Error Account Type Code

On July 14, 2008, FINRA announced via publication of an updated OATS Reporting Technical Specifications that a new value of "X" (Error Account) is being added as an allowable value in the Account Type Code field effective October 13, 2008. This OATS Report provides guidance on the appropriate use of the Account Type Code value of "X".

As a general matter, this new value is used when an order is originated in a firm's error account. Typically, the Account Type Code of "X" would be used in situations where a firm must liquidate or accumulate a position through a firm account to rectify an error made in a customer's account.

The guidance contained in this OATS Report assumes that the member has met all criteria required by any SEC or SRO rules for a transaction to qualify as a bona fide error. Nothing in this guidance is intended to suggest what is or is not considered to be a bona fide error under SEC, NASD or other SRO rules.

Outlined below are examples where use of the Account Type Code "X" would be appropriate.

Scenario One

 

  1. A customer places an order to buy 100 shares of MSFT at 10:00:00.

  2. In error, the firm purchases 100 shares of AAPL for the customer.

  3. At 11:15:00, the firm realizes the error and subsequently moves the 100 shares of AAPL to its error account.

  4. To satisfy the customer's original order, the firm sells 100 shares of MSFT at 11:15:10 out of its error account to the customer at the price the stock was trading when the customer originally placed the order. 

  5. At 11:15:15, the firm purchases 100 shares of MSFT from the street into its error account to cover the shares it sold to the customer.

  6. At 11:15:16, the firm sells 100 shares of AAPL to the street out of its error account.

Scenario One Required OATS Reports

 

  1. 10:00:00 New Order Report B 100 MSFT Account Type Code: R, Firm Order ID ABC123

  2. 10:00:00 New Order Report B 100 AAPL Account Type Code: R

    10:00:01 Route Report or Execution Report, as applicable

  3. No OATS reports required

  4. 11:15:10 Combined New Order/Execution Report S 100 MSFT - Account Type Code: X. The Combined New Order/Execution Report must link to the related transaction report submitted to a FINRA trade reporting facility (TRF)

    11:15:10 Execution Report MSFT Firm Order ID ABC123 linked to the same TRF transaction report as the error account Execution Report

  5. 11:15:15 New Order Report B 100 MSFT Account Type Code: X
    11:15:15 Route Report or Execution Report, as applicable

  6. 11:15:16 New Order Report S 100 AAPL Account Type Code: X
    11:15:16 Execution Report or Route Report as applicable

Note that no additional OATS reports are required to reflect that the AAPL customer order reported at 10:00:00 was an error.

Scenario Two

 

  1. At 9:35:00 a customer places an order to buy 1,000 shares of ABCD which is immediately executed.

  2. At 10:00:00 the customer informs the firm they intended to buy 1,000 shares of QRST. 

  3. The firm agrees to take the 1,000 shares of ABCD from the customer as an accommodation to the customer and moves the 1,000 shares of ABCD from the customer's account to the firm's error account.

  4. At 10:15:00 the firm sells the 1,000 shares of ABCD to the street from its error account.

Scenario Two Required OATS Reports

 

  1. 9:35:00 Combined New Order/Execution Report B 1,000 ABCD Account Type Code: R

  2. 10:00:00 New Order Report B 1,000 QRST Account Type Code: R

  3. No OATS reports required.

  4. 10:15:00 New Order Report S 1,000 ABCD Account Type Code: X
    10:15:00 Execution Report or Route Report as applicable

Note that no OATS reports are required to reflect that the ABCD customer order reported at 9:35:00 was an error on the part of the customer.

Scenario Three

 

  1. An ECN receives a buy order for 100 shares of MSFT and a sell order for 100 shares of MSFT and crosses the two orders at 10:00:00.

  2. At 11:00:00, the ECN determines that the buyer in the 10:00:00 cross will not be able to go to settlement on the trade. The ECN takes the other side of the trade with the selling subscriber.

  3. At 12:15:00 the ECN trades out of the shares with a third subscriber.

Scenario Three Required OATS Reports

 

  1. 10:00:00 Combined New Order/Execution Report B 100 MSFT (Subscriber One/Wholesale)
    10:00:00 Combined New Order/Execution Report S 100 MSFT (Subscriber Two/Wholesale)

  2. 11:00:00 Combined New Order/Execution Report B 100 MSFT Account Type Code: X

  3. 12:15:00 Combined New Order/Execution Report B 100 MSFT (Subscriber Three/Wholesale)

    12:15:00 Combined New Order/Execution Report S 100 MSFT Account Type Code: X

Note that no OATS reports are required to reflect that the original subscriber buy order execution reported at 10:00:00 was subsequently busted.