OATS Reporting for Negotiated Trades

On July 14, 2008, FINRA announced in an updated version of the OATS Reporting Technical Specifications that a "Negotiated Trade Flag" was being added to both the New Order and Combined Order/Execution Reports to identify instances where a trade is completed as the result of a negotiation. FINRA will use this flag to distinguish orders received from another broker/dealer for further handling and execution from those that are generated as the result of a trade negotiation between two broker/dealers. This report is being published to provide guidance on the appropriate use of the Negotiated Trade Flag.

For purposes of the OATS Rules, a negotiated trade is defined as a transaction where two members are both considered to have executed the trade and both members are required to report an Execution Report to OATS to reflect the transaction. Generally, the terms and conditions of such transactions are agreed to by both parties either via a telephone conversation or by messages sent via a negotiation system such as Pink Link operated by Pink OTC Markets. Negotiated trades may occur in both NASDAQ and OTC equity securities, but are more common in OTC equity securities. A trade occurring as the result of an order entry firm sending a market maker an order for further handling or execution is not considered a negotiated trade.

 

The scenario below illustrates the OATS reporting requirements when a member, acting as agent, executes 500 shares of a 1,000 share customer order by negotiating a trade, either over the phone or through a negotiation/messaging system, with another member who executes the order as principal.

 

OATS Diagram

 

In this scenario, the first member ("initiator") is required to report the following events to OATS:

 

  1. The receipt of the order from the customer.

  2. The execution of the customer order.

Please note that the initiator of the negotiation is not required to populate the negotiated trade flag field since the execution represents the customer execution, not the execution of the negotiated trade with the second member.

The second member is required to send a Combined Order/Execution Report for the negotiated transaction with a Negotiated Trade Flag of 'Y' and an Execution Timestamp with the time the negotiation was completed.

When reporting to a FINRA Trade Reporting Facility, firms are required to submit a Branch Sequence Number so that the trade report can be linked to the related OATS Execution reports. As such, both firms must submit a Branch Sequence Number to OATS on the Combined Order/Execution Report or Execution Report.

For more information on this report or on OATS in general, please contact the OATS Helpdesk at 1-800-321-6273.