OATS Frequently Asked Questions - Compliance
C1. How do I know if I have to comply with FINRA Rules 7410 through 7470?
If you have an obligation to record the time of any market event pursuant to the By-Laws or rules of FINRA you must synchronize all business clocks, including both computer system clocks and mechanical time-stamping devices used to record such times. In addition, if your firm receives and/or handles any orders in Nasdaq and/or OTC listed securities you must comply with the rules regarding OATS reporting. (Last updated 04/08/09)
C3. A registered investment advisor (RIA) operates within member broker-dealer BD1 (i.e., BD1 and RIA are part of the same legal entity). RIA originates and routes orders for execution away from BD1. What are the RIA's OATS reporting obligations?
Because the RIA is part of the same legal entity as the member broker-dealer, orders received or originated by the RIA are subject to all applicable OATS reporting rules and the member broker-dealer must report to OATS all orders that the RIA receives or originates. If the RIA is a separate legal entity that is not a FINRA member, the RIA would not be subject to the OATS Rules. (Last updated 10/7/11)
C4. My firm receives and handles orders in Nasdaq and OTC listed securities, however, all clearing activities are handled by another firm. Does my firm have to report to OATS?
You are required to report to OATS all of your transactions in Nasdaq and OTC listed securities. However, if you have an arrangement with a clearing firm, it is possible that the clearing firm will report order information on your behalf. (Note: You must be in the position to provide your clearing firm with information required to be reported under the rules.) The agreement to use another firm or a third party, such as a clearing firm, must be arranged by your firm, evidenced in writing, and retained by both parties to the agreement. The agreement must specify the respective functions and responsibilities of each party. Do not assume that any third party will perform reporting on behalf of your firm. (Last updated 04/08/09)
C5. Can my firm contractually arrange for another firm to transmit orders to OATS?
Your firm can enter into a contract with one or more firms or third parties (also known as transmitting firms) under which a transmitting firm agrees to make reports to OATS on behalf of your firm. Such arrangements should clearly specify the duties of each party with respect to OATS reporting.
At a minimum, a transmitting firm should: (1) represent that it is familiar with the OATS Rules and the OATS Reporting Technical Specifications; (2) represent that it has completed or will complete testing, as described in the Technical Specifications; (3) agree to make reports to OATS in compliance with OATS Rules and Technical Specifications, and any subsequent modifications thereto; (4) agree that any records of OATS data prepared on behalf of your firm and maintained by the transmitting firm are the property of your firm and shall be surrendered promptly upon your firm’s request; (5) agree to permit examination of any records of OATS data prepared on behalf of your firm and maintained by the transmitting firm at any time or from time to time during business hours by representatives of FINRA and to promptly furnish to FINRA or its designee true, correct, complete, and current hard copy of any or all of any part of these records; (6) have processes and procedures reasonably designed to ensure compliance with OATS requirements; and (7) agree to promptly notify your firm upon the occurrence of any event, including physical damage to the transmitting firm’s facilities or legal proceedings involving the transmitting firm that would materially affect the transmitting firm’s ability to make OATS reports on behalf of your firm. The agreement should also provide for disposition of any records maintained on behalf of your firm in the event that the transmitting firm is unable or unwilling to provide for the storage of your firm’s records.
No contractual arrangement, no matter how comprehensive, will relieve a member of its responsibilities under the OATS Rules. The above provisions are merely suggestions of the types of issues that a member must consider in contracting to fulfill its OATS reporting requirements. (Last updated 02/16/99)
C6. If one or more third parties (e.g., clearing firms) report order information on behalf of my firm, how much of the compliance responsibility lies with my firm and how much lies with the third parties?
If your firm has a reporting responsibility, it is primarily the responsibility of your firm to ensure that timely, accurate, and complete order information is reported to FINRA. If member third parties submit order information on behalf of your firm, there is some shared responsibility for the complete and accurate submission of order information by the third parties and your firm. If non-member third parties submit order information on behalf of your firm, your firm is responsible for the submissions. Your firm should have written procedures in place to ensure that the information reported for your firm is timely, accurate, and complete. Refer to C5 for suggestions of the types of issues that a member must consider in contracting to fulfill its OATS reporting requirements. Also refer to NASD Notice to Members 02-29 for additional guidance on members supervisory systems. (Last updated 06/13/02)
C8. How long are we required to retain OATS data?
According to FINRA Rule 7440, records must be maintained in accordance with FINRA Rule 3010 and SEC Rule 17a-4(b). These rules state that OATS records must be preserved at least three years, the first two years in an accessible place. Records are not required to be retained in an electronic format; they may be retained in paper or microfiche formats. (Last updated 04/08/09)
C9. How will I have the time to perform business functions and send order information to OATS?
In general, business can proceed as usual; for example, the OATS Rules do not change the amount of time allowed to write a customer order ticket or perform order processing. The rules do require that the business clocks firms use to record the times of market events be synchronized and that the times of OATS reportable events be recorded using hours, minutes, and seconds. (Last updated 07/06/98)
C10. Does the 10-second Rule apply to OATS reporting?
No. The “10-second Rule” is a trade reporting rule. OATS is not a real-time system. Although order information may be transmitted to OATS at any time, including during or after market hours, it is not required to be submitted until 08:00 (8 a.m.) Eastern Time the following calendar day (Last updated 11/07/13)
C11. Do I have only 3 seconds to record order information?
No. The OATS Rules do not change the amount of time allowed to write a customer order ticket or perform order processing. (Last updated 07/06/98)
C12. My firm is not required by FINRA rules or By-Laws to record the date and time of market events. Are we required to synchronize our business clocks?
No. Only FINRA member firms with an obligation under FINRA rules or By-Laws to record the time of a market event must synchronize their business clocks. For example, firms that only sell mutual funds and have such an obligation only under SEC rules or related guidance to record the time of market events are not required to synchronize their business clocks. (Last updated 11/03/98)
C13. My firm is required by FINRA rules to record the date and time of market events, but we do not accept orders for Nasdaq or OTC listed securities and have no OATS reporting responsibilities. Are we required to synchronize our business clocks?
Yes. All FINRA member firms with an obligation under FINRA rules or By-Laws to record the time of a market event must synchronize their business clocks. (Last updated 04/08/09)
C14. Do the OATS Rules allow us to continue to write the time on order tickets or are we required to purchase mechanical time clocks?Under the OATS Rules you may continue to use handwritten timestamps. However, a firm that uses handwritten timestamps must be confident that it is complying with the OATS Rules and all other FINRA rules or By-Laws. This includes referencing a synchronized clock and recording hours, minutes, and seconds when writing timestamps for OATS reportable events. (Last updated 07/17/98)
C15. What time am I supposed to report as order receipt time when I receive a customer order on the golf course?
The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes. (Last updated 03/28/06)
C16. My firm is not a market maker in any Nasdaq or OTC listed security; however, we sometimes trade in these securities for our proprietary accounts. Are we required to report these proprietary trades to OATS?
Yes, the only types of orders for Nasdaq and OTC securities that are not subject to OATS reporting requirements are orders originated by a trading desk in the ordinary course of a member’s market making activities. (Last updated 09/08/98)
C17. My firm receives orders for listed, National Market (NMS), and SmallCap securities on any given day. Will FINRA provide a list of the issues that must be reported to OATS?
Orders for any Nasdaq security must be reported to OATS.. A file containing Nasdaq symbols can be downloaded from www.nasdaqtrader.com . The Symbol Directory is updated daily at 2 a.m. and reflects issues as of the beginning of the prior business day. (For example, the Symbol Directory that is updated at 2 a.m. on Wednesday reflects the issues as of the beginning of Tuesday's market day.) Any changes to the Symbol Directory between the time it is posted and about 2 p.m. the following day are reflected in the Daily List, which is updated daily at approximately 2 p.m. The Daily List is available via FTP or the Web. (Last updated 04/08/09)
C18. My firm operates a convertible bond department. Does my firm have to report information to OATS about orders in convertible bonds?
The OATS Rules apply to orders in Nasdaq Stock Market equity securities. Section 3(a)(11) of the Securities and Exchange Act of 1934 and SEC Rule 240.3a11-1 define "equity security" as any security convertible into stock or a similar security. Convertible bonds can be converted into equity securities. Therefore, orders for convertible bonds listed on Nasdaq are subject to OATS reporting. (Last updated 11/03/98)
C19. My firm often receives and handles orders for Initial Public Offerings (IPOs) and secondary distributions. Are these orders reportable to OATS?
No, orders received by member firms as part of an IPO or secondary distribution are not subject to OATS reporting. (Last updated 09/08/98)
C20. I use several electronic order routing and executing systems. Am I allowed to use more than one third party to transmit data to OATS on my behalf?
Yes. More than one third party may transmit order events to OATS on behalf of your firm. Firms are responsible to ensure that all required information is submitted to OATS and that the third parties do not send duplicate information to OATS. Be aware that some third parties may believe they are reporting on your behalf. Ensure that you have clearly defined agreements covering OATS reporting responsibilities with all parties that handle your order data and that you communicate the responsibilities with all parties that handle your order data. If the parties reporting on your behalf transmit duplicate reports (for example, if a clearing firm and a service bureau both transmit an Execution Report for the same order), only the first report will be accepted by OATS. All subsequent reports will be considered duplicates and will be rejected. (Last updated 11/03/98)
C21. My firm deals only in mutual funds. Do we need to synchronize our business clocks, as specified in the OATS Rules?
No. Firms that deal only in mutual funds and have no obligations under FINRA rules or By-Laws to record the time of a market event have no requirement to synchronize their business clocks. (Last updated 09/08/98)
C24. Can I assume that my clearing firm will perform all of my OATS reporting?
No. Do not assume that any third party, including your clearing firm will perform your OATS reporting. Contact your clearing firm directly to determine the role it will play in OATS reporting. You must have a contractual agreement with any third party to report OATS data on your behalf. It is your responsibility to report the required data to OATS. If your clearing firm does not agree to perform OATS reporting for you by the appropriate implementation date, you are required to obtain an alternate method for reporting to OATS. (Last updated 11/03/98)
C26. How do I determine the proper order receipt time for an order?
The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes. (Last updated 03/28/06)
C27. Do OATS reporting requirements apply to orders for Nasdaq equity securities placed by option market makers on exchange floors?
Yes. The OATS Rules apply to orders for Nasdaq equity securities created or routed by a firm on an exchange floor. (Last updated 11/06/98)
C28. We would like to buy software that will allow us to create and transmit our own OATS reports. Can you provide us with a list of vendors?
FINRA is aware of several companies that have developed software that will allow you to create and transmit OATS reports that are compliant with the requirements in the OATS Rules and in the OATS Reporting Technical Specifications. Contact the FINRA Business and Technology Support Services to obtain a list of these companies.
Note: FINRA does not recommend or endorse any manufacturer, vendor, or product, nor will it receive any consideration as a result of providing the information about any such manufacturer or vendor. When FINRA becomes aware of other companies that provide services to help members meet the requirements of the OATS Rules, they will be added to the list maintained by FINRA Business and Technology Support Services. (Last updated 11/03/98)
C29. Are my reporting responsibilities different if I use a member firm's electronic order handling or execution system versus a non-member firm's system?
Yes. For non-market makers:
For market makers:
C30. If I receive an order when I am outside of my office, do I have to immediately reference a synchronized clock and record the time of receipt?
The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record, referencing a synchronized clock, as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes. (Last updated 03/28/06)
C31. If a money manager who has discretion over 10 customers’ accounts places a bunched order with me for 10,000 shares (i.e., he will distribute the shares among those accounts), how many New Order Reports am I required to send to OATS?
You are only required to report the single order that you received from the money manager; therefore, you would only be required to send one New Order Report to OATS for this transaction. Note: Because it was the money manager that bunched the order, you would not indicate in any OATS report that the order was bunched. (Last updated 11/23/98)
C32. If a registered representative who has discretion over 10 customers’ accounts places a bunched order with the trading desk for 10,000 shares (i.e., he will distribute the shares among those accounts), how many New Order Reports should we send to OATS?
You are only required to report the single order originated by the registered representative; therefore, you would only be required to send one New Order Report to OATS for this transaction. Note: Because the registered representative had discretion and bunched the order upon origination, you would not indicate in any OATS report that the order was bunched. (Last updated 11/23/98)
C33. If a registered representative receives 10 orders for a total of 10,000 shares and bunches these orders before transmitting them to the trading desk, how many New Order Reports should we send to OATS?
Since the registered representative did not have discretion in the accounts, but instead received orders for these accounts, each order must be reported separately; therefore, you would be required to send 10 New Order Reports to OATS. (Last updated 11/23/98)
C34. We occasionally receive orders for our employees’ accounts. Sometimes we also receive orders for the accounts of our employees’ family members. Should Account Type Code "E" be used for both types of orders?
No. Account Type Code "E" should only be used for orders received for your employees’ accounts, not for orders received for the accounts of your employees’ family members. The family members’ orders would likely be classified as Account Type "R" (retail). (Last updated 02/16/99)
C35. Many of our customer orders are routed to an ECN. Although the orders are market orders, they are required to contain a limit price. Our trader modifies the limit price on the orders, as market conditions require, to obtain the best price for the customer. In a fast-moving market, the trader may modify the order many times over a short period. Are we required to submit an OATS report for each of these modifications?
If the modifications to the order are requested by your trader and not by the customer, and if the ECN is reporting each of them to OATS, you are not required to report them to OATS. However, your firm must report all customer-requested modifications to an order by filing a Cancel/Replace Report for each of the modifications. (Click here for additional information.) (Last updated 02/16/99)
C36. Do the OATS Rules supersede Rule 17a-3?
The OATS Rules (FINRA Rules 7410—7470) are independent from SEC Rule 17a-3. Thus, firms must comply with both sets of rules. Both OATS Rules and SEC rules allow firms to store records in manual or electronic forms, such as microfiche, paper, and computer disk. (Last updated 04/08/09)
C37. I work for a FINRA member firm that is located in Germany. Are we required to synchronize our clocks and report orders for Nasdaq securities to OATS?Yes. All FINRA member firms, including all member firms located outside the United States, must comply with FINRA Rules 7410 through 7470, including submitting applicable order information to OATS, recording times in seconds for OATS reportable events, and synchronizing clocks. For additional information, refer to the OATS Reporting Technical Specifications. (Last updated 04/08/09)
C38. Are we required to retain our OATS data in a format that could be resubmitted to OATS?
No. According to FINRA Rules 3010 and 7440 and SEC Rule 17a-4(b), you are only required to retain the data itself in a format that it could be retrieved upon a compliance request. You are not required to retain the data in an electronic format that could be submitted to OATS (such as in ROE format), nor are you required to retain header and footer information. In addition, you are not required to store the data in an electronic system; it could be stored on paper or microfiche. (Last updated 04/08/09)
C39. Should Account Type Code "E" be used for orders received from former or retired brokers of my firm or another firm?
No. Account Type Code "E" should only be used for orders received for your employees’ accounts, not for orders received for the accounts of former or retired brokers of your firm or any other firm. These orders would likely be classified as Account Type "R" (retail). See C34. (Last updated 03/02/99)
C40. I am a market maker. I either receive orders via an electronic system or I put orders directly into such a system immediately after I receive them. Sometimes I have an order that I do not execute using the electronic system. Instead, I call another member firm and execute the order over a phone. What order reports am I required to file for such an order?
You would be required to file a New Order Report when the order was received at your firm, regardless of whether it was received or captured manually or in an electronic system. If you transmitted the order to a member firm or a non-member for handling or execution, you did not direct it to another desk within your firm, and the terms of the order did not change, the only other report you would be required to file would be a Routing Report. This Routing Report is required, regardless of whether the transmission was electronic or via some manual means (e.g., the telephone). (Last updated 04/08/09)
C41. When is a Terminal ID or Department ID required?
Terminal or Department ID, which is the identification of any terminal or department where an order is received directly from a customer, is required for orders electronically captured (i.e., electronic orders), regardless of the method of order receipt. (Last updated 05/07/99)
C42. How do the OATS Rules apply to introducing firms?
If you have an obligation to record the time of any market event pursuant to the By-Laws or rules of FINRA, you must synchronize all business clocks, including both computer system clocks and mechanical time-stamping devices used to record such times. In addition, the reporting portion of the OATS Rules applies to all firms that receive or handle any orders in Nasdaq and OTC listed securities. These rules require you to report information about orders in Nasdaq and OTC listed securities to FINRA and record the time of all OATS reportable events in hours, minutes, and seconds. You can develop a system to transmit this order information to OATS or contract with one or more third parties to provide this service. For additional information read FINRA Rules 7410 – 7470 andthe OATS Reporting Technical Specifications. (Last updated 04/08/09)
C47. Some of our employees control the accounts for charitable trusts or foundations. Should Account Type Code "E" be used for orders for these accounts?
No. Account Type Code "E" should only be used for orders received for your employees’ accounts, not for the orders for such accounts. Orders for these accounts would likely be classified as Account Type "R" (retail). See C34. (Last updated 05/07/99)
C48. We route some of our orders using ACES Pass-Thru. Are these orders considered manual or electronic?
If you enter the orders directly into a Nasdaq Workstation, the orders would be considered manual. If the orders are routed into ACES Pass-Thru via an electronic order handling system, the orders would be considered electronic and a Routed Order ID must be passed through via the Branch/Sequence Number field in ACES. (Last updated 06/13/02)
C50. When my firm receives orders from other broker/dealers, we do not receive all of the special handling details that may have been associated with the original customer order. How can we report these special handling details?
You are not required to report the special handling details associated with the original customer order. You are only required to report the order information that you receive from the broker/dealer. Thus, if you receive a wholesale order, you are only required to report any special handling requested by the sending broker/dealer. (Last updated 05/07/99)
C51. If I place an order on an ECN’s terminal, can I assume that the ECN will report the order to OATS on my behalf?
No. You are required to report to OATS all of your order events in Nasdaq and OTC listed securities. The ECN is required to report all orders it receives. It has no obligation to report orders on behalf of firms that use its terminal to execute orders. The agreement to use any third party for reporting to OATS must be arranged by your firm, evidenced in writing, and retained by both parties to the agreement. The agreement must specify the respective functions and responsibilities of each party. Do not assume that any third party will perform reporting on behalf of your firm. (Last updated 04/08/09)
C52. How can I obtain information about how well our Execution Reports match with our trade reports?
Your firm's Order Trade Matching Statistics are available via the OATS Web Interface located at https://firms.finra.org. (Last updated 3/26/13)
C53. Are we required to report Buy/Write orders involving Nasdaq securities to OATS?
You must report the stock purchase portion of a Buy/Write order involving Nasdaq securities as a "Pegged" order. Thus, you would be required to report a New Order Report for the order with a Special Handling Code of "PEG". If you executed the order, you would be required to submit an Execution Report for the order; if you sent the order to another firm for execution, you would be required to submit a Routing Report for the order. If you do not direct the order to another desk within your firm, and the terms of the order do not change, you would not be required to file any other order reports. (Last updated 10/06/00)
C54. Are we required to report options assignments in Nasdaq securities?
No. Options assignments (the exercise of options contracts in Nasdaq securities) are not orders, as defined by the OATS Rules; therefore, you are not required to report them to OATS. (Last updated 05/07/99)
C55. I filed an "As-Of" trade report and a matching Execution Report in OATS. Why was my Execution Report marked late?
The Execution Report was marked late because it was transmitted to OATS after 5 a.m. the following calendar day without the Rejected ROE Resubmit Flag set to "Y". (Repairs made via the OATS Web Interface automatically default the Rejected ROE Resubmit Flag to "Y".) (Last updated 04/08/09)
C56. When I repaired my rejected records and resubmitted them, they were marked late. Why?
The repaired records were marked late because they were transmitted to OATS after 5 a.m. the following calendar day without the Rejected ROE Resubmit Flag set to "Y". (Repairs made via the OATS Web Interface automatically default the Rejected ROE Resubmit Flag to "Y".) (Last updated 9/14/07)
C57. When I receive an order electronically from another firm, must I report the Routed Order ID to OATS in the exact format in which I received it?
Yes. Routed Order IDs must be reported in the same format in which they were received or the audit trail will be broken. For instance if a firm routes an order with a Routed Order ID of AB_0001, the receiving firm must also indicate a Routed Order ID of AB_0001. In this instance, a Routed Order ID of AB001, AB_001 or anything other than the exact format of the original Routed Order ID will cause the audit trail to break. (Last updated 06/04/99)
C58. Recently my firm had a ROE rejection of an OATS Execution Report for the following reason: "Execution Report is for an order that does not exist in OATS." We checked our records and found that the order was more than a year old and that we did transmit the New Order Report and it was accepted by OATS. Can this reject be repaired?
OATS maintains open GTC, GTD and GTM orders in a file for two years. After two years the ROE is removed from the active file. When this occurs, any subsequent order events including execution reports, cancel reports, cancel/replace reports and route reports will be rejected for "…(order event type) Report is for an order that does not exist in OATS." Member firms should submit a duplicate New Order Report and any rejected subsequent order events, each with the Rejected ROE Resubmit Flag set to "Y". (Last updated 04/08/09)
C59. When we effect a riskless principal trade and use the alternative method of trade reporting are we required to match the trade report to the OATS Execution Report?
A. Yes. When using the alternative approach to riskless principal trade reporting, firms should match the OATS execution report to the non-tape, non-clearing or clearing-only report submitted to the trade reporting facility by including the Branch/Sequence number on those reports. If your firm is using the original approach to riskless principal trade reporting, the reporting exception code "R" for riskless principal trades should be used when submitting the OATS execution report. (Last updated 04/08/09)
C61. If I electronically route an order to NASDAQ or another trading venue and that order is immediately rejected, am I required to report an OATS Route Report for the rejected order?
No. If you electronically route an order and that order is immediately rejected (i.e. it is not accepted by the trading venue) then the firm is not required to report the route in an OATS Route Report. However, if the firm re-transmits that order and the re-transmitted order is accepted, a Route Report must be recorded and reported to OATS. (Last updated 9/14/07)
C62. How should agency orders executed on an average price basis be reported to OATS?
When executing an agency order on an average price basis, members are required to show receipt and execution of the customer order by reporting a New Order Report and a single Execution Report to OATS. The execution time field of the Execution Report should be populated with the time at which the average price of the agency execution was determined. Members should populate the Reporting Exception Code on the OATS Execution Report with "A - Agency Average Price" to reflect that the report cannot be matched to a trade report.
Specifically, a firm is required to report an Execution Report as described above when the following conditions are met:
Members and reporting agents should note when handling an order on an average price basis, only the new order and single average price execution should be reported to OATS. No Route Reports should be submitted when reporting an agency average price order as described above.
See also the OATS Report entitled "FINRA Guidance on OATS Reporting Obligations When Handling Orders on an Agency Basis" published on April 29, 2009 for additional guidance concerning the reporting requirements for agency orders. (Last updated 06/29/09)
C63. If my firm accepts IOC (Immediate or Cancel) or FOK (Fill or Kill) type orders, is it required to submit an OATS Cancel Report for the order if it is either partially or not immediately filled in the instance of an IOC or a non-fill in the instance of an FOK?
No. An IOC order by definition is subject to an immediate partial or full execution. Otherwise, it is automatically partially or fully cancelled. An FOK order by definition is subject to either an immediate execution or immediate cancellation. Therefore, it is inappropriate and unnecessary to submit to OATS a Cancel Report for an order with instructions to be handled as IOC or FOK. (Last updated 03/17/04)
C67. My firm receives orders where the customer instructs the firm to buy as much stock as possible for a specific dollar amount (e.g., $1,000) over the course of the day. These orders are commonly referred to as "cash" orders . How should these cash orders be reported to OATS?
Beginning with the OATS 1Q05 quarterly release, these orders should be reported to OATS with a special handling code of "CNH" denoting Cash Not Held (until the 1Q05 release goes into production, firms should use the NH special handling code). Additionally, they must be reported to OATS with a shares quantity equal to the number of shares that could be purchased with the specified dollar amount based on the best available market at the time of order receipt. For example, if a firm receives a cash order for $1,000 when the best available market is $20, then the firm must report a shares quantity of 50 in the New Order, Combined Order/Route or Combined Order/Execution Report. Firms need not submit a Cancel/Replace report to reflect a change in share quantity due to market fluctuations during the life of the order . However, if a customer changes the dollar amount, then a Cancel/Replace Report must be submitted to reflect that change.
C68. Sometimes my firm will route an order to a market-maker or market center that, for one reason or another, rejects the order. Do I need to reflect this attempted route by submitting a Route Report?
No. If your firm's order is rejected by a market center, then the order is not considered to have been routed for OATS purposes. Therefore, the firm need not submit a route report to OATS to show the attempted route. Firms must however, submit a route for any subsequent route to another market center that is subsequently accepted by the receiving market center.
C69. My firm receives OATS reportable orders from four separate customers totaling 10,000 shares, all with instructions to handle as agent. My firm sends one larger order, properly marked as agency, to the Nasdaq Exchange or another market center in an attempt to obtain an execution for these four orders. My firm holds the individual customer orders and never gives up control of these orders to any other broker-dealer or market center. Upon receipt of an execution of the larger order, the shares are recorded in my firm's agency allocation account. Subsequently, my firm allocates the shares from the agency allocation account to the individual customer accounts based upon a predetermined allocation methodology. How should these orders and related executions be reported to OATS?
The four customer orders were not routed outside of the member for execution, and were not executed until the firm allocated shares from its agency allocation account. In this case, the member should report a New Order Report and Execution Report with a Reporting Exception Code of "T" for each individual customer order to denote that the execution represents an agency post trade allocation and will not match to a related trade report. The Execution Time field on the Execution Report should reflect the time the shares were allocated to each individual customer account. A Route Report for each customer order should not be reported in this scenario since the member did not route the order away for execution and the individual customer orders were not executed until the shares were allocated to the specific customer accounts.
C70. A money manager with discretion over multiple accounts places an OATS reportable bunched order with my firm for 10,000 shares. The trader executes this 10,000 share order either as principal or routes it to another market center for execution. When the order is executed, my firm communicates this information back to the money manager, who then allocates the execution(s) on an average price basis to various sub accounts. How should I report the money manager's order and subsequent sub account allocations to OATS?
The firm received instructions from the money manager to work an order for 10,000 shares (representing multiple orders bunched by the money manager). In this case, the firm must report a New Order Report to OATS for 10,000 shares. The individual orders that were aggregated by the money manager should not be reported to OATS as separate new orders. (See FAQ C31) Further, any post trade allocations made by the money manager to its sub accounts should not be reported to OATS by the firm. The firm should, however, report the bunched new order from the money manager and any related routes or executions that result from the firm's efforts to fill the money manager's bunched order. For example, the firm would submit a New Order Report for 10,000 shares upon receipt of the order from the money manager. If that order were filled by routing 5,000 shares to an ECN, executing 3,000 shares as principal and then routing the remaining 2,000 shares to the Nasdaq Exchange, the firm would submit to OATS a Route Report to the ECN for 5,000 shares, an Execution Report for 3,000 shares representing the proprietary fill, and a Route Report to the Nasdaq Exchange for the remaining 2,000 shares. No further OATS reporting by the firm would be required when the money manager makes the sub account allocations.
C71. My firm is a FINRA member based in Canada. We receive orders for securities that are listed on both the Toronto Stock Exchange and the NASDAQ Stock Market. We execute all of these orders on the Toronto Exchange. Are these orders reportable to OATS?
Yes. All orders received by FINRA members in NASDAQ listed equity securities are subject to the OATS Rules regardless of where executed. If the order is sent to the Toronto Stock Exchange for execution, the member is required to report the receipt of the order and the route to the exchange. All prices must be converted into U.S. dollars based on the conversion rate applicable at the time of the transaction.
C72. Are clearing related transactions such as Prime Broker, Step Outs, CNS "flips" etc, OATS reportable?
No. The definition of an order pursuant to NASD Rule 6951(j) would not include any back office or clearing related transactions that serve only to facilitate the clearance and settlement of a previously executed transaction. Therefore, these types of clearing-related transactions are not subject to the OATS Rules.
C73. FINRA has specified that the new Special Handling Code of "OPT," which becomes effective September 11, 2006, should be used for orders where the terms and conditions of the order are derived from a related options transaction. Can FINRA offer more specific guidance regarding the appropriate use of this code? For example, would this be appropriate for buy/writes or option exercises and assignments?
FINRA intends the Special Handling Code of "OPT" to be used in instances involving a combination trade in which the cash leg is the second leg of the transaction and the terms and conditions of the cash order are contingent upon the related option trade. In other words, the "OPT" code is appropriate when the price or size of a cash order is contingent upon a related option trade. The code is not intended to be used in conjunction with option exercises or assignments, which do not constitute OATS reportable events (See FAQ C54). The code would only be appropriate for a buy/write if, as explained above, the terms and conditions of the cash order were contingent upon the related option transaction.
C74. If a .R transaction represents an event subject to the Order Audit Trail System (OATS) Rules, is the transaction report submitted to a FINRA trade reporting system with a .R modifier required to be matched to the related OATS Execution Report submitted to OATS?
Yes. Members are required to link the .R transaction report submitted to a FINRA trade reporting system to the related OATS Execution Report. Members should reference the OATS Technical Specifications for the applicable matching criteria.
C75. Are Combination Reports (Combined New Order/Route and Combined New Order/Execution) required for manual orders?
No. Manual orders are exempt from the mandatory use of Combination Reports set forth in Notice to Members 04-46.
C76. Are indications of interests or negotiations reportable under the OATS Rules?
No. Indications of interest and negotiations are not considered reportable events under the OATS Rules. Indications of interest are never reported. A negotiation is not considered to be a reportable event until both parties agree to the terms of a trade. After the terms of the trade are agreed to, a new order report and execution report must be reported to OATS. The New Order should be reported from your firm's perspective and contain a Negotiated Trade Flag of "Y". NOTE: For orders negotiated through OTC Link, please refer to the OATS for OTC FAQs regarding OTC Link.
C77. My firm provides both sponsored access and direct market access to non-FINRA member clients. Is my firm responsible for any OATS reportable events associated with these clients' access?
Yes. As a general matter, FINRA considers a firm to be the executing broker in any transaction where its client (either a customer or a non-NASD member broker/dealer client) is only able to effect the trade by virtue of the firm's membership with the applicable market center. Thus, if a client would not be able to effect trades without the use of a FINRA member's assigned MPID, that FINRA member is responsible for reporting the necessary information to OATS.
For the OATS reporting obligations in scenarios where a member provides another FINRA member a smart order router or other order routing services, please refer to Scenario 4.4.21 in the OATS Reporting Technical Specifications.
C78. Are there any Order Audit Trail System (OATS) reporting obligations for NASDAQ securities relating to Regulation NMS?
Yes. For orders subject to the OATS Rules, members will be required to identify on the applicable OATS report the receipt and routing of an ISO. Specifically:
1. A new Special Handling Code of “ISO” has been added to the New Order Report, Combined Order/Route Report, Combined Order/Execution Report and Cancel/Replace Report to reflect the receipt of an ISO by a trading center; and
2. A new Routing Method Code of “I” will be added to the Route Report and Combined Order/Route Report to identify orders, or portions of orders, that are routed to another trading center and identified to such trading center as an ISO. The ISO Special Handling Code for trading centers receiving an ISO will be mandatory on July 9, 2007, the Pilot Stocks Phase Date under Regulation NMS. FINRA has filed a proposed rule change with the SEC to establish the new Routing Method Code.25 If the rule change is approved, the Routing Method Code “I” for members routing ISOs to other trading centers will be available on June 11, 2007, but will not be mandatory until February 4, 2008. This will provide firms with additional time to program for the new code. For illustrative purposes, the following are examples of the applicability of these new OATS codes:
Example #1: “ISO” Special Handling Code: An ADF trading center is displaying a protected quotation in the ADF. Another broker-dealer wishes to access this protected quotation by routing an ISO to execute against its full displayed size, as required by SEC Rule 611(b)(6). This broker-dealer therefore routes an ISO to the ADF trading center to access the protected quote. OATS reporting obligations of the ADF trading center in Example #1: The ADF trading center must submit to OATS: (1) a New Order Report with a Special Handling Code of ISO to reflect the receipt of an order; and (2) an Execution Report reflecting execution of the routed ISO, if applicable.
Example #2: “I” Routing Method Code: A member firm intends to utilize the ISO exception to the trade-through rule to obtain executions for an order that it has received from its customer. To satisfy its obligations under SEC Rule 611, the member firm routes ISOs, which it chooses to send on an agency basis, to execute against the relevant protected quotations. OATS reporting obligations of the member firm in Example #2: The member firm must submit to OATS: (1) a New Order Report reflecting receipt of the order from its customer; (2) a Route Report for each ISO sent, on an agency basis, to another trading center with a Routing Method Code of “I” and a Destination Code reflecting the specific exchange or trading center to which the order was routed; and (3) to the extent that the member routed the ISOs, on an agency basis, with the intent of executing on a principal basis the balance, if any, of the customer order not satisfied by the routing (and subsequent execution, if any) of such ISOs, an Execution Report to reflect the execution of the balance of the block order with its customer.
C79. My firm receives an order to buy 10,000 shares of an OATS-reportable security. 5,000 shares of this order are executed. Subsequently, the customer requests to cancel the remaining 5,000 shares. Is the subsequent cancellation of the remaining 5,000 shares considered a full or partial cancellation for OATS reporting purposes?
For OATS purposes, this would be considered a partial cancellation. Specifically, the firm should submit a Cancel Report to OATS containing a Cancel Type Flag "P" (partial) with a Cancel Leaves Quantity of zero. The Cancel Type Flag of "F" (full) should be used only when a customer cancels an order in full (i.e., the Cancellation Quantity is the same as the original order Shares Quantity).
C80. If my firm is undergoing an organizational change (e.g., a merger, acquisition, or succession), what are my obligations with respect to OATS?
Firms undergoing an organizational change need to ensure that reporting relationships are properly established in OATS so that there are no interruptions in a firm's ability to report to OATS upon the completion of the transaction. For general guidance on a variety of topics, including OATS, regarding organizational changes, firms may refer to information on our Site . Firms undergoing organizational changes should pay particular attention to open limit orders that were established prior to the completion of any transaction. If the predecessor firm has open limit orders on its books that will be executed under the successor firm’s MPID, the firm should route the orders to the new MPID, and report the route to OATS, or provide the predecessor's MPID in the "Mergers & Acquisitions Administration" field on the OATS report. If the predecessor firm has open limit orders on its books that will be executed using the predecessor firm's existing MPID, but with the existing MPID now assigned to the successor firm's broker/dealer number, the firm must contact FINRA's Market Regulation OATS Department at (240) 386-5126 prior to the completion of the transaction so that any open limit orders can be properly assigned to the successor firm.
C81. My firm receives and executes orders that may exceed 100 million shares. The OTC Trade Reporting Facility (ORF), however, will not accept trades that exceed 99,999,999 shares. Therefore, a trade exceeding 99,999,999 shares must be reported to the ORF in two or more transaction reports. Can a single OATS Execution Report be matched to more than one ORF trade report?
Yes. The OATS order/trade matching process will allow a single OATS Execution Report to match to more than one trade report provided that the execution time, branch/sequence number, MPID and issue symbol on all related trade reports are identical to those reported on the OATS Execution Report.
C82. How should Exchange for Physicals ("EFP") transactions be reported to OATS?
Like a negotiated transaction, both the buyer and seller of the reportable security in an EFP transaction would have an obligation to report New Order and Execution Reports (or Combined Order/Execution Reports) at the time the transaction occurs. The New Order Report should contain the Special Handling Code of E.W to identify it as an EFP. Finally, if the contra party on the trade report is not able to enter a branch/sequence number due to system constraints, they may use a Reporting Exception Code of M.
C83. My firm accesses certain market centers through sponsored access relationships with other FINRA members. What are the OATS reporting obligations for both members in these scenarios?
With respect to the members' OATS reporting obligations, when two members have entered into a sponsored access agreement whereby one member sponsors the other member into a specific market center (such as a national securities exchange) by providing use of the sponsoring member's MPID, both members have separate and distinct OATS reporting obligations. For example, if FINRA member ABCD sponsors access into a national securities exchange for FINRA member EFGH, the OATS reporting obligation for each firm would be as follows:
Sponsored Member EFGH (under the MPID of EFGH)
New Order Report
Route Report indicating order was routed to ABCD
Sponsoring Member ABCD (under the MPID of ABCD)
New Order Report indicating the order was received from member EFGH
Route Report indicating order was routed to a national securities exchange
The OATS reporting obligations outlined above are the same regardless of the type of connection used by the sponsored member to access the applicable market center. For example, the OATS reporting obligations for each member would be the same whether the sponsored member used a direct market connection provided by the sponsoring member, a third party service provider connection provided by the sponsoring member, or its own proprietary connection to the subject market center.
C84. I have an order which was executed on an agency average price basis and was worked simultaneously with other orders with the executed shares being allocated to each individual order on a post trade basis. Should I use the Reporting Exception Code of "A" for Agency Average Price or the Reporting Exception Code of "T" for Post Trade Allocation?
If the execution of an order meets the criteria for both the "A" and "T" Reporting Exception Codes, the Reporting Exception Code of "T" should be used.
C85. Pending SEC approval of the new rule changes, how would the new requirement to provide the price on Route Reports impact orders executed on an agency average price or a post trade allocation basis? Will there be any new requirements for these type of orders?
No. The new requirement to provide the price on Route Reports would not change any of the reporting requirements for orders handled on an agency average price or post trade allocation basis. Those orders should continue to be reported in accordance with the guidance set forth in current relevant FAQ, OATS Reports and OATS Reporting Technical Specifications.
C86. How should the Routed Order Type Indicator be populated for orders routed as Stop or Stop Limit orders?
Orders routed as Stop orders should be reported with a Routed Order Type Indicator of "M" (Market Order). OATS will derive the Stop information from the related originating or receiving firm's New Order Report, as applicable. Orders routed as Stop Limit orders should be reported with a Routed Order Type Indicator of "L" (Limit Order) and the price should be populated with the Stop Limit price.
C87. How should the Routed Order Type Indicator be populated for orders routed with special handling instructions that may include certain pricing criteria, but are not routed with a specific limit price such as PEG orders or options related orders?
Any order routed without a specific limit price, such as a PEG or options related order, should be reported with the Routed Order Type Indicator populated with "M" (Market Order). OATS will derive that the order is a PEG or options related order from the Special Handling Code on the related originating or receiving firm's New Order Report, as applicable.
C88. Can an order be marked as Short Exempt in the Short Sale Indicator field on the OATS Route Report if the order was reported as a regular short sale on the related New Order Report?
Yes. If a firm receives a Short Sale order prior to the triggering of a circuit breaker, the firm would populate the Buy/Sell Code with “SS” (Short Sale). If, at the time the order is routed, a circuit breaker is triggered, the order may be marked “short exempt” consistent with SEC Rule 201, and the Short Sale Exempt Indicator on the related OATS Route Report must be marked with a “Y”.