The Charles Schwab Corporation and Includable Subsidiaries - Page 7

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                In 1988, there was no Federal rule that mandated a specific                  
          settlement cycle for securities transactions.1  Instead, the                       
          settlement cycle in the United States varied among markets and                     
          was largely a function of market custom, exchange rules, and                       
          industry practice.  The rules of the New York Stock Exchange,                      
          however, required transactions to be settled no later than the                     
          fifth business day after the trade date.                                           
                After a customer’s order is received, petitioner transmits                   
          the order to the exchange floor for execution via the exchange’s                   
          system or through floor brokers.  A report of execution, which                     
          lists the transactions in terms of shares purchased or sold, but                   
          not by customer name or account number, is returned to the firm                    
          as a trade record.  After the trade is executed and while the                      
          customer is still on the telephone, petitioner can verbally                        
          confirm the execution for "market" orders2 placed via telephone                    
          while the markets are open.  The price paid or received by the                     
          customer for the purchase or sale of securities is determined                      
          according to the market price in effect on the trade date.                         
                Petitioner must perform a series of functions after the                      
          order is placed and the trade executed.  These functions, which                    


                1See infra note 4.                                                           
                2A "market" order is an order from a customer to buy or sell                 
          securities as soon as practicable at the then-current market                       
          price.  This is in contrast to a "limit" order, which is an order                  
          to buy or sell securities when the market reaches a price level                    
          specified by the customer.                                                         




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Last modified: May 25, 2011