Know the risks involved in conditional orders

User Agreement for conditional orders

Morgan Stanley Smith Barney LLC (the "Company") wants to make sure that you understand the special risks associated with trading conditional orders. Currently, the following types of conditional orders for equities and options are offered on the E*TRADE from Morgan Stanley (“E*TRADE”) platform: Trailing Stop, Hidden Stop, Bracketed, Contingent, One-Cancels-All, One-Triggers-All, and One-Triggers-One-Cancels-the-Other (OCO). You should not trade conditional orders if you do not fully understand all the risks. E*TRADE Pro users should carefully read the section regarding the Special Market Data Issues below. To learn more about using conditional orders—including the different types and the advantages and risks associated with each—please refer to the conditional orders section of the Help Center or call us at 800-387-2331.

Eligible Securities for Equities: At this time, we accept conditional orders for certain listed eligible securities. The list of eligible securities is dynamic and can change at any time at the Company’s sole discretion. Conditional orders for equity securities at prices less than $1.00 per share will not be accepted. These criteria will be checked after an order is submitted. The $1.00 per share minimum applies to the bid price for sell orders and the ask price for buy orders. This minimum will also be applied to the price condition specified (bid, ask, or last price).

Eligible Securities for Options: At this time, we accept conditional orders for options listed by the Options Clearing Corporation (OCC).

Eligible Trading Sessions: Conditional orders will be accepted at any time, but dynamic prices will only be monitored and updated during normal market sessions for the given security. No conditional orders activity will occur during Extended Hours trading sessions, except cancellation requests or placement of new orders.

No Trading in Halted Securities: We will not accept conditional orders to trade in any security in which trading has been halted by the primary listing exchange. We will not trigger a conditional order once a halt is received through a market data feed. Should a conditional order (after being triggered) be sent to market prior to a halt and not executed, it will remain at the market center and be executed as soon as the halt is lifted. If/when a halted security resumes trading, the price may be significantly different than the price it traded pre-halt.

Risk of Orders Held Outside the Marketplace: We will hold Trailing Stop, Hidden Stop, Bracketed, Contingent, One-Cancels-All, and the OCO parts of One-Triggers-OCO orders after the time of order submittal. We will also hold any order that is part of a One-Triggers-All or a One-Triggers-OCO group if it has a Trailing Stop or Hidden Stop price type.

All orders being held are sent to the market when order-triggering conditions are met. Due to the specific trigger conditions you have set when placing conditional orders, execution may not be guaranteed in the marketplace. Furthermore, if your order is executed after a trigger condition is met, a specific execution price or execution time is not guaranteed. We are committed to using our best efforts to ensure that delays between trigger time and execution time are kept to the minimum that systems and market conditions will allow. Customers not willing to accept a potential lag time between trigger time, the transmission of orders to the market for execution, and the actual execution time should not use conditional orders but should consider using conventional market, stop on quote, limit, and stop limit on quote orders, which are transmitted to the marketplace upon order entry.

No Order Modification for Cash Dividends: All conditional orders will be entered by default as Do Not Reduce (DNR). These orders will not be reduced by the amount of an ordinary cash dividend on the ex-dividend date. Customers will be responsible for monitoring open orders.

Additional Risks of Trading in Volatile Markets: In the case of One-Cancels-All or One-Triggers-OCO orders, execution is not guaranteed if a limit or stop limit on quote order is triggered—particularly in a fast-moving market. For a One-Triggers-All or a One-Triggers-OCO order submitted during busy market times, execution fill reporting delays may delay the triggering of subsequent orders in the group. Customers not willing to accept these risks should consider using non-conditional orders.

Risk of Market Data Issues: We use market data sources received from third parties for quoting, reviewing, monitoring, and triggering conditional orders. We cannot guarantee that those market data sources will be identical to all other market data sources. Occasionally, prices may be offered that are not reflected in some market data sources. We have put algorithms in place to check for and remove erroneous prices that are occasionally reflected in market data sources, such as those creating a crossed market. We have the right to change such algorithms and market data sources as we deem necessary in our sole discretion without notice. This may, in some cases, cause a delay of orders being sent to market due to the verification process used to ensure that market action is not taken based on erroneous data. You agree that we are not liable for any loss in your account due to a delay resulting from the verification process.

Initial Trigger Price Rules for Trailing Stop Orders: The initial stop trigger price of a Trailing Stop placed during regular market hours is set based on the bid and ask quotes. The initial stop trigger price of a Trailing Stop placed outside of the regular hours is set based on the previous closing price for equities and based on the last received best bid (for sells) or ask price (for buys) for options, and will be adjusted based on the best bid and ask quotes at market open the next trading day received by the system. For orders placed outside of regular market hours, the monitoring, adjusting, and triggering of conditional orders starts the next trading day. Thus, if the bid and ask quotes at the next trading day are significantly different from the previous closing price (in the case of equities) or the last received best bid or ask price from the previous day (in the case of options), the adjusted stop trigger price at the next trading day's market open can be significantly different from the initial stop trigger price.

Monitoring Rules for Equities and Options: Conditional orders for equities are monitored, adjusted, and triggered based on the national best bid and offer (NBBO). Conditional orders for options are monitored, adjusted, and triggered based on best bid and ask quotes, as well as last price prints, from all options exchanges.

Monitoring Rules for Indexes: Contingent orders based on indexes are monitored and triggered based on index last price prints received from our market data vendor.

Cancellation or Rejection of Conditional Orders: We reserve the right to cancel or reject conditional orders at any time for specific securities or all outstanding conditional orders if we believe in our sole discretion that such action is necessary. Alerts will be sent to customers for each order that is canceled, and the customer will be responsible for placing a new order, if desired. We are not responsible for orders that have been canceled due to a corporate action or at our discretion.

Risk of Orders Getting Rejected: Conditional orders placed outside of market hours will be reviewed and accepted or rejected prior to market open along with all other orders placed with us. You should not consider conditional orders, like all orders placed with us, as open orders until they are reviewed and accepted. You should check your alerts or otherwise to ensure that orders were placed and accepted as expected during that market day (or, if placed after hours, that they were accepted the following market day). Please note that all conditional orders held by the system are reviewed at order placement and again upon the trigger condition being met. The buying power and position requirements for this particular order type can fluctuate as the price moves or other transactions occur in the account. Therefore, we cannot guarantee that the order will be accepted when the conditional order is triggered.

Special Market Data Issues for E*TRADE Pro: When users have E*TRADE Pro operating on their computers, any conditional orders that require market data for triggering the order will be monitored based on the E*TRADE Pro market data sources, as well as by the system used for monitoring orders on other trading platforms. These are separate market data sources and will have occasional discrepancies for which we are not responsible. Upon a triggering condition being met on either platform, the first of the systems to alert our trading system to send the order will trigger the appropriate action. Latest stop prices for dynamic order types will not be stored on the E*TRADE Pro client or servers. They will be stored on the main system used for other trading platforms; when the user's desktop client is turned on, the latest stop prices will be retrieved for the E*TRADE Pro platform. After the latest stop price is retrieved, monitoring will commence locally on the E*TRADE Pro client. Due to this system, and the fact that no data source can be guaranteed to have every price posted at the exact same time, there is a chance that a dynamic stop may be adjusted in an unfavorable direction. If an E*TRADE Pro user sees a stop adjusted on the E*TRADE Pro platform and powers down or their connection is terminated, and the main system never received the most favorable bid or ask price, it is possible that on retrieval, a less favorable stop will be shown. In this instance, the user may cancel and resend the order, or may call a broker to have the stop manually adjusted. We are not responsible for an unfavorable movement of a stop price as discussed above. We have the right to change the market data sources as we deem necessary without prior notice.

Other Risks: You agree not to hold us responsible for any loss or damage caused by system latency or outage. Any downtime of the conditional orders system will be treated as if the market has closed, and any missed data will not be stored or evaluated; upon recovery, stop prices will be evaluated at the first valid tick as if the market had re-opened. You acknowledge that due to the unique nature of conditional orders we might not be able to predict and describe all of the special trading risks that could arise, and you agree not to hold us responsible for any risks or losses, whether described to you or not, in connection with using conditional orders.

Modification of this Agreement: We reserve the right to change this Agreement at any time without prior notice. Your continued use of conditional orders after such change constitutes your consent to the modified Agreement.