Reportable Electronic Orders

April 6, 2004

 

NASD is publishing this article to remind members of the definition of "electronic order" reportable under the current OATS Phase 2. The general definition of an electronic order is an order that is captured electronically in an order handling/routing or execution system. An order is deemed electronic by how the order ultimately is captured, even if the order initially is received manually. For instance, an order that is received over the telephone and then typed into a firm's electronic order handling system is considered electronic because the firm is capturing the order electronically. Similarly, an order that is electronically transmitted from one firm to another is deemed electronic because the second firm captures it electronically. When OATS Phase 3 is approved by the SEC, firms will be required to report all orders, regardless of how they are captured.

 

A firm's reporting responsibility regarding electronic orders may differ depending on whether the firm is using a member firm's electronic order routing system or a non-member firm's system. Some examples of Phase 2 reportable order events include:

  • Orders entered into an electronic order routing or execution system provided to the firm by another member firm to route orders directly to other market centers for execution.

    Example: Firm A enters orders through Member Firm B's electronic order routing or execution system to route orders to Firm C. Member Firm B never takes responsibility for the order. Firm A has a reporting responsibility in Phase 2. Since Member Firm B never takes responsibility for the order, it has no reporting responsibility.
     
  • Orders entered into an electronic order routing or execution system provided to the firm by its clearing firm to route orders directly to market centers other than the clearing firm for execution.

    Example: Firm A enters orders into Clearing Firm X's electronic order routing or execution system to route orders to Firm D. Clearing Firm X never takes responsibility for the order. Firm A has a reporting responsibility in Phase 2. Since Clearing Firm X never takes responsibility for the order it, has no reporting responsibility.
     
  • Orders entered for handling or execution into a non-member entity's electronic system (i.e., service bureau's electronic system) for routing or execution to another member firm for handling or execution.

    Example: Firm A uses Service Bureau Z's electronic order routing or execution system to route orders to Firm E. Both Firm A and Firm E have a reporting responsibility in Phase 2.

 

When an order entry ("OE") firm inputs orders that it has received manually into an electronic system owned by another member firm (the "handling member") for handling or execution by the handling member, those orders are considered manual order events that are not reportable until Phase 3 by the OE firm. For the handling member those same orders are reportable in Phase 2 because such member has captured them electronically. Examples include:

 

  • An OE firm uses a member firm's electronic order routing or execution system to route orders it has received manually directly to that same member firm.
     

    Example: Firm A uses Member Firm B's electronic order routing or execution system to route orders it has received manually to Member Firm B. Firm A would not have a reporting responsibility until Phase 3. Member Firm B has a reporting responsibility in Phase 2. (However, if any portion of the order is routed directly to another entity besides Member Firm B, then that part of the order is reportable in Phase 2 by Member Firm A.)

  • A firm uses an electronic order routing or execution system provided to it by its clearing firm to route orders it has received manually directly to the clearing firm for handling.

    Example: Firm A uses Clearing Firm X's electronic order routing or execution system to route orders to Clearing Firm X. Firm A would not have a reporting responsibility until Phase 3. Clearing Firm X has a reporting responsibility in Phase 2. (However, if any portion of the order is routed directly to another entity besides Clearing Firm X, then that part of the order is reportable in Phase 2 by Member Firm A.)

  • After an order received manually is executed, a firm enters the order data into an electronic system for clearance and settlement.

    Example: Firm A manually executes an order. Firm A then enters the order data into an electronic system only for clearing and settlement purposes. Firm A has no reporting responsibility until Phase 3.

 

The general rule of thumb is that if a firm uses another member firm's system to route an order received manually directly to that same member firm that owns the system, the order is reportable in Phase 2 by the firm that owns the system and in Phase 3 for the OE firm. However, if the OE firm uses another member firm's system to route an order received manually through to a separate market center, then the order is reportable in Phase 2 by the OE firm.

 

Even though Phase 3 is not yet in effect, firms that are currently transmitting Phase 3 orders (i.e., manual orders) to OATS are responsible for monitoring their data to ensure timeliness and accuracy. If Phase 3 firms do not want their data reported before Phase 3 is implemented, they should check with their OSOs to ensure that the data is not reported before that date.

 

Should you have any questions or concerns regarding this topic or on OATS in general, please contact the OATS Business Help Desk at 1-800-321-NASD.

Last Updated: 4/6/2004