The small-order execution system (SOES) was a system to facilitate clearing trades of low volume on NASDAQ. It has since be phased out and is no longer necessary.
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SOES was first introduced in December 1988 for 25 stocks. The lack of liquidity after the 1987 market crash led NASDAQ to implement a mandatory system (since June 1988) to provide automatic order execution for individual traders with orders less than or equal to 1000 shares. (For stocks with low volume, it may be less than 200 shares). Market makers must accept SOES orders and so this provides excellent liquidity for smaller investors and traders.
There are several restrictions for those who use SOES, rather than a traditional electronic communication network (ECN), to place their orders.
Initially, when SOES was mandatory, it was met with heavy pessimism from NASDAQ member firms because it forced them to execute all SOES trades that met the market maker's advertised price. There were also significant limitations implemented to prevent day traders from exploiting the system and taking advantage of old prices quoted by market makers.
SOES has revamped the trading market for individual investors. It has given small investors and traders the opportunity to compete on a level playing field with larger investors such as institutions for access to orders and execution.