Wells Fargo Securities, LLC (“WFS”) is committed to providing best execution of customer orders consistent with applicable rules and regulations. When WFS receives a customer order, it uses reasonable diligence to ascertain the best market for the subject security so that the resultant price is as favorable as possible under prevailing market conditions and the customer’s provided instructions. WFS takes a number of factors into consideration in determining how to execute and where to route customer orders, including, among other things,
WFS conducts regular and rigorous reviews of transactions for quality of execution. To that end, WFS regularly convenes a best execution working group which is comprised of members of the compliance, technology, trading, and business management teams.
WFS is a member of all of the major US stock exchanges and also has direct access to a number of carefully vetted market centers such as alternative trading systems and dark pools. WFS actively reviews and analyzes the performance of each venue and adjusts its smart order routing strategies accordingly.
FINRA Rule 5320 generally provides that a FINRA member firm handling a customer order in an equity security is prohibited from trading that security for its own account at a price that would satisfy the customer order unless the firm immediately executes the customer’s order up to the size of its own order at the same price or better. The rule provides exemptions that permit the firm to trade for its own account provided that certain conditions are met. This disclosure outlines WFS’ practices related to FINRA Rule 5320.
WFS engages in market making, principal customer facilitation and other similar trading activities that may require it to manage risks resulting from the facilitation or capital commitment activities. Consistent with the “no knowledge” exemption under FINRA Rule 5320, WFS has implemented physical and technological information barriers to prevent trading desks engaging in the aforementioned activities from obtaining knowledge of orders received outside of such trading desks. WFS conducts surveillance to reasonably ensure the integrity of these information barriers.
WFS may trade for its own account while handling orders from institutional accounts unless the institutional customer opts-in to the FINRA Rule 5320 protection by informing their WFS sales representative. Please be advised that all customer orders, including orders from institutional accounts that have opted-in to the Rule 5320 protection, will be handled in a manner consistent with FINRA best execution standards. WFS maintains a surveillance and supervisory infrastructure to monitor execution quality.
FINRA Rule 5270 expands the scope of its existing front running prohibitions beyond equity securities to include trades in related financial instruments (e.g., options, derivatives, security-based swaps and other financial instruments overlying a security that is the subject of an imminent block transaction).
Under FINRA Rule 5270, WFS is generally prohibited from trading for its own account while in possession of material, non-public market information concerning an imminent customer block transaction or providing such information to other customers for trading purposes prior to the time information concerning the block transaction has been made publicly available or has otherwise become stale or obsolete.
FINRA Rule 5270, however, recognizes three categories of permitted transactions set forth below that WFS will rely on in the normal course of business.
Please note that your order will be handled in a manner that is consistent with FINRA best execution standards and that WFS maintains a surveillance and supervisory infrastructure to monitor execution quality.
Please contact your WFS sales representative if you require more information regarding how your block transactions are handled or have any questions regarding the terms and conditions mentioned above.
When WFS accepts a guaranteed order, it is agreeing to execute your order as principal, at a price based upon an agreed benchmark price or pricing formula (e.g., closing price or volume weighted average price). When handling guaranteed orders, WFS may trade in the security for its own account either to:
You should be aware that trading activity related to the facilitation of guaranteed orders could affect the market for the subject security. For example, if you place a large order to buy a security, WFS’ trading activity described above may cause the price of the security to increase. However, when WFS is engaging in such activity, it is committed to executing your order in a manner that is consistent with its best execution obligations.
WFS may execute a customer order in the pre-market or post-market sessions should the customer specifically request such a facilitation. The following disclosures are provided so you can make an informed decision regarding the placement of orders for execution during extended hours trading.
WFS does not accept or execute held market orders to purchase shares of an initial public offering until secondary market trading in such security has commenced. Limit orders and not held orders are accepted and executed regardless of whether secondary market trading has commenced.
A net transaction means a principal transaction in which WFS, after having received an order to buy (sell) an equity security, purchases (sells) the security at one price and then sell to (buys from) you at a different price. The price difference represents the compensation that WFS receives for facilitating your order.
WFS may handle orders from institutional customers on a net basis unless instructed otherwise on a blanket or order by order basis.
On occasion, the U.S. equity markets experience periods of extraordinary volatility and price dislocation. Investors often use stop orders as a tool for managing market risk. While WFS neither encourages nor discourages the use of stop orders, investors should be aware of the following risks during these periods of market volatility:
Additional helpful information can be found in FINRA Regulatory Notice 16-19 (PDF).
WFS generally handles orders from institutional customers on a “not held” basis unless requested otherwise through your WFS sales representative; or population of the “held” order tag on the FIX order; or other electronic protocol message.
WFS utilizes different types of messages to communicate trading interest to its customers (i.e., indications of interest). The following types of messages may be communicated electronically through Financial Information eXchange (FIX) to market data providers such as Bloomberg or Autex.
Types of Indications of Interest (IOI) and Bloomberg Qualifiers:
Additional information regarding Bloomberg IOI qualifiers can be found in Bloomberg’s Guidelines for IOI and Trade Advertisements (enter BIAG <Go>, then press <Help>).
Regulation NMS requires broker-dealers facilitating a block of stock in a NMS security for a customer to route simultaneously with the execution an intermarket sweep order (“ISO”) to execute against the full displayed size of any protected quotation with a price superior to the block trade price.
WFS’ policy is to provide its customers the benefits of any better priced ISO executions received within one second after being routed. You may decline to have the ISO executions passed on to you on either a blanket or order by order basis.
In November 2018, the SEC adopted amendments to Rule 606 that introduced a new reporting format and more granular disclosures concerning payments for orders routed.
SEC Rule 606(a) requires all brokerage firms to make publicly available quarterly reports, broken down by calendar month, containing certain required statistical information regarding the routing of held, non-directed customer orders in Regulation NMS stocks, as well as both held and not held, non-directed customer orders in listed options with a market value of less than $50,000. WFS is publishing the quarterly report in accordance with Rule 606(a), and will keep the report publicly available for a period of three (3) years. The first posting period was for the first quarter of 2020. A printed copy of this report is available upon written request or by visiting Compliance and Regulatory Information.
Please note that, consistent with the requirements of SEC Rule 606(a), the information presented in the report concerns only a portion of WFS's customer order flow. The statistical information and disclosures required by SEC Rule 606(a) do not encompass all of the information necessary to assess execution quality. Other factors which may be relevant to evaluating the quality of order execution and in making order routing decisions, include, but are not limited to: (1) size of the order, (2) trading characteristics of the security involved, (3) availability of accurate information affecting choices about the most favorable market center for execution and the availability of technological aids to process such information, and (4) cost and difficulty associated with achieving an execution in a particular market center. WFS carefully prepares the information to be consistent with SEC Rules with the assistance of an external vendor. Given the amount of data involved in the creation of the report, the report may contain errors, none of which are intentional, and WFS does not represent or guarantee that the statistics in the reports are wholly accurate and do not contain errors.
Customers of WFS may request additional order routing information for their orders handled by WFS by contacting their WFS sales representative. There are two reports available to WFS customers under amended Rule 606: (i) the 606(b)(1) held on-demand customer report and (ii) the 606(b)(3) not held on-demand customer report in the six months prior to the request. Data collection for 606(b)(1) started on October 1, 2019 and for 606(b)(3) on January 1, 2020.
For more information regarding the quarterly reports required by SEC Rule 606(a), and other aspects of SEC Rule 606, you may review the final rule (PDF).
WFS routes customer equity and listed options orders to national securities exchanges, alternative trading systems and other market centers (including other broker dealers), some of which provide WFS with payment for order flow (e.g., rebates, reduction of fees or credit). Note that WFS' routing decisions are based on obtaining the best possible execution and not on potential remuneration. Whenever possible, WFS will route orders in an attempt to obtain executions at prices equal or superior to the nationally displayed best bid or offer. The source and amount of any compensation received by WFS is connection with any transaction for your account is available upon request.
WFS is required to notify customers, per International Securities Exchange (“ISE”) and (various other option exchanges) of the Firm’s intent to use the Solicited Order mechanism, which is available for members to cross customer option orders. Below is the information required to be provided to you.
Nasdaq ISE Rules provides:
When handling an order of 500 contracts or more on your behalf, WFS may solicit other parties to execute against your order and may thereafter execute your order using the International Securities Exchange’s Solicited Order Mechanism. This functionality provides a single-price execution only, so that your 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 this Mechanism, please refer to International Securities Exchange Option Rule 3-Option Trading Rules, Section 11e-Complex Solicited Order Mechanism, under “Membership, Rules & Fees – Regulatory – ISE Rules.”
Exchange rules require WFS to indicate whether public customer orders are from “professional customers.” WFS reviews its customers’ activity on a periodic basis to determine whether such orders are from professional customers. Under circumstances where WFS identifies a customer who has placed an average of more than 390 orders in listed options per day during any month of a calendar quarter, WFS will represent that customer’s orders as professional orders within five (5) days of the next calendar quarter.
When handling an option order of 500 contracts or more on your behalf, WFS may buy or sell security futures or futures positions 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 tied hedge procedures of the exchange (e.g., the Chicago Board Options Exchange (“CBOE”) or the NASDAQ OMX PHLX) on which the order is executed. The exchange 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 the exchange rules for tied orders including CBOE Rule 5.37.
When handling an option order of 500 contracts or more on your behalf, WFS may solicit other parties to execute against your order and may thereafter execute your order using the CBOE’s AON (All or None) AIM (Automated Improvement Mechanism) Solicitation Mechanism. This functionality provides a single-price execution, unless the order results in price improvement for the entire quantity, in which case multiple prices may result. For further details on the operation of this Mechanism, please refer to CBOE Rule 5.37.
The U.S options exchanges and regulators have established limits on the maximum number of puts and calls covering the same underlying security that may be held or written in one or more accounts under common control. Under options exchange and FINRA rules, WFS cannot permit a client to hold a position higher than the established limit. WFS will monitor and may require customers to liquidate positions to facilitate compliance with the applicable rules.
The US options exchanges and regulators have imposed exercise limits on the maximum number of equity and index listed and OTC options covering the same underlying security that can be exercised within any five (5) consecutive business day period by a single customer or customers acting in concert or under common control. The exercise limit is the same as the position limit for the underlying security.
New York Stock Exchange (“NYSE”) rules permit a specialist to trade on parity with orders in the Crowd provided that the brokers in the Crowd do not object. WFS may route orders to Floor Brokers who may permit a NYSE specialist to trade on parity with your order under certain circumstances. If you wish to object to this practice, please notify your WFS sales representative either as a blanket instruction or on a transaction by transaction basis. Additional information regarding NYSE Rule 108 governing specialists trading on parity with customers is available on the NYSE website.
WFS may have potential conflicts of interest relating to ETFs that you may purchase from or sell to us. The following sets forth a non-inclusive list of potential conflicts:
Prior to entering into any transactions in ETFs, you should carefully read the prospectus and other related documents that are publically at SEC or ETF issuer websites.
The Large Trader Rule requires large traders to register with the SEC and obtain a large trader ID (“LTID”). The Large Trader Rule defines a large trader as any person that:
Please consult with your legal counsel to determine the applicability of the Large Trader Rule to your activities.
As part of our compliance with applicable laws and regulations, certain telephone lines in our sales and trading desk may be recorded. Please note that these recordings may be made with or without the use of any notification such as a verbal disclosure or audible tone.
WFS trades directly with Canadian resident clients in reliance upon the international dealer exemption under NI 31-103. As such, WFS is subject to trading restrictions, including, among other things, that WFS 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 Canadian resident clients should only place orders with WFS for non-Canadian securities in accordance with NI 31-103.
CASL sets forth the requirements for sending any commercial electronic messages to the electronic address of a person within Canada. Pursuant to CASL, any commercial electronic messages sent to you by WFS are exempt from CASL under the exemption provided for inter-business commercial electronic messages.
WFS provides its clients with access to the Wells Liquidity Book (“WLB”) which affords matching opportunities between retail and institutional order flow. Please be advised that orders routed to WLB may interact with WFS principal desk orders which are included as an additional source of contra-liquidity. WLB does not include external market makers or liquidity providers.
If you have any questions regarding this disclosure, please contact your WFS sales representative.
The extended hours disclosure is applicable to all trading products inclusive of equities and listed options.
Note that certain market data providers may not support IOI messages with appended qualifiers. Please contact your WFS sales representative with questions on how to differentiate between IOIs with and without appended qualifiers.
v. August 2023
Wells Fargo Corporate & Investment Banking (CIB) and Wells Fargo Securities (WFS) are the trade names used for the corporate banking, capital markets, and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, member of NYSE, FINRA, NFA, and SIPC, Wells Fargo Prime Services, LLC, member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A., member NFA and swap dealer registered with the CFTC and security-based swap dealer registered with the SEC, member FDIC. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC, are distinct entities from affiliated banks and thrifts.
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