GIGO On Pre-Trade Checks
In the U.S., pre-trade checks are legally mandated by SEC Rule 15c3-5 (the Market Access Rule). An Order Management System (OMS) evaluates every incoming API message against two main buckets of controls—Financial and Regulatory/Compliance—before converting it into an outbound FIX message to the exchange. 1. Financial Exposure ChecksThese checks ensure you have the required capital and that an algorithm or human hasn't malfunctioned.Buying Power / Credit Limit: Verifies that the total dollar value of the order plus existing open positions does not exceed your account's real-time intraday buying power. Max Order Size (Share Limit): Rejects orders that exceed a pre-set maximum share count (e.g., capping a single order at 10,000 shares) to prevent "fat finger" entries. Max Order Notional Value: Rejects orders exceeding a total dollar threshold (e.g., capping a single order at $100,000 regardless of share price). Price Deviation / Collar Checks: Compares your limit price to the current National Best Bid and Offer (NBBO). If you submit an order to buy 15% above the current ask, the OMS flags it as an erroneous or market-impacting order and blocks it. Cumulative Daily Loss Limits: Blocks new orders automatically if your account reaches a pre-configured daily loss threshold (e.g., -$2,000 for the day).2. Regulatory & Short Sale ChecksThese automated checks keep both you and the clearing firm compliant with FINRA and SEC rules. Reg SHO Short Sale Locates: For short orders, the OMS verifies that you have a valid, active locate on file (via Cobra/Wedbush’s locate inventory) and marks the order properly (Sell Short). If no locate is recorded, the order is rejected immediately. Short Sale Circuit Breaker (Rule 201): If a stock drops 10% or more in a single day, the OMS restricts short sales to prices above the national best bid (uptick rule enforcement).Limit Up-Limit Down (LULD) Band Checks: Prevents orders from being sent outside the exchange's active LULD price bands to avoid trading halts. Self-Trade Prevention (Wash Sale Checks): If your API sends a buy order that would execute against an open sell order from your own account, the OMS will cancel or reject one of the orders to prevent illegal self-trading.Restricted List Checks: Blocks orders in ticker symbols currently under regulatory halts, news pending halts, or internal broker restrictions. 3. Systemic & Malfunction ChecksThese safeguards defend against runaway loops, API bugs, or network glitches. Message Rate Throttling: Caps the maximum number of API requests/orders you can send per second (e.g., 50 messages/sec) to protect server stability. Duplicate Order Detection: Rejects identical orders fired within milliseconds of each other if the system identifies them as an accidental loop. How Long This TakesModern OMS infrastructure (like the software running at Wedbush/DAS in New Jersey data centers) processes all of these checks in parallel using specialized in-memory code or hardware, usually completing the entire pre-trade evaluation in under 1 millisecond (often 100–300 microseconds).