The question of whether a trading instruction is active the moment it is given is central to how financial markets operate. The specific term “Sign and Held” (S&H) describes a specialized instruction involving a delayed entry into the market. This order type is a formal authorization from an investor to a broker-dealer to buy or sell a security, existing outside of the live market. The primary confusion is exactly when it transitions from an authorized document to a live, executable order, as this distinction determines the broker’s obligations and the order’s market impact.
Defining Sign and Held Orders
A Sign and Held order is an instruction where the client gives their broker-dealer permission to execute a trade, conditioned on non-immediate entry. The “Signed” component confirms the client’s formal authorization for the broker to act, meaning trade details such as the security, side (buy/sell), and quantity are agreed upon and recorded.
The “Held” component distinguishes it from a typical market order, indicating that the broker has discretion over the timing of execution. This grants the broker the flexibility to wait for a more opportune moment in the market. At this stage, the instruction is merely a record of authorization resting on the broker’s internal books, not a live market instruction.
The Activation and Release Mechanism
Sign and Held orders are definitively not active before they are released. While the signed order is a valid instruction, it cannot interact with the market, matching engines, or other traders in its “held” state. It exists only as a dormant entry within the broker-dealer’s internal order management system.
The order transitions to an active state through a specific action known as “release.” This process involves the broker-dealer, using their discretion or following a specific client instruction, physically entering the order into the live trading system. Until this release occurs, the held order cannot contribute to market volume, be displayed on an exchange, or be executed against a counterparty. The transition from “held” to “released” is the mechanical step that transforms the authorized instruction into a functional market order.
Regulatory Status and Best Execution
The status of a Sign and Held order has direct implications for the broker-dealer’s regulatory compliance obligations. Broker-dealers are subject to the duty of “best execution,” a standard that requires them to use reasonable diligence to find the most favorable terms for a customer’s order. This obligation takes into account factors like price, speed, and likelihood of execution.
Before the order is released and while it is still “held,” the broker is not obligated to seek immediate execution or the best available price. The full force of the best execution duty only begins once the broker-dealer makes the decision to release the order and enter it into the market.