Risk Management Function
The ACT system provides certain risk management functions for clearing brokers that wish to utilize them. If they sign a Risk Management agreement, the clearing broker will be able to scan the trading activities of its corresponding executing brokers and receive an end-of-day recap of all their trading activity for the day. In addition, clearing brokers will receive the following three alerts:
- • ACT alerts clearing firms when a gross dollar threshold is reached or exceeded. A gross dollar threshold is the dollar value that a clearing firm is willing to honor for a corresponding executing broker’s trades. The clearing firm is first notified with a gross dollar threshold pre-alert when the firm’s trades hit 70% of the threshold. ACT alerts the clearing firm again when the corresponding executing broker reaches or exceeds the threshold.
- • ACT alerts clearing firms when the single trade limit is reached. The single trade limit is currently set at $1 million by NASDAQ for most securities, but firms that use the ACT Workstation can set their own limits. The clearing firm has 15 minutes to decide whether or not to accept the trade.
- • ACT alerts clearing firms when a super cap is reached. A super cap is set at two times the gross dollar threshold. Once a firm reaches its super cap, no trade in excess of $200,000 will be accepted unless the clearing firm accepts the trade within 15 minutes of execution.
If the clearing firm does not accept or decline a trade within 15 minutes of execution, the trade report will be subject to normal ACT processing and the clearing broker will be obligated to act as principal for the trade.
Reporting to the National Securities Clearing Corporation (NSCC)
Once trades are locked-in and cleared for ACT’s purposes, reports are sent to the NSCC for settlement. The NSCC nets the member firm’s buy and sell activity in each security traded to arrive at one settlement quantity for t