OATS Phase III Road Show Presentation - OATS Basics

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industry

Compliance

Slide 1

Order Audit Trail System (OATS)

OATS Basics

Slide 2

Topics

nOATS Overview, Rules and Reporting Obligations

nOrder Reports

nOATS Data Processing

nOrder Lifecycle Creation

nFirm Responsibilities

nResources

Slide 3

OATS Overview

nWhat is OATS?

Ÿ6OATS is FINRA’s Order Audit Trail System. It is designed to capture all of the events in the lifecycle of an order from origination or receipt through execution and/or cancellation.

nWhy OATS?

Ÿ6OATS was developed by FINRA in response to the August 1996 settlement with the Securities and Exchange Commission (SEC). It is part of an integrated audit trail of order, trade and quote information used in FINRA’s surveillance activities.

nFINRA role

Ÿ6To collect, process and provide feedback on a daily basis and to incorporate the data into the surveillance programs.

nFirm role

Ÿ6To record and report data in an electronic format on a daily basis.

Slide 4

Rules

nFINRA Rule 7410 - Definitions

nFINRA Rule 7420 - Applicability

nFINRA Rule 7430 - Synchronization of Business Clocks

nFINRA Rule 7440 - Recording Order Information

nFINRA Rule 7450 - Order Data Transmission Requirements

nFINRA Rule 7460 - Violation of OATS Rules

nFINRA Rule 7470 - Exemption from Recording

Slide 5

Overview of OATS

Current Scope:

nAll orders:

Ÿ6received by FINRA member firms,

Ÿ6in NMS and OTC listed equity securities,

Ÿ6whether received manually or electronically, are currently reportable to OATS.

nProprietary orders generated in the normal course of a firm’s market making activities are not reportable to OATS. All other proprietary orders are reportable.

Slide 6

Reporting Obligations

nFINRA Rule 7440

─6Record data elements immediately following receipt or origination of an order

─6Express all times in hours, minutes and seconds (military time)

─6Record OATS information in electronic form

─6Retain information

─6

Slide 7

Reporting Obligations

nThird-party reporting

Ÿ6 Written Agreement must be in place

Ÿ6 Must coordinate submissions from multiple reporting parties

Ÿ6 Make clear who is responsible for repairs

Ÿ6 Supervise

Ÿ6

Slide 8

Order Reports

Events

n Receipt or Origination

n Modification

n Cancellation

n Routing to another Desk

n Execution

n Routing to another firm

*Also Combined Order / Execution (COE);

#Combined Order / Route (COR)

Report

n New Order (NW)*#

n Cancel / Replace (CR)

n Cancel (CL) (can be added to NW or COR)

n Desk (DS) (can be added to NW, OR, OE)

n Execution (EX)*

n Route (RT)#

Slide 9

Overview of OATS Processing

Member Firm

Records

Order Events

Member Firm

Assembles

Records into

Files

Member Firm

Transmits

Files

FINRA Generates

Feedback and

Analyzes Data

Slide 10

OATS Data Processing

nData Receipt

Ÿ6Individual reports are packaged into files called FOREs (File of Order Reportable Events)

Ÿ6FOREs are transmitted on a daily basis via:

–6FTP (File Transfer Protocol)

–6IFT (Internet File Transfer)

–6Web submission

Ÿ6FORE Status (accepted / rejected) available within an hour via medium of submission or via the web

Ÿ6FORE Status is retained online for 90 calendar days

Ÿ6

Slide 11

OATS Data Processing

nRejection Processing

Ÿ6Records from accepted files are sent to “Processor” to run through syntax and context validations.

Ÿ6Syntax validations - ensure records are submitted according to the OATS Technical Specifications (i.e., required fields are populated, symbols are valid etc…). Syntax rejections are available within 4 hours of submission.

Ÿ6Context validations - ensure records are submitted in proper context. A Route Report will reject if it is not linked to an accepted New Order. Context rejections are available within 24 hours of submission.

Ÿ6Rejections are available online for 90 calendar days

Ÿ6

Slide 12

Order Lifecycle Within a Firm

nLinking Reports Within a Firm

Ÿ6Use 3-part key: MPID (Market Participant Identifier), Order Received Date and Firm Order ID

Ÿ6Must be the same on each order event for the reports to link

Ÿ6Secondary reports (RT, CL, EX) are rejected if they can not match to a New Order type (NW, COR, CR)

Ÿ6

Slide 13

OATS Data Processing

nMatching

Ÿ6Data meeting validations then gets moved to “matcher” which matches

–6Orders to Trades (Order / Trade Matching)

–6Routes to NASDAQ and NYSE Exchanges (Exchange / Route Matching)

–6Routes to other firms New Orders (Interfirm Route Matching)

Ÿ6Unmatched statistics are available online for 90 calendar days

Ÿ6Unmatched details are available online for 90 calendar days

Ÿ6

Slide 14

Order Lifecycle Creation: Matching

nInterfirm Route Matching

nPrimary matching criteria:

Ÿ6MPID

Ÿ6Routed Order ID

Ÿ6Issue Symbol

Ÿ6Date

Ÿ6

nOrder/Route Matching – Links Route Reports to Exchange Data

nPrimary Matching Criteria:

Ÿ6Exchange Participant ID

Ÿ6Routed Order ID

Ÿ6Date

Ÿ6Symbol

Ÿ6

Slide 15

Order Lifecycle Creation: Matching

nOrder / Trade Matching - Links order executions to trades in the TRFs (Trade Reporting Facilities):

Ÿ6NASDAQ (FINRA / NASDAQ)

Ÿ6NYSE (FINRA / New York Stock Exchange)

Ÿ6ADF

Ÿ6OTC Trade Reporting Facility

nMarket Center ID must reflect proper trade reporting facility

nMatch on:

Ÿ6Branch / Sequence Number

Ÿ6Execution Timestamp

Ÿ6Issue Symbol

Ÿ6Firm MPID

Ÿ6

Slide 16

Firm Responsibilities: Synchronize Business Clocks

nWho? - Any FINRA member firms required under FINRA and/or NASDAQ Rules to record the date and time of any market event

nWhat? - Synchronize clocks within three seconds of designated source, with to-the-second granularity

nWhere? - National Institute of Standards and Technology Atomic Clock

nWhen? - Daily, prior to market open; check for drift throughout day and re-synchronize time as necessary

nHow? - Internet, software, radio waves

Slide 17

Firm Responsibilities: Submission Deadlines

nOATS Business Day

Ÿ6Begins after the close of the NASDAQ Stock Exchange on one market day (16:00:01 ET)

Ÿ6Ends at the close of the NASDAQ Stock Exchange on the next market day (16:00:00 ET)

nOATS Reporting Day

Ÿ6Events occurring during an OATS Business Day must be submitted to OATS by 08:00:00 ET the next calendar day or be considered late by FINRA

Ÿ6Please note: late validation looks at the time the individual record was submitted in relation to its event timestamp. OATS does not consider in late processing if the FORE was submitted timely.

Ÿ6

Slide 18

Firm Responsibilities: ROE Reject Repair

nWho? - Any Reporting Member, or member firm having data submitted on their behalf, to FINRA

nWhat? - Any records rejected by OATS for syntax, semantic or context errors

nWhere? - https://firms.finra.org

nWhen? - On a daily basis; rejects are available within 24 hours of processing; Syntax rejections available within 4 hours

nHow? - Through the Web Interface, FTP or IFT

Slide 19

Firm Responsibilities: Review of Web Site

nMonitor the OATS Web Interface on a Daily Basis:

Ÿ6FORE Status Notification: Available within 1 hour of submission

Ÿ6Firm Reporting Statistics: Usually available within 24 hours of processing.

Ÿ6Rejections- Firms may view their rejections by: FORE, Summary, Rejection Type or in Group Symbol Repair

Ÿ6Order / Trade Match Statistics and Order / Route and Interfirm matching Statistics: Usually available for firms within 72 hours

Ÿ6View Announcements if no status available

Ÿ6

Slide 20

Firm Responsibilities: Supervision

What should be included in OATS Written Supervisory Procedures:

nWho is responsible for supervising OATS reporting?

nHow will they conduct reviews for OATS reporting?

nWhen or how often will they conduct the supervisory reviews?

nHow will they evidence their supervisory reviews in writing?

nUse Supervisory Logs

nMembers should refer to NASD Notice to Members 98-65, 99-45 and 02-29 as well as the OATS Reports on Supervision for additional guidance.

Slide 21

OATS Resources

nThe following resources are available to help members answer questions regarding OATS:

Ÿ6www.finra.org/oats

–6OATS Frequently Asked Questions

–6OATS Reporting Technical Specifications

–6OATS Subscriber Manual

–6OATS Report Index

–6OATS Registration Page

–6OATS for OTC Page

Ÿ6Report Cards

Ÿ6OATS Helpdesk 1-800-321-6273

Ÿ6