology through which the shares were acquired, the period of time you have held the shares, and other information pertaining to the status of the shares. Furthermore, UBS will likely require you to sign a representation letter that confirms the same. If UBS is unable to perform this diligence process, it will not execute your order to resell restricted securities. This due diligence process requires your timely cooperation, and a lack of responsiveness will delay the proposed transaction.
Furthermore, the manner in which restricted securities are sold and the trading venues used will vary depending upon the nature of the restrictions and the applicable resale limitations. As a result, the price at which your order is executed may be impacted.
If you place an order to sell restricted securities and fail to notify your UBS coverage representative prior to doing so, you have breached our protocol, and the timely settlement of your transaction may be disrupted. Moreover, given our ongoing regulatory obligations, UBS may not be able to accommodate subsequent requests to provide the Broker's Representation Letters that are generally required for the settlement of restricted stock resales. Consequently, you may be forced to cover any sale of restricted securities to prevent settlement fails and the commencement of a buy-in.
Designated Market Maker Parity on NYSE. NYSE rules permit Designated Market Makers (“DMM”) establishing or increasing their positions to trade on parity (i.e., to “split prints”) with orders in the trading crowd, provided the DMM announces their intention to do so and no objection is made by brokers representing orders in the crowd. When executing clients' orders on the NYSE floor, UBS floor brokers will generally permit a DMM to trade on parity with a client's order for some or all the executions associated with filling that order, as long as such permission is consistent with its duty of best execution and the DMM’s request is made in accordance with NYSE Rule 108. If you object to UBS permitting a DMM to trade on parity with your order(s) represented on the NYSE floor, please advise your UBS Salesperson in writing.
Large Trader (SEC Rule 13h-1). A Large Trader is an entity having discretionary control over transactions in NMS securities equal to or exceeding: (1) 2 million shares or US $20 million during any calendar day; or (2) 20 million shares or US $200 million during any calendar month. If a client is a Large Trader, the client must provide UBS with its Large Trader Identification Number(s) ("LTID(s)") and identify its related accounts. UBS is required to assign its client an Unidentified LTID if UBS determines that the client qualifies as a Large Trader based on trading activity effected through UBS but has not provided the firm with an LTID.
Options Related. The following topics are specific to option orders.
- Option Orders Executed Using Tied Hedge Procedure. When handling an option order of 500 contracts or more on a client's behalf, UBS may buy or sell a hedging stock, security futures or futures position following receipt of the option order but prior to announcing the option order to the trading crowd. The option order may thereafter be executed using the Chicago Board Options Exchange’s tied hedge procedures. These procedures permit the option order and hedging position to be presented for execution as a net-priced package subject to certain requirements. For further details on the operation of the procedures, please refer to Chicago Board Options Exchange Rule 6.74.10.
- Solicited Order Mechanisms on ISE and CBOE. When handling an order of 500 options contracts or more on a client's behalf, UBS 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 UBS 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. UBS 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 UBS Salesperson in writing so that UBS 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/publications/risks/riskchap1.jsp or ask your UBS Salesperson for a copy.
- Uncovered Options Writers. FINRA Rule 2360(b)(16)(E) requires UBS to develop, implement and maintain specific written procedures governing the conduct of such business which include establishing the following minimum client account standards:
a. Total Estimated Annual Income: $250,000
b. Net Liquid Assets: $1,000,000
c. Prior Investment Experience: At least 1 year of options trading
d. Investment Objective: Speculation
e. Minimum Net Equity in account: $50,000
Venue Identifiers. UBS will send client the MIC of the execution venue where the execution occurred unless instructed otherwise by the client. If the MIC is unknown, UBS will send "XOFF."
UBS Trading Scenario. As part of our efforts to continuously improve our algorithmic trading offering, UBS has introduced a Trading Scenario framework (also known as 'A / B scenarios') for evaluating enhancements to our algorithmic trading product. The framework allows UBS to assess new features in a live production environment by separately allocating to scenario A and scenario B a percentage of client order flow using a pre-defined weighting. While UBS intends for the new features being implemented and analyzed to improve execution quality, success is not guaranteed and will be determined by actual results. By the very nature of this process, scenario A and scenario B results will be different, and one scenario may generate execution quality results worse or better than its companion scenario.
UBS operating procedures have been updated to address situations where A / B scenarios are in use for a platform enhancement. The UBS Trading Scenario framework is subject to the same oversight, analysis and governance forums that presently operate in the Electronic Trading business. These include the Best Execution Committee, the Regional Liquidity Meeting, and the Electronic Trading Approval Committee. For more information, please contact your UBS Salesperson.
IMPORTANT: By default, ALL client algorithmic orders will be included in the UBS Trading Scenario framework and subject to A / B scenarios. Clients may opt out of the Trading Scenario framework by sending a written e-mail request to:
Anti-Fraud/Manipulation. UBS clients must not:
- Employ any device, scheme, or artifice to defraud
- Make any untrue statement of a material fact or to omit to state a material fact; or
- Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security.
Activities prohibited by the anti-fraud statutes and regulations include, but are not limited to: wash sales, "naked" short selling, self-trades, illegal prearranged trades, marking the close, marking the open, non-bona fide activities to induce others to trade, painting the tape, spoofing, layering, index manipulation, and disseminating fictitious quotations.
Phone Recording. Consistent with UBS' regulatory obligations, UBS records phone conversations of certain personnel, including personnel who may be handling client orders. Please note that your participation in these calls constitutes consent to recording where consent is required under applicable law.
Dodd-Frank Disclosures. In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd- Frank"), prior to entering into a swap transaction, a Swap Dealer must provide several disclosures to a counterparty who is not a Swap Dealer, Major Swap Participant, Security Based Swap Dealer or Major Security Based Swap Participant. Rule 23.431 of the Commodity Futures Trading Commission (“CFTC”) under the Business Conduct Standards for Swap Dealers and Major Swap Participants, 77 Fed. Reg. 9734, requires a Swap Dealer to disclose the material risks of the particular swap, which may include market, credit, liquidity, foreign currency, legal, operational, and any other applicable risks. In the U.S., UBS operates as a registered swap dealer. In addition, a Swap Dealer must disclose the material characteristics of the particular swap, including the Material Economic Terms (METs) of the swap, the terms relating to the operation of the swap and the rights and obligations of the parties during the terms of the swap.
For more details on specific disclosures required to be provided under Dodd-Frank, please visit:
UBS greatly appreciates the support and the trust our clients have placed in the Firm with their business. Please contact your UBS Salesperson promptly in writing, if you have questions regarding this notice about our Order Handling Procedures or if the notice does not accurately represent your understanding of the manner in which you authorize UBS to execute your equity securities orders.