Level II in the US

From Traderpedia

Level II is a function of the NASDAQ market. NASDAQ is an interdealer market represented by over 600 securities dealers trading more than 15,000 different issues. These dealers are called market makers (MMs). Unlike the New York Stock Exchange (NYSE), the NASDAQ market does not operate as an auction market. Instead, market makers are expected to compete against each other to post the best quotes (best bid/ask prices).

A NASDAQ level II quote shows all the bid offers, ask offers, size of each offer (size of the market), and the market makers making the offers in real time. These quotes are available from the Nasdaq Advertisement Quotation Dissemination Service (NQDS). The size of the market is simply the number of shares the market maker is prepared to fill at that price. Since about 1985 the average person has had access to level II quotes by way of the Small Order Execution System (SOES) of the NASDAQ. Non-professional users can get level II quotes for about $50 per month.


[edit] Understanding ECNs and Order Routing

The most powerful advancements to the NASDAQ system are the establishment and active participation of Electronic Communication Networks (ECN’s) in the market. ECN’s enable institutions, investors (small and big) & traders a means to electronically transmit their current best buying and selling prices. Very often, these prices are very competitive with Market Maker Quotes. Recently ECN quotes and not Market Makers’ often establish the best prices.

The recent establishment of the ECN’s has added a great milestone, if not a total revolution to the NASDAQ System. Although the NASDAQ may be a Dealer Oriented market, the presence of ECN’s as a means for ALL investors and traders to trade among each other without the help of Market Makers has created a NASDAQ that is more of a Free Market – with prices that reflect the true sentiment of the general public. Through the various ECN’s and through the army of new Stock Traders, more fair market pricing is established.

ECN facts:

  • ECN quotes are not “hidden”. They can be seen on the Level II Screen (Unlike SelectNet)
  • ECN quotes "Can be Hidden" using Island so the previous statement is not entirely correct.
  • Only the best ECN Bid or Ask are displayed on regular Level 2 screens
  • The entire ECN books for Island and Arca can be seen and FOC (if you know how) so again the previous statement is not entirely correct.
  • ECN’s are not SOESable except LSPD which has accepted Super Soes. You cannot use your SOES Order Keys to “target” them
  • Most Direct Access Brokerages have direct subscriptions to at least ISLD, REDI, and ARCA. You need to have a couple of the larger ECN’s like these 3. Some DAT brokerages have all of them available. Direct access means that you do not have to go through the SelectNet Preference System to access the ECN. This allows for a much faster quote and execution.
  • When using a DAT platform, you may submit/post Direct Bids and Offers through the Direct ECN system only.
  • For all other ECN’s, you must route your order through the SelectNet preference system in order to Buy or Sell with these ECN’s
  • When using Direct ECN access, you must generally specify a price and share size; these are limit orders. However, recent improvements in the ECN routing does allow Market Orders, Reserve orders and even Hidden orders.
  • “Partial Fills” on the ECN system are common, especially in heavily traded stocks.
  • Odd Lots are not allowed on INCA and BTRD. The share size of your order must be in 100 share increments.

In the trading of Equities, the method used to route orders is an important one because of the potential for small price improvements and in many cases, being able to place the right kind of order during “fast market” periods. Since the modern Stock market is made up of several “sub-markets” (ECN’s and Market Makers), a trader's aptitude in the use of proper order routing to find the liquidity he or she needs to get the order executed is quite essential, especially on the NASDAQ.

While small price improvements may seemingly have little significance to a particular trade, price inefficiencies in order executions can collectively add up to a significant amount over a long period of time. This is especially the case for traders who tend to be more active. For example, while a 5 cent differential in a trade may seem to be insignificant, this equates to $50 on a thousand share order! Taken collectively on a set of trades over a long period of time, these $50 inefficiencies can add up to several thousand dollars only because of order placement.

Also, the ability to correctly and efficiently route an order, especially on the Nasdaq, is extremely important during periods of “fast markets” where a trader needs to find the liquidity in the market in order to get rid of open positions, or conversely, to initiate new ones.

[edit] Soes

SOES (Small Order Execution System) An automated execution system for bypassing brokers when processing small order agency executions of Nasdaq securities up to 1,000 shares. SOES was implemented by NASDAQ in 1985. Following the 1987 market crash, all market makers were required to use SOES. Using the SOES system is limited to Nasdaq issues only. The SOES system, now also known as SUPERSOES, is a powerful and extremely fast method of sending your order directly to Market Makers within the Nasdaq system. Market Makers are obligated to fill all SOES market orders and provide liquidity, however, there is no guarantee in price. Other SOES facts:

  • SOES orders are limited to less than 500 shares for small cap stocks
  • Super SOES is limited to 999,999 shares in NASDAQ National Market stocks ( NNM – Lg Cap)
  • You can send Market and Limit Orders on SOES. Market orders virtually guarantee execution, but not price, while Limit Orders are only guaranteed if there are shares available for your order at the specified price.
  • Use of the SOES system usually only communicates a trader’s order to Market Makers and not other participants of the Market, such as the users of ECN’s. (This may change in the near future as Market XT – LSPD has accepted the obligation of Super SOES).
  • You may cancel it any time. SOES orders are canceled by NASDAQ automatically after 90 seconds
  • Market Makers are only obligated to fill a SOES order with the number of shares they post as available. (It is possible that your order will be partially filled).
  • Your SOES Limit Order will not post or display on the Level II window.

This system is intended to help the small investor (hence the name) have his or her transactions executed without allowing market makers to take advantage of said small investor. You may see mention of "SOES Bandits" which is slang for people who day-trade stocks on the NASDAQ using the SOES. A SOES bandit tries to scalp profits on the spreads.

[edit] SelectNet

NASDAQ SelectNet System. The SelectNet system (SNET), is limited to the NASDAQ only, and is another means to communicate your order to the Market Maker for sizes in excess of the allowable SOES limit. It is also possible to use the SelectNet system to access ECN’s (Electronic Communications Networks). Some SelectNet facts:

  • SelectNet Orders are Limit Orders only. You must specify a direction, price and quantity at all times.
  • SelectNet Orders will not post or display on the Level II window. Generally, only Market Makers are able to see SelectNet orders.
  • There are two types of SelectNet Orders: Broadcast and Preference.
  • Broadcast SelectNet orders are available to all Market Makers to fill.
  • Preference SelectNet orders directly address a specific or preferred Market Maker. Preference orders can also be used to address or hit an ECN.

On the left side are the current bids of market participants, ranked from best to worst, highest to lowest. On the right are the offers, again ranked from best to worst, here from lowest to highest.


[edit] Market Makers

A firm can become a market maker (MM) on NASDAQ by applying. The requirements are relatively small, including certain capital requirements, electronic interfaces, and a willingness to make a two-sided market. You must be there every day. If you don't post continuous bids and offers every day you can be penalized and not allowed to make a market for a month. MMs are regulated by the NASD which is overseen by the SEC.


  • ABLE - Natexis Bleichroeder Inc.
  • ABNA - ABN Amro Incorporated
  • ADAM - Canaccord Adams Inc.
  • AGED - A. G. Edwards & Sons, Inc.
  • ALPS - Alpine Securities Corporation
  • ANDZ - Assent LLC
  • AUTO - Automated Trading Desk Financial Services, LLC
  • AVON - Avondale Partners, LLC
  • BARD - Robert W. Baird & Co. Incorporated
  • BBNT - Scott & Stringfellow, Inc.
  • BERN - Sanford C. Bernstein & Co., LLC
  • BEST - Bear, Stearns & Co. Inc.
  • BKST - Brookstreet Securities Corporation
  • BMOC - Harris Nesbitt Corp.
  • BMUR - Brean Murray, Carret & Co., LLC.
  • BNCH - The Benchmark Company, LLC
  • BOFA - Banc of America Securities LLC
  • BSIC - Basic Investors Inc.
  • BUCK - The Buckingham Research Group Incorporated
  • BWNT - First American Capital and Trading Corporation
  • CANT - Cantor Fitzgerald & Co.
  • CDRG - Citadel Derivatives Group LLC
  • CEUT - C.E. Unterberg, Towbin (A California Limited Partnership)
  • CHDN - Chardan Capital Markets LLC
  • CHLM - Craig-Hallum Capital Group LLC
  • CIBC - CIBC World Markets Corp.
  • COWN - Cowen and Company, LLC
  • CRIS - Caris & Company, Inc.
  • CRTC - CRT Capital Group LLC
  • CWCO - Crowell, Weedon & Co.
  • DADA - D.A. Davidson & Co.
  • DAVA - Davenport & Company LLC
  • DBAB - Deutsche Bank Securities Inc.
  • DOMS - Domestic Securities, Inc.
  • DOTC - Dougherty & Company LLC
  • DRCO - Dahlman Rose & Company, LLC
  • EFGI - Empire Financial Group, Inc.
  • EKNS - EKN Financial Services Inc.
  • ETRD - E*Trade Capital Markets LLC
  • FACT - First Albany Capital Inc.
  • FAGI - Fagenson & Co., Inc.
  • FANA - First Analysis Securities Corporation
  • FBCO - Credit Suisse Securities (USA) LLC
  • FBRC - Friedman, Billings, Ramsey & Co., Inc.
  • FPKI - Fox-Pitt, Kelton Incorporated
  • FRAN - Wm. V. Frankel & Co., Incorporated
  • FSWC - First Southwest Company
  • GARC - ICAP Corporates LLC
  • GNLN - Gunnallen Financial, Inc.
  • GROW - Pacific Growth Equities, LLC
  • GSCO - Goldman, Sachs & Co.
  • HAMR - W.R. Hambrecht + Co., LLC
  • HDLY - J.J.B. Hilliard, W.L. Lyons, Inc.
  • HDSN - Hudson Securities, Inc.
  • HILL - Hill Thompson Magid and Co., Inc.
  • HRNB - Harris Nesbitt Corp.
  • HSBC - HSBC Securities, Inc.
  • JANY - Janney Montgomery Scott Inc.
  • JEFF - Jefferies & Company, Inc.
  • JGUN - Joseph Gunnar & Co. LLC
  • JPMS - J.P. Morgan Securities Inc.
  • JPTC - J.P. Turner & Company, L.L.C.
  • JRCO - Johnson Rice & Company L.L.C.
  • JSLP - Joseph Stevens & Company, Inc.
  • JSSF - JMP Securities LLC
  • KBRO - Kaufman Bros., L.P.
  • KBWI - Keefe, Bruyette & Woods, Inc.
  • KING - C. L. King & Associates, Inc.
  • LAZA - Lazard Capital Markets, LLC
  • LEER - Leerink Swann & Company
  • LEHM - Lehman Brothers Inc.
  • LYON - Calyon Securities (USA) Inc.
  • MADF - Bernard L. Madoff
  • MAXM - Maxim Group LLC
  • MDLD - McDonald Investments Inc.
  • MERI - Merriman Curhan Ford & Co.
  • MJSK - Miller Johnson Steichen Kinnard Inc.
  • MLCO - Merrill Lynch, Pierce, Fenner
  • MOKE - Morgan, Keegan & Company, Inc.
  • MSCO - Morgan Stanley & Co., Incorporated
  • MURF - Murphy & Durieu
  • MWRE - FTN Midwest Securities Corp.
  • NATY - Natcity Investments, Inc.
  • NEED - Needham & Company, LLC
  • NFSC - National Financial Services LLC
  • NITE - Knight Equity Markets, L.P.
  • OGRU - Oscar Gruss & Son, Incorporated
  • OPCO - Oppenheimer & Co., Inc.
  • PACS - Pacific Crest Securities Inc.
  • PERT - Pershing LLC
  • PIPR - Piper Jaffray & Co.
  • PRUS - Prudential Equity Group, Inc.
  • PUNK - Punk, Ziegel & Company, L.P.
  • RAJA - Raymond James & Associates, Inc.
  • RBCM - RBC Capital Markets Corporation
  • RHCO - SunTrust Capital Markets, Inc.
  • RILY - B. Riley And Co. Inc.
  • RODM - Rodman & Renshaw, LLC
  • ROTH - Roth Capital Partners, LLC
  • RYAN - Ryan, Beck & Co., LLC
  • SALI - Sterne, Agee & Leach, Inc.
  • SBSH - Citigroup Global Markets Inc.
  • SDLR - Sandler, O Neill & Partners, L.P.
  • SEAB - Seaboard Securities, Inc.
  • SIMM - Simmons & Company International
  • SKYC - Sky Capital LLC
  • SMHI - Sanders Morris Harris Inc.
  • SNCM - Stifel, Nicolaus & Company, Incorporated
  • SOCO - Capital One Southcoast, Inc
  • SPHN - Stephens Inc.
  • STCS - First American Capital and Trading Corporation
  • STFG - Stanford Group Company
  • SUSQ - Susquehanna Capital Group
  • TASL - Tradition Asiel Securities Inc.
  • TDCM - TD Waterhouse Capital Markets, Inc.
  • TDCO - Thompson Davis & Co., Inc.
  • THNK - ThinkEquity Partners LLC
  • TMBR - Timber Hill LLC
  • TRLN - Tradelink Securities, LLC
  • TWPT - Thomas Weisel Partners LLC
  • UBSS - UBS Securities LLC
  • VFIN - Vfinance Investments, Inc
  • VNDM - Vandham Securities Corp.
  • WBLR - William Blair & Company L.L.C.
  • WCHV - Wachovia Capital Markets, LLC
  • WEDB - Wedbush Morgan Securities Inc.
  • WEED - Weeden & Co.L.P.

[edit] Time and Sales


The Time and Sales Report, also known as “Prints,” lists the price, quantity and time of all trades that take place on a particular equity or tradable contract. On most DAT systems, the Time and Sales Report is found on the right hand side of the Level II quote screen. The information reported by the “Prints” is highly essential to Direct Access Trading, and most participants will consider the information here more essential than the Bid and Asks on Level II themselves. That is because the Prints report the actual cross or meeting point of actual buyers and sellers for the moment, where as the Bid and Asks are merely a display of intentions. The Prints are also essential to traders for determining exactly where the market is trading at the moment in order to fine tune their order placing technique whether it would be for scalps, swing trades and even longer-term trades.

MMs will attempt to hide their activity so as not to make it transparent, but there are certain things to look for to uncover a market maker's true intentions.

[edit] Related T2W Resources