Small Order Execution System (SOES)

Definition

The term Small-Order Execution System refers to a technology that automatically executes trades on the NASDAQ securities market.  The Small-Order Execution System was implemented after the stock market crash of 1987.

Explanation

The NASDAQ instituted the Small-Order Execution System (SOES) to resolve some of the liquidity problems experienced during the crash of 1987.  SOES provides individual investors with the ability to execute trades in volatile markets by automatically routing an order to the correct dealer for execution.  It also provides them with the opportunity to compete with larger investors in terms of order execution. SOES forces market makers to honor their bid / ask prices, thereby ensuring these smaller investors are getting the best possible terms for their trades.

SOES also places several restrictions on users.  For example, trades have to involve less than 1,000 shares of a specific stock, and the stock's price has to be less than $250 per share.  Larger institutions and stockbrokers are also not allowed to use SOES to place orders for their own accounts.

The use of this system is no longer mandatory, since advancements in computer and communications technology have forever changed the speed at which trades are executed as well as the volume of trades.

Related Terms

Do Not Reduce ordersNot-Held orders, order bookorder imbalance, switch orders, on-floor order, held orders, fractional discretion orders