Non-Client Order Definition and Example

What is a non-customer order?

A non-client order is an order on an exchange placed by a participating firm on its own behalf or on behalf of a partner, officer, director or employee of the firm.

A participating company authorized to trade on an exchange is known as a member firm. Most securities exchanges prevent a participating company and its employees from trading the same securities as their clients at the same time. The restriction is designed to minimize the conflicts of interest – perceived or real – that can arise when a participating firm competes with its clients for the execution of orders.

A non-customer order is also known as a “business order” and a customer order may also be referred to as a “customer order”.

Key points to remember

  • A non-client order is an order placed on behalf of the firm itself, whether for an employee, partner, officer, or on behalf of the firm’s trading account.
  • To avoid perceived or actual conflicts of interest, customer orders take precedence over non-customer orders.
  • Non-client orders are designated and marked as such.

Understanding the non-customer order

A non-client order is executed for the benefit of a brokerage firm or an investment company, and not on behalf of one of its clients. Although such orders are permitted, priority must be given to client orders for the same securities.

When securities trading orders are routed to an exchange, the order must be marked with the type of client designation that will benefit from the transaction. Since a broker acts as agent for their clients, client orders take priority and must be executed in full before the firm can begin trading the same security on its own account.

When a firm trades for itself, it is a non-client order and such order tickets will be marked “NC”, “N” or “Emp” depending on the exchange, indicating that the order is a non-client order.

When a broker acts as director– i.e. the broker buys or sells directly to his client taking the other side of the trade – then the trade must also be marked accordingly.

The priority of orders for customers over non-customer order flows is essential to avoid forward stroke (forward trading) and others principal-agent issues that may arise in the securities markets.

With the advent of fully electronic trading and instant price execution, a firm can simply wait for its client’s order to be executed before executing its own orders. This makes the process easier than before, when order processing could take time and they could pile up. Nevertheless, the process remains an integral part of the system in order to avoid front-running.

Sample non-customer order

If a client submits an order to a broker to buy 1,000 shares of Apple (AAPL) and the firm also wishes to purchase 1,000 shares of AAPL, the broker must first execute the entire client order before beginning to execute its own order.

Not only that, but the client should be entitled to the most favorable prices given the tiered price tier executions that fulfill both the client and the participating business. In other words, the broker should not intentionally fill the client at a lower price than he himself fills.

With electronic trading, clients place trades instantly and can be filled instantly with market orders for example. This gives the customer more control over when and where it is filled. As a result, instances of brokers physically processing customer orders have decreased, but front running is still illegal.

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