Best Execution Policy

Best Execution

Equity Securities

As a full-service financial firm, Emmett A. Larkin Company, Inc. (“Larkin”) is committed to helping you make informed investment decisions. One way we do that is to explain our Best Execution trading practices.

What follows is a look at how trades are executed, the factors that can affect an execution’s timing and the way in which market volatility plays a part in handling your order when buying or selling a stock.

Larkin's Approach to Best Execution

As a registered broker-dealer, Larkin identifies and seeks to obtain the most favorable terms reasonably available when executing a buy or sell order for you.

To do this, Larkin relies on three basic components in this process:

1. State-of-the-art technology for routing, monitoring and executing orders.
2. Careful consideration of the elements of order execution.
3. Regular and rigorous examination of overall execution quality.

Let’s examine the role of each of these components in executing your trade:

I. Technology

Larkin uses automated systems to route and execute customer orders. When a customer order is received, it is automatically routed to an execution center that Larkin believes will provide the best execution.

For listed securities, Larkin routes orders to an exchange or to a third market maker for execution.

For OTC securities, Larkin will route the orders to other market-maker firms. Orders are only sent to firms that comply with limit order display and “Manning” limit order protection rules. Many of these firms also provide automated executions for orders. Routing determinations are based on the following criteria and are regularly reviewed.

II. The Elements of Best Execution

Larkin evaluates four principal criteria to determine the best way to execute an order for a client:

1. Speed and Certainty of Execution. Because of the unprecedented levels of volatility affecting both price and volume, Larkin seeks to provide customer orders with the fastest execution reasonably possible. Many of the firms to which Larkin routes agency orders automatically execute orders for up to a certain number of shares (the number differs by security).

2. Price Improvement. Orders in OTC and listed securities are routed to market makers and/or market centers where opportunities for price improvement exist. The criteria to be used by other market-makers and/or market centers include:

automatically matching incoming market and limit orders to pending limit orders,

crossing transactions where price improvement is offered to one or both sides of the trade, or

negotiating transactions within the National Best Bid and Offer (“NBBO”) price.

3. Size Improvement. In routing orders, Larkin seeks markets that provide the greatest liquidity and thus potential for execution of orders larger than the size quoted in the NBBO. Larkin also seeks opportunities for client orders to benefit from order-size guarantees offered by exchanges and other dealers.

4. Overall Execution Quality. When determining how and where to route or execute an order, the Firm’s traders draw on extensive day-to-day experience with various markets and market makers, focusing on prompt, reliable execution.

III. Regular and Rigorous Review of Execution Quality

Larkin regularly evaluates the overall quality of its executions. Larkin studies the quality of executions for listed and OTC retail market orders. Senior managers meet periodically to evaluate execution quality and make recommendations regarding order routing practices. The Firm is continually reviewing and modifying its practices to improve the overall quality of executions.

Price Volatility

Volatility is one factor that can affect order execution. Price volatility and trading volume have recently increased dramatically, especially among high-tech and Internet stocks. When investors place a high volume of orders with brokers, order imbalances and backlogs can occur, requiring more time to execute orders. This is because of delays caused by the number and size of orders processed, the speed at which current quotations or last-sale information is provided to Larkin and other brokerage firms, and system capacity constraints applicable to NASDAQ and the exchanges, as well as to Larkin and other firms.

Keep in mind that even electronic orders are not executed simultaneously; some orders placed through online trading systems may be sent over the internet to a trader, who then determines where to send them for execution. When high traffic in electronic orders causes a backlog, Larkin, as well as market makers to which orders are sent for execution, must sometimes discontinue normal automatic execution procedures and turn to manual execution, leading to further delay.

Effects on Order Execution

Investors should be aware of the following risks associated with volatile markets, especially at or near the open or close of the standard trading session:

Execution at a substantially different price from the quoted bid or offer or the last reported sale price at the time of order entry, as well as partial executions or execution of large orders in several transactions at different prices.
Delays in executing orders for securities that the Firm must send to another market maker and which may not be handled electronically if the trader must route the order manually to another firm.
Opening prices that may differ substantially from the previous day’s close.
Locked (the bid equals the offer) and crossed (the bid is higher than the offer) markets, which prevent the execution of customer trades.
Increased price volatility resulting from imbalances between buy and sell orders during Initial Public Offerings (“IPOs”).

Alternative Types of Orders

Given the risks that arise when trading in volatile markets, you may want to consider using different types of orders to limit risk and manage investment strategies.

Market order. This is the simplest type of order. Here, an investor tells a broker to execute a trade of a certain size as promptly as possible at the prevailing price. Firms are required to execute market orders without regard to price changes. Therefore, if the market price moves significantly during the time it takes to fill an investor’s order, the order will most likely be exposed to the risks outlined above, including execution at a price substantially different from the price when the order was entered.

Limit order. With a limit order, the investor sets the maximum purchase price, or minimum sale price, at which the trade is to be executed. If the market moves significantly away from this price, the order will not be executed unless or until the market price returns to the limit price. Thus, the investor may not receive an execution of the order.

Stop limit order. This is similar to a limit order, except that the order is held until the market reaches your “stopped” price, at which point the order may be executed as a limit order.

Stop order. This type of order is held, and when your stopped price is reached, it is automatically sent for execution as a market order at the price then prevailing.

Reports of Transactions

Larkin receives remuneration on certain transactions on a per share basis for directing orders to other broker/dealers or market centers for execution at prices equal to or better than the displayed national best bid or offer prices. One of the OTC market makers that Larkin routes orders to is NDB Capital Markets, who owns an equity position in Larkin. The source and nature of the compensation received in connection with a particular transaction will be furnished upon written request.

While we make every effort to transmit reports of transactions correctly, errors are sometimes unavoidable, especially during periods of heavy volume. We cannot be held responsible for the accuracy of the price as reported if your order was executed at another price. A Chicago Stock Exchange rule requires that the trade as consummated on the Floor is binding. Similarly, we cannot be responsible for reports of transactions which have not, in fact, occurred. Should an error be made we will report the correct information to you as soon as possible.

Conclusion

Larkin encourages you, before placing orders, to give careful thought to how the risks previously described may affect an investment in volatile markets. There are several Internet resources available to help explain these and other risks in greater detail, including the web sites of the Securities and Exchange Commission (www.sec.gov) and FINRA. You should also consider how different types of orders might help manage some of these risks. Feel free to discuss these matters with your Registered Representative.

For detailed disclosure in compliance with SEC Rule 11 Ac1-6 click here.

11/27/2001