Options Routing
Newedge USA offers direct access to the electronic trading systems of the AMEX, CBOE, ISE, BOX, PCX, and the PHLX options exchanges. (Please note that access to the BOX for option orders is available on PreferredTrade 6 software and not on the 5.2 software.) The "get quote upon entering price field" function of the software is designed to select an exchange with the most favorable quote for your option order when you are entering the order. A user may send the order to that exchange, or click on another exchange to generate the quote from the competing exchange. A user may also choose to override the automated option routing and route orders to a specific exchange for execution.

At the exchange level, the order may be filled electronically or handled manually depending on the parameters of the order and market conditions. Specialists and Lead Market Makers on each of the exchanges decide the quantity and price limitations for orders to be filled electronically on their various automated order entry systems. Market orders and marketable limit orders (orders buying at the offer or selling at the bid) whose price and quantity are within the automated order entry systems' parameters will often be filled in seconds. Orders placed with limits between the bid and offer will take more time to be represented manually. In "Fast Market" conditions, the firm quote rule is often waived and orders normally eligible for the automated order entry systems are handled manually.

Option Market and Limit Orders at the "Bid" or "Ask" for Electronic Eligible Orders
Market and (marketable) limit orders at the bid or ask are routed through the PreferredTrade system to a specific exchange for order entry via option exchange systems. Electronic eligible orders can be executed automatically at the exchanges by their computerized systems.

Various Exchange's Electronic Execution Systems:

• RAES (Chicago Board Option Exchange)
• AMOS (American Stock Exchange)
• POETS (Pacific Exchange)
• AUTOM (Philadelphia Stock Exchange)
• ISE (International Securities Exchange)
• BOX (Boston Options Exchange)

Electronic Option Trading
Each exchange creates rules regarding electronic trading eligibility. These rules regulate the volume that can be traded and include regulations that target prohibited practices such as unbundling. The exchanges generally define unbundling as splitting an order in an attempt to make the parts of the order eligible for execution via electronic options execution system. The options exchanges have comparable rules regarding the entering of orders, and are aggressive in monitoring compliance with these rules. The exchanges reserve the right to bust or modify trades that, in their opinion, violate any of the regulations that are established on electronic trading, including unbundling. In addition, on certain occasions, the exchange may bust trades that they believe violate the spirit of the trading regulation.

Direct access to electronic markets on all Option Exchanges is granted to customers of Newedge USA, LLC, provided customers observe exchange rules. The following is an excerpt from CBOE Regulatory Circular RG 00-27: "It is a violation of Exchange rule to enter, at or about the same time and for the same account (or for accounts with any common ownership), multiple RAES orders in the same or similar options series for the purpose of circumventing the limitation on RAES order size. It is a violation of Exchange rules to enter a limit order for placement on the Exchange's limit order book, or on the book of a competing exchange, for the purpose of effecting execution price of a RAES transaction." The other options exchanges have similar rules regarding the entering of orders, and are aggressive in monitoring compliance with these rules. A (15) fifteen second "hard edit" is programmed into the PreferredTrade system's order entry system to prevent multiple orders for all series in a class for the same underlying issue from being directed to the same exchange. This reduces "unbundling" whether intentional or not.

Option Order Routing
The default order routing system is setup to automatically route to the Best Exchange. The "Best Exch" selects the exchanges where a specific option is traded using the radio buttons. This may include more than one exchange for dually listed options. The routing system immediately displays the exchange selected for automated routing according to the best price by displaying a black dot within the radio button for that exchange. This is confirmed on the quote line displaying the best bid and offer annotated with a letter for the exchange.

If the customer wishes to override the computer selected routing, he or she can select another exchange by clicking on its radio button so that a black dot shows there. The current quote for that exchange then shows on the quote line and the price in the price box is modified according to that quote if "Get quote upon entering price field" and the option price is set to "Automatic update" under Settings in the Main Menu Bar. The customer can still modify the price before sending the order.

When sent, the order will be routed to that exchange for handling. For customers that do not want the price field to change automatically when switching between exchanges, select "Manual update" in the Settings window.

IMPORTANT: All market and limit orders are not necessarily confirmed and executed in several seconds, especially for small capitalization or thinly traded issues. In particular, certain OTC orders at the market or at the "bid" or "ask" are routed to and worked by Newedge USA's trading desk, which can take time for the order to be executed. The time it may take to work an order needs to be considered in interpreting what you are seeing on your computer screen.

"Alt Opt" Routing of Option Trades - Eligible Options
Alt Opt is an alternative routing choice for your equity options orders. When you select Alt Opt, the order is sent to an independent option dealer for execution. The dealer will route orders to an exchange where the dealer has a market making or specialist membership, or to another exchange where the option is traded for exposure to the National Best Bid or Offer ("NBBO"). Note: Index options are not eligible for the Alt Opt routing.

Option Assignments
In case of assignment of option contracts, we employ the random method of allocation. This procedure will randomly select from all customers' short option positions, including positions established on the day of assignment, those contracts, which are subject to exercise.

Options in a Newedge USA IRA Account
Please note that the only option strategies allowed in an IRA is the writing of covered calls and the buying of puts or calls. If transacting options in an IRA, one must be aware of the unique qualities of an IRA account. Therefore, holders of long options in an IRA account must have a cash balance equal to or greater than the requirement to exercise the options in the account on the last day prior to expiration or Newedge USA will close out the position in the open market on a best efforts basis prior to the market close.

Newedge USA does not have any specific criteria for option trading approval in customer accounts. Each new account application is treated individually based primarily on the customer's trading experience and state of financial condition.

Please note that options are not suitable for all investors and investing in options carries substantial risk. Because of the importance of tax considerations to all options transactions, investors considering options should consult with a tax advisor as to how taxes affect the outcome of contemplated options transactions. Individuals should not enter into options transactions until they have read and understood the risk disclosure document titled "Characteristics and Risks of Standardized Options." To obtain a copy of the Options Disclosure Document contact us at 888-781-0283.