Regulation
Trade Reporting Frequently Asked Questions (FAQ)
The guidance provided in this FAQ pertains to the reporting of over-the-counter (OTC) transactions in equity securities to a FINRA Facility (a Trade Reporting Facility (TRF), the Alternative Display Facility (ADF) or the OTC Reporting Facility (ORF)). This guidance relates only to the trade reporting rules, as defined in FAQ 100.2 below, and does not address other member obligations under applicable FINRA rules or the federal securities laws, including but not limited to, recordkeeping obligations under SEC Rule 17a-3.
All references in this FAQ are to FINRA rules. Effective December 15, 2008, the NASD Marketplace Rules (the NASD Rule 4000 through 7000 Series) were transferred to the consolidated FINRA rulebook as the FINRA Rule 6000 through 7000 Series. See Regulatory Notice 08-57 (October 2008). To facilitate the transition to the consolidated rulebook, FINRA has created conversion charts that map NASD and incorporated NYSE rules to new FINRA rules and vice versa.
Any questions regarding trade reporting to a FINRA Facility should be directed to FINRA's Market Regulation Department, at (240) 386-5126; FINRA's Office of General Counsel, at (202) 728-8071; or FINRA Operations, at (866) 776-0800.
General
Section 100: Applicable Rules and Definitions
Section 101: Reporting Time and Price
Section 102: Timely Submission of Trade Report Information
Section 103: Trade Comparison and Acceptance
Section 104: Multiple MPIDs for Trade Reporting
Reporting Relationships and Responsibilities
Section 200: Reporting on Behalf of Another Member ("Give-Up" Relationships)
Section 201: Order Routing, Execution and/or Reporting via Another Member
Section 202: Reporting Trades With a Non-FINRA Member
Section 204: Trade Reporting Structure
Types of Reports/Transactions
Section 300: Non-Tape (Regulatory or Clearing-Only) Reports
Section 301: Reporting Step-Outs
Section 302: Reporting Riskless Principal Transactions
Section 303: Reporting Agency Transactions
Section 304: Reporting Net Trades
Section 305: As/Of (T+N) Reports
Section 306: Reporting Matches of Customer Orders by a Broker-Dealer (Including an ATS or ECN)
Trade Report Modifiers
Section 401: Trade Report Modifiers on Reports Submitted to the ORF
Section 402: Stop Stock Transactions
Section 403: Aggregated or "Bunched" Reports
Section 404: Weighted Average Price/Special Pricing Formula Transactions
Exceptions to Trade Reporting Rules
Section 501: Sales of Restricted Securities
Reporting Transactions for Regulatory Transaction Fee Purposes
Section 601: Away from the Market Sales
Section 602: Transactions Effected Upon the Exercise of Options
Foreign Securities Transactions
Section 700: Reporting Transactions in Foreign Securities
Section 701: Dually Listed Securities
Section 702: ADR "Swap" Transactions
General
Section 100: Applicable Rules and Definitions
Q100.1: What are the FINRA Facilities that support reporting of OTC transactions in equity securities?
A100.1: The TRFs are facilities through which members report transactions in NMS stocks, as defined in SEC Rule 600(b)(47) of Regulation NMS, effected otherwise than on an exchange. FINRA has established the following TRFs (each in conjunction with the pertinent Exchange): the FINRA/NASDAQ TRF and the FINRA/NYSE TRF. The ADF is both a trade reporting and quotation display and collection facility for purposes of transactions in NMS stocks effected otherwise than on an exchange. The ORF is the facility through which members report transactions in OTC Equity Securities, as defined in Rule 6420; PORTAL securities, as defined in Rule 6631; and Direct Participation Program (DPP) securities, as defined in Rule 6642.
Q100.2: What rules govern the reporting of transactions in equity securities to FINRA Facilities?
A100.2: The following Rule Series (collectively referred to herein as "the trade reporting rules") govern trade reporting to FINRA Facilities:
| Rule Series | FINRA Facility | Type of Trades |
| 6200 and 7100 Series | ADF | OTC transactions in NMS stocks |
| 6300A and 7200A Series | FINRA/NASDAQ TRF | OTC transactions in NMS stocks |
| 6300B and 7200B Series | FINRA/NYSE TRF | OTC transactions in NMS stocks |
| 6620 and 7300 Series | ORF | Transactions in OTC Equity Securities (including OTCBB securities, Pink Sheets securities, ADRs, Canadian issues, foreign securities and certain exchange-listed securities that do not otherwise qualify for real-time reporting) |
| 6630 Series | ORF | Transactions in PORTAL securities |
| 6640 and 7300 Series | ORF | Transactions in DPP securities |
Q100.3: What transactions in equity securities must be reported to FINRA?
A100.3: All OTC transactions in equity securities to which a FINRA member is a party must be reported to FINRA, unless expressly excepted from the trade reporting rules (as discussed more fully below). Reportable OTC transactions include trades in NMS stocks effected otherwise than on an exchange, which must be reported to the ADF or a TRF, as well as trades in OTC Equity Securities, which must be reported to the ORF.
Q100.4: What is a "trade" or "transaction" that must be reported under the trade reporting rules?
A100.4: For purposes of the trade reporting rules, a "trade" or "transaction" entails a beneficial change of ownership of securities between parties (e.g., a purchase or sale of securities) in which a member participates (e.g., as a dealer or an agent).
Q100.5: How is "customer" defined for purposes of the trade reporting rules?
A100.5: Pursuant to NASD Rule 0120(g), the term "customer shall not include a broker or dealer."
Q100.6: What is a "tape" report (also referred to as a "media" report)?
A100.6: A tape or media report is a trade report that is submitted to a FINRA Facility and reported to and publicly disseminated by the appropriate exclusive Securities Information Processor (SIP). Another term that is often used with respect to these trade reports is "for publication." In certain limited circumstances, trade reports submitted for publication may be suppressed from public dissemination (e.g., reports of odd-lot transactions).
Q100.7: What is a "non-tape" report (also referred to as a "non-media" report)?
A100.7: A non-tape report can be either a "regulatory" report or a "clearing" report, neither of which is publicly disseminated. A regulatory report, sometimes referred to in the trade reporting rules as a "non-tape, non-clearing" report, is submitted to FINRA solely to fulfill a regulatory requirement (e.g., to report certain transactions subject to a regulatory transaction fee or, where applicable, to report the offsetting "riskless" leg of a riskless principal transaction). A clearing report, sometimes referred to in the trade reporting rules as a "clearing-only" report, is used by members to clear and settle transactions; information reported to FINRA in a clearing report is transmitted by FINRA to the National Securities Clearing Corporation (NSCC). Clearing reports also can be used to satisfy a member's obligation to provide regulatory information to FINRA, if applicable.
Section 101: Reporting Time and Price
Q101.1: Must trade reports include the time the transaction was executed?
A101.1: Yes. The trade reporting rules require that all trade reports submitted to a FINRA Facility must include the time of execution based on Eastern Time, except where another time is expressly required by rule. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). These exceptions include Stop Stock transactions (the trade report must include the time at which the member and the other party agreed to the Stop Stock Price in lieu of the actual time the trade was executed) and transactions that reflect a price different from the current market when the execution price is based on a prior reference point in time (the trade report must include the prior reference time in lieu of the actual time the trade was executed). See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). In addition, FINRA published Member Alert: Guidance Relating to "Execution Time" for Purposes of Compliance with NASD Trade Reporting Rules (June 13, 2007), providing further clarification on the appropriate "execution time" to be reported under certain circumstances when executing a block transaction using the Intermarket Sweep Order (ISO) exception (outbound), pursuant to SEC Rule 611(b)(6) of Regulation NMS. In all cases, the reported time must be in military format.
Q101.2: How many decimal places should a member use when reporting the price on trade reports?
A101.2: Members should report as many decimal places as the FINRA Facility permits. Thus, for example, if a member executes a trade at 10.123456 and the FINRA Facility permits entries up to six decimal places, then the member should report 10.123456. It should be noted, however, that if a trade is executed at 10.12, the member can report 10.12 and does not need to report 10.120000.
Section 102: Timely Submission of Trade Report Information
Q102.1: When does the 90-second reporting requirement under the trade reporting rules apply? 
A102.1: As discussed in FAQ 102.2, the 90-second reporting requirement does not apply to the submission of non-tape reports. Generally, members must submit a tape report within 90 seconds of trade execution during the hours that the FINRA Facility to which the member is reporting is open. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). Trades executed before the Facility opens and after the close of the Facility must be reported, but such trades are not subject to the 90-second reporting requirement. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). Effective October 27, 2008, transactions in foreign securities are subject to the same requirements, and FINRA will disseminate last sale information for transactions in foreign securities, ADRs and Canadian issues on a real-time basis. See Regulatory Notice 08-51 (September 2008).
Transactions in PORTAL securities and Direct Participation Program (DPP) securities are not subject to 90-second reporting. See Rules 6633 and 6643, respectively. Reports of transactions in DPP securities shall be transmitted to the ORF by 1:30 p.m. Eastern Time on the next business day (T+1); however, members that have the operational capability to report transactions in such securities within 90 seconds of execution may do so at their option. See Rule 6643(a)(1). Reports of transactions in PORTAL equity securities shall be submitted to the ORF no later than the end of the ORF reporting session that is in effect at the time (currently, 8:00 p.m. Eastern Time). See Rule 6633(a).
Q102.2: Does the 90-second reporting requirement apply to the submission of non-tape reports to FINRA?
A102.2: No. Members are not required to submit non-tape reports to FINRA within 90 seconds of trade execution; however, regulatory reports generally are required to be submitted within specified time frames. For example, members must submit the non-tape report for the offsetting "riskless" leg of a riskless principal transaction as soon as practicable after the offsetting leg is executed, but no later than the time the FINRA Facility closes for the trading day. See NTM 00-79 (November 2000). However, to qualify for the exemption from the requirements of NASD IM-2110-2 (Trading Ahead of Customer Limit Order) for riskless principal transactions, a member must submit, contemporaneously with the execution of the facilitated order, a non-tape report reflecting the offsetting "riskless" leg of the transaction. See NASD IM-2110-2(c)(3). For purposes of NASD IM-2110-2, "contemporaneously" has been interpreted to require execution as soon as possible, but absent reasonable and documented justification, within one minute. See NTMs 95-67 (August 1995) and 98-78 (September 1998). Additionally, non-tape reports of away from the market sales and exercises of OTC options that are submitted pursuant to Section 3 of Schedule A to the By-Laws must be submitted by the end of the reporting session for the FINRA Facility. See Rules 7130(c), 7230A(g), 7230B(f) and 7330(g).
Section 103: Trade Comparison and Acceptance
Q103.1: What FINRA Facilities provide trade acceptance and comparison functionality?
A103.1: Currently, the ADF, FINRA/NASDAQ TRF and ORF provide trade acceptance and comparison functionality. See Rules 7130(b), 7230A(b) and 7330(b). This means that the reporting party submits the trade information and the contra party then accepts (or declines) the trade information submitted by the reporting party. Parties must utilize the trade acceptance and comparison functionality where no give-up agreement between the parties exists. See FAQ 200.1. In addition, the FINRA/NASDAQ TRF and ORF provide a matching functionality, where each party enters its own trade information, and the Facility matches the two reports. See Rules 7240A and 7340. The ADF does not offer such functionality and, thus, the contra party must either accept or decline the information entered by the reporting party; it cannot enter its own version of the trade.
The FINRA/NYSE TRF does not provide trade acceptance and comparison functionality and, therefore, trades must be locked-in before they can be submitted to this Facility. See Rules 7230B(a) and 7240B. This means that the parties must have a give-up agreement in place, which allows the reporting party to submit both sides of the trade and "lock-in" the trade without specific acceptance by the contra party. See FAQ 200.1.
Q103.2: BD1 is a member order-entry firm and BD2 is the member with the reporting obligation under the trade reporting rules. The parties are using the trade comparison functionality to report the trade. How much time does BD1 have to accept or reject the trade report submitted by BD2 using the trade comparison functionality?
A103.2: BD1 has 20 minutes from the time of execution to accept or reject the trade information submitted by BD2. See Rules 7130(b), 7230A(b) and 7330(b).
Q103.3: BD1 is a member order-entry firm and BD2 is the member with the reporting obligation under the trade reporting rules. BD2 fails to report the trade within 90 seconds, as required under the trade reporting rules, and instead reports it 30 minutes after execution. Should BD1 wait until BD2 submits the trade to FINRA and then accept the trade?
A103.3: Not if the parties are reporting to the FINRA/NASDAQ TRF or ORF. In this circumstance, BD1 should submit its own version of the trade within 20 minutes of execution. If BD1 fails to do so, it could be charged with a trade reporting violation. However, FINRA would take into consideration factors such as BD1 did not receive an execution report from BD2 within 20 minutes of execution and thus did not have sufficient information to submit its own version of the trade. See, e.g., Regulatory and Compliance Alert: NASD Regulation Reiterates ACT Transaction Reporting Obligations of Order Entry Firms (Spring 2002).
On the other hand, if the parties are reporting to the ADF, then the answer is "yes." BD1 would not be able to enter its own version of the trade into the ADF.
Q103.4: BD1 is a member order-entry firm and BD2 is the member with the reporting obligation under the trade reporting rules. The parties are using the trade comparison functionality to report the trade. Is BD1 responsible for ensuring the accuracy of trade report information that it accepts?
A103.4: Yes, BD1 is responsible for ensuring the accuracy of the trade report information that it accepts relating to its side of the trade. If BD1 accepts incorrect information submitted by BD2 relating to BD1's side of the trade, BD1 could be charged with a trade reporting violation.
Section 104: Multiple MPIDs for Trade Reporting
Q104.1: Can FINRA members use multiple Market Participant Symbols (MPIDs) to report to a FINRA Facility?
A104.1: Yes. FINRA permits, on a pilot basis, the use of multiple MPIDs by members using a TRF or the ADF. Rule 6160 provides that any TRF Participant that wishes to use more than one MPID for purposes of reporting trades to a TRF must submit a written request to, and obtain approval from, FINRA Operations for additional MPIDs. Similarly, Rule 6170 sets forth the procedure for obtaining additional MPIDs for use on the ADF by Registered Reporting ADF ECNs.
By rule, a TRF Participant is required to identify on its application the purpose(s) and system(s) for which the multiple MPIDs will be used, as well as the identity of the other SROs on whose systems the TRF Participant intends to use the MPID(s). Similarly, a Registered Reporting ADF ECN must set forth the bona fide business and/or regulatory reasons for requesting additional MPIDs. FINRA will evaluate the use of multiple MPIDs based upon the stated purpose(s) and system(s) for which the additional MPID(s) will be used. Members must notify FINRA, and obtain FINRA approval, before using multiple MPIDs for new or unidentified purpose(s) or system(s). Moreover, a member that ceases to meet the obligations appurtenant to its primary MPID in any security shall not be permitted to use additional MPIDs for any purpose in that security.
Q104.2: Can a member's additional MPIDs be withdrawn or limited after issuance?
A104.2: FINRA considers the issuance of, and trade reporting with, multiple MPIDs to be a privilege and not a right. As such, if FINRA determines that the use of multiple MPIDs is detrimental to the marketplace, or that a TRF Participant or Registered Reporting ADF ECN is using one or more additional MPIDs improperly or for other than the purpose(s) identified by the TRF Participant or Registered Reporting ADF ECN in its application, FINRA staff retains full discretion to limit or withdraw its grant of the additional MPID(s) to such TRF Participant or Registered Reporting ADF ECN. See Rules 6160 and 6170.
Q104.3: Are members required to use the same MPID for purposes of posting a quotation and reporting a trade resulting from such posted quotation?
A104.3: Yes. For example, a member that posts quotations on the ADF may report trades resulting from those quotations to either the ADF or a TRF. In such circumstances, the member must use the same MPID when reporting a trade that resulted from its posted quotation to either the ADF or a TRF.
Reporting Relationships and Responsibilities
Section 200: Reporting on Behalf of Another Member ("Give-Up" Relationships)
Q200.1: Can a FINRA member report to a FINRA Facility on behalf of (also referred to as "giving up") another FINRA member?
A200.1: Yes. A member may agree to allow another member to report and lock-in trades on its behalf to a TRF, the ADF or the ORF, provided that both parties have executed an agreement to that effect (a "give-up agreement") in the form specified by FINRA (The Uniform Service Bureau/Executing Broker Agreement), and submitted such agreement to the FINRA Facility (or Facilities) to which the "give-up" or "on behalf of" relationship applies. See Rules 6380A(h) and 6380B(g); NASD Member Alert: Notice to All TRF, ADF and Other NASD Facility Participants Regarding AGU and QSR Relationships (January 25, 2007). Give-up agreements may only be used where the member that is being "given up" or on whose behalf the report is being submitted is a true executing party to the trade. In addition, the member being "given up" must have a valid MPID for the reporting member to use when reporting trades on its behalf.
Q200.2: Is a give-up agreement required any time a member is "giving up" or reporting trade information to a FINRA Facility on behalf of another member?
A200.2: Yes. A give-up agreement, in the form specified by FINRA (The Uniform Service Bureau/Executing Broker Agreement), is required any time a member is reporting trade information to a FINRA Facility on behalf of another member and acceptance by the other member is not otherwise required to lock-in the trade. For example, two FINRA members (BD1 and BD2) execute a trade and under the trade reporting rules, BD1 has the reporting obligation. For BD2 to report the trade on BD1's behalf, a valid, executed give-up agreement must be in place. Similarly, for BD1 to report the trade as locked-in and identify BD2 as the contra executing party, a valid, executed give-up agreement must be in place.
Q200.3: Is a give-up agreement required even if the parties have executed a Qualified Service Representative (QSR) agreement?
A200.3: Yes. A QSR agreement is a National Securities Clearing Corporation (NSCC) agreement and only establishes that one party can send a trade to clearing on behalf of the other party. It does not establish that one party can trade report on behalf of another party for purposes of complying with the trade reporting rules. Therefore, a give-up agreement, in the form specified by FINRA (The Uniform Service Bureau/Executing Broker Agreement), is required for a member to report trade information to a FINRA Facility on behalf of another member, even if the parties have a QSR agreement in effect. See NASD Member Alert: Notice to All TRF, ADF and Other NASD Facility Participants Regarding AGU and QSR Relationships (January 25, 2007).
Q200.4: What are the obligations of the member being "given up" or reported on behalf of with respect to the submission of trade information?
A200.4: A give-up agreement is a private contractual arrangement recognized by FINRA for trade reporting purposes, but it does not relieve the member being "given up" from its trade reporting obligations in the event of a failure of the reporting party to report pursuant to applicable rules. Both the member with the reporting obligation and the member submitting the trade report to FINRA are responsible for ensuring that the information submitted is in compliance with all applicable rules and regulations. See Rules 6380A(h) and 6380B(g). Any member that agrees to allow another member to report trades on its behalf must establish, maintain and enforce supervisory procedures that allow it to determine that the other member is reporting in compliance with all applicable rules. See NTM 98-96 (December 1998).
Q200.5: Member BD1 has the reporting obligation under the trade reporting rules and has executed a give-up agreement with member BD2, whereby BD2 reports on behalf of BD1. BD2 fails to report the trade within 90 seconds of execution, as required under the trade reporting rules. Can BD1 be charged with late trade reporting?
A200.5: Yes. As noted in FAQ 200.4, both the member with the reporting obligation and the member submitting the trade to FINRA are responsible for ensuring that the trade is reported in compliance with all applicable rules. Thus, BD1 could be charged with late trade reporting if BD2 fails to report on BD1's behalf within the time prescribed by the trade reporting rules. BD1 could also be charged with failure to establish, maintain and enforce proper supervisory procedures under such circumstances.
Q200.6: Member BD1 matches a buy order from member BD2 with a sell order from member BD3, and BD1 has give-up agreements with both BD2 and BD3. Can BD1 submit a single trade report as between BD2 and BD3, without BD1 appearing as an executing party to the trade?
A200.6: No. BD1 is an executing party to the transaction and must appear on the trade report as such. It would be a rule violation for BD1 to submit a single trade report showing BD2 and BD3 as the only executing parties to the trade.
BD1 could submit a three-party trade report in this instance. A three-party trade report is a single tape report that denotes three executing parties: the reporting member and two contra parties. The three-party report would allow BD1 to report all three parties (BD1, BD2 and BD3) in one trade report. Currently, the ADF is the only FINRA Facility that supports three-party trade reports. See Rule 6282(d).
Q200.7: Member BD1 has give-up agreements with member BD2 and member BD3. BD2 and BD3 execute an OTC trade. Can BD1 report the trade between BD2 and BD3?
A200.7: Yes. In this example, BD1 is not an executing party to the trade and is merely facilitating the reporting of the trade between BD2 and BD3. Thus, assuming valid, executed give-up agreements are in place (see FAQ 200.1), BD1 could report the trade showing BD2 and BD3 as executing parties to the trade.
Section 201: Order Routing, Execution and/or Reporting via Another Member
Q201.1: Member BD1 uses member BD2's system to route its orders to member BD3. BD3 receives the order from BD1 and executes the order. BD2 has no discretion over BD1's order and has no involvement in the routing or execution of the order, other than providing the routing mechanism. Which members should be identified as the executing parties on the tape report?
A201.1: The executing parties on the tape report must be BD1 and BD3. In this example, BD3 views the order as coming from BD1 and BD2's role is solely to provide a routing mechanism.
Q201.2: Assume the same facts as FAQ 201.1. Is it permissible for BD2 to "give up" or report on behalf of BD1 on the tape report?
A201.2: Yes. In this instance BD2 can "give up" or report on behalf of BD1 for purposes of the tape report, provided that there is a valid, executed give-up agreement between BD1 and BD2 and BD1 has a valid MPID for BD2 to use when reporting trades on BD1's behalf. See FAQ 200.1. BD1 and BD3 must be identified on the tape report as the executing parties to the trade.
Q201.3: Member BD1 enters an order into member BD2's system. BD2 makes the order routing and execution decision and directs BD1's order to member BD3. BD3 executes it. Which members should be identified as the executing parties on the tape report?
A201.3: The executing parties on the tape report must be BD2 and BD3. In this example, BD2 (and not BD1) is an executing party to the trade because BD2 is making the order routing and execution decision and directing BD1's order to BD3.
Q201.4: Assume the same facts as FAQ 201.3. Is it permissible for BD2 to "give up" or report on behalf of BD1 on the tape report?
A201.4: No, in this instance, BD2 cannot "give up" or report on behalf of BD1 for purposes of the tape report. BD1 is not an executing party to the trade between BD2 and BD3 and cannot be identified as such on the tape report.
Q201.5: Member BD1 executes a trade with its clearing firm, BD2, which is also a member. Can BD2 "give up" or report on behalf of BD1 on the tape report?
A201.5: Yes. In this instance, BD2 can "give up" or report on behalf of BD1, provided that there is a valid, executed give-up agreement between BD1 and BD2 and BD1 has a valid MPID for BD2 to use when reporting trades on BD1's behalf. See FAQ 200.1. BD1 and BD2 must be identified on the tape report as the executing parties to the trade.
Section 202: Reporting Trades With a Non-FINRA Member
Q202.1: How should trades executed with a broker-dealer that is not a FINRA member be reported to FINRA?
A202.1: When reporting a trade with a broker-dealer that is not a FINRA member, the non-member should not be identified on the trade report as the contra executing party.
There is a limited exception where a Canadian non-member firm uses the FINRA/NASDAQ TRF or ORF for purposes of comparing trades pursuant to a valid Non-Member Addendum to the NASDAQ Services Agreement. In that instance, however, the Canadian non-member must appear on the trade report as the contra executing party and not as the reporting executing party. For any trade report on which a Canadian non-member appears as an executing party to the trade, the FINRA member must appear as the reporting executing party.
Q202.2: Member BD1 executes a trade with non-member BD2. BD2's clearing firm is a FINRA member (BD3). Should BD2's clearing firm, BD3, appear on the tape report as the contra executing party?
A202.2: No. Only the parties that execute the trade should be identified as the executing parties on the tape report and, thus, BD3 should not appear on the trade report as an executing party. In this example, BD1 would report the trade and would not identify a contra executing party. If the parties want to clear the trade through a FINRA Facility, a separate non-tape clearing-only report showing BD1 and BD3 as the executing parties may be submitted, where permitted by rule. See FINRA Regulatory Notice 07-38 (August 2007).
Q202.3: Two non-FINRA members execute a trade (for example, on the floor of a regional or options exchange). Can a FINRA member report the trade to a FINRA Facility on behalf of the two non-members?
A202.3: No, it is not permissible for a FINRA member to report a trade to a FINRA Facility that was executed between two non-members if the FINRA member is not an executing party to the trade. If, however, the FINRA member is an executing party to the trade, the FINRA member would report the trade to a FINRA Facility. Under such circumstances, the FINRA member would be obligated to comply with the trade reporting rules (e.g., the 90-second reporting obligation) and all other rules and regulations (e.g., the Order Protection Rule under Regulation NMS), as applicable.
Section 203: Reporting by an Alternative Trading System (ATS) or Electronic Communications Network (ECN)
Q203.1: Is an ATS subject to the same reporting requirements as an ECN?
A203.1: Yes. Under the trade reporting rules, an ATS is included in the definition of "Reporting ECN" for purposes of reporting to a TRF or the ORF. See Rules 7210A, 7210B and 7310. Similarly, the term "Registered Reporting ADF ECN" includes a member that is an ATS that displays orders in the ADF. See Rule 6220. An ATS may report trades to a TRF or the ORF in one of the three ways enumerated in the rules and must notify FINRA in writing of the method of reporting for each subscriber. See Rules 7230A(c)(5), 7230B(c)(5) and 7330(c)(5).
FINRA has filed a proposed rule change with the SEC to adopt an "executing party" trade reporting structure, pursuant to which an ATS, including an ECN, would always report a trade executed on the ATS. Thus, the proposed rule change would eliminate the three methods of reporting by a Reporting ECN. See SR-FINRA-2008-011.
Q203.2: Must an ATS or ECN report trades in the same manner for each of its subscribers?
A203.2: No. Under the current trade reporting rules, there is no requirement that the method of reporting be identical for all subscribers. However, as noted above, an ATS or ECN must notify FINRA of the method of reporting for each subscriber.
FINRA has filed a proposed rule change with the SEC proposing to adopt an "executing party" trade reporting structure, pursuant to which an ATS, including an ECN, would always report a trade executed on the ATS. Thus, the proposed rule change would eliminate the three methods of reporting by a Reporting ECN. See SR-FINRA-2008-011.
Q203.3: If an ATS or ECN matches the orders of two FINRA members, can the ATS or ECN submit a single report showing the trade between the two members, without identifying itself as a party to the trade?
A203.3: No. The ATS or ECN must always appear on the trade report as an executing party to the trade. See FAQ 200.6.
Q203.4: Can an ATS or ECN use the three-party trade report to report to a FINRA Facility?
A203.4: Yes. The trade reporting rules allow for the use of three-party trade reports by Registered ECNs when reporting to the ADF. See Rule 6282(d). Currently, the other FINRA Facilities do not support three-party trade reports.
Q203.5: Where an ECN executes an OTC transaction between two FINRA members and reports the transaction to a FINRA Facility, is the ECN required to submit a non-tape report to FINRA to reflect the offsetting leg of the transaction?
A203.5: No, under current trade reporting rules, the ECN is not required to submit a non-tape report to FINRA to reflect the offsetting leg of the transaction. For example, an ECN matches the orders of two FINRA members, BD1 and BD2, and executes the trade, and the tape report identifies the ECN and one of the members (e.g., BD1) as the executing parties. Currently, in addition to the tape report, many ECNs submit a non-tape report to reflect the offsetting leg of the transaction; in this example, ECN vs. BD2. While such reporting is allowable, the trade reporting rules currently do not require submission of a non-tape report in this instance. See FINRA Trade Reporting Notice 2/19/08 (Guidance on Reporting Electronic Communications Network (ECN) Transactions).
However, FINRA has filed a proposed rule change with the SEC to require that any member with the obligation to report an OTC trade under the trade reporting rules that is acting in a riskless principal or agency capacity on behalf of one or more other members submit to FINRA one or more non-tape report(s) identifying such other member(s) as a party to the transaction, if such other member(s) is not identified on the initial trade report or a report submitted to FINRA to reflect the offsetting leg of a riskless principal transaction. See SR-FINRA-2008-011. Thus, under the proposed rule change, the ECN in the above example would be required to submit a non-tape report reflecting the offsetting leg of the transaction between the ECN and BD2.
Section 204: Trade Reporting Structure
Q204.1: Which party has the reporting obligation under the trade reporting rules?
A204.1: Currently, the following structure is in place for purposes of reporting OTC transactions in NMS stocks and OTC Equity Securities to FINRA:
- in transactions between two market makers, the sell-side reports;
- in transactions between a market maker and a non-market maker, the market maker reports;
- in transactions between two non-market makers, the sell-side reports; and
- in transactions between a member and either a non-member or customer, the member reports.
See Rules 6282(b); 6380A(b) and 7230A(c); 6380B(b) and 7230B(c); and 6622(b) and 7330(c).
This structure also applies to the reporting of PORTAL equity transactions to FINRA. Pursuant to Rule 6633(a)(3), the member with the obligation to report such transactions is determined in accordance with Rule 6622(b). For purposes of reporting transactions in DPP securities to FINRA, Rule 6643(b) provides that transactions between two members shall be reported by the member representing the sell-side, and transactions between a member and customer shall be reported by the member.
FINRA has filed a proposed rule change with the SEC to require that for OTC transactions in equity securities between members, the "executing party" report the trade to FINRA, and for transactions between a member and a non-member or customer, the member report the trade. See SR-FINRA-2008-011.
Q204.2: How is market maker status determined for purposes of determining which party has the responsibility for reporting a trade in an OTC Bulletin Board (OTCBB) or Pink Sheets security?
A204.2: For trades in OTCBB securities, a member is considered an OTC Market Maker, as defined in Rule 6420, for trade reporting purposes if such member is identified as a market maker in the security using the Market Maker Lists function found on the Trading Activity Reports page of www.otcbb.com. For trades in Pink Sheets securities, a member is considered a market maker for trade reporting purposes if such member is identified as a market maker in the security using the Market Maker Security List function found on the Historical Information page of www.otcquote.com. This guidance is limited to determining market maker status for trade reporting purposes and compliance with Rule 6622(b) only.
FINRA has filed a proposed rule change with the SEC proposing to replace the current market maker-based trade reporting structure with an "executing party" reporting structure. See SR-FINRA-2008-011.
Types of Reports/Transactions
Section 300: Non-Tape (Regulatory or Clearing-Only) Reports
Q300.1: Should trade report modifiers be used on non-tape (i.e., regulatory or clearing-only) reports submitted to a FINRA Facility?
A300.1: No, trade report modifiers should not be included on non-tape reports, except where required by rule. For example, the ".RX" and ".RA" modifiers must be included on non-tape reports of exercises of OTC options and away from the market sales, respectively, pursuant to Rules 7130(c), 7230A(g), 7230B(f) and 7330(g).
Q300.2: Member BD1 reports a trade for public dissemination purposes to one FINRA Facility-e.g., the ADF. Can BD1 submit a clearing-only report for that same trade to another FINRA Facility-e.g., the FINRA/NASDAQ TRF-for transmission to National Securities Clearing Corporation (NSCC) for clearance and settlement purposes?
A300.2: No. The trade reporting rules provide that, with certain limited exceptions (discussed in FAQ 300.3), members cannot submit any non-tape report to one FINRA Facility associated with a previously executed trade that was not reported to that FINRA Facility for publication or regulatory transaction fee purposes. Thus, in this example, BD1 cannot use the ADF to tape report and the FINRA/NASDAQ TRF to clear the same trade; BD1 would be required to both tape report and clear the trade through either the ADF or the FINRA/NASDAQ TRF. See Rules 7130(d), 7230A(i), 7230B(h) and 7330(h); FINRA Regulatory Notice 07-38 (August 2007).
Members that report trades for publication purposes to a FINRA Facility that does not submit trades to clearing must make alternative arrangements to clear such trades (e.g., via Qualified Service Representative (QSR) agreements with NSCC).
Q300.3: Are there any exceptions to the prohibition discussed above?
A300.3: Yes, there is an exception to this prohibition for reports that reflect the offsetting portion of a riskless principal transaction, discussed in greater detail in Section 302 (Reporting Riskless Principal Transactions). This exception extends to agency transactions where a member acts as agent on behalf of another member, since such transactions are the functional equivalent of riskless principal transactions, discussed in greater detail in Section 303 (Reporting Agency Transactions). See Rules 7130(d), 7230A(i), 7230B(h) and 7330(h); FINRA Regulatory Notice 07-38 (August 2007).
FINRA has filed a proposed rule change with the SEC to require members to identify on non-tape reports the market or facility where an associated trade was reported, where a transaction falls within this exception for riskless principal or agency transactions and the related tape and non-tape reports are submitted to different FINRA Facilities or the non-tape report is associated with a trade that was reported to the tape through an exchange. See SR-FINRA-2007-012.
Section 301: Reporting Step-Outs
Q301.1: What is a step-out for purposes of the trade reporting rules?
A301.1: A step-out allows a member to allocate all or part of a client's position from a previously executed trade to the client's account at another broker-dealer. In other words, a step-out functions as a client's position transfer, rather than a trade; there is no exchange of shares and funds and no change in beneficial ownership. The step-out function was designed and implemented as a service to facilitate the clearing process for members involved in these types of transfers.
For example, member BD1 buys 1000 shares of ABCD security on behalf of its client and reports that trade to the FINRA/NASDAQ TRF and then submits a clearing-only report to the FINRA/NASDAQ TRF to allocate those shares at the same price to that client's account at member BD2. See NTMs 98-40 (May 1998) and 05-11 (February 2005); FINRA Regulatory Notice 07-38 (August 2007).
Q301.2: Are there any restrictions on the submission of non-tape reports for step-outs to a FINRA Facility?
A301.2: Yes. The trade reporting rules prohibit members from submitting to a FINRA Facility any non-tape report (including but not limited to reports of step-outs) associated with a previously executed trade that was not reported to that FINRA Facility. For example, a clearing-only entry for a step-out relating to a trade executed on and reported through the NASDAQ Exchange cannot be submitted to the FINRA/NASDAQ TRF. See Rules 7130(d), 7230A(i), 7230B(h) and 7330(h); FINRA Regulatory Notice 07-38 (August 2007). Members should check with the relevant exchanges to determine whether they support step-out functionality.
Q301.3: Member BD1 accumulates 10,000 shares of ABCD security by executing the following trades: four separate exchange trades for 2,000 shares each, one OTC trade for 1,000 shares that is reported to TRF A and one OTC trade for 1,000 shares that is reported to TRF B. Can BD1 step-out of the 10,000 shares on TRF A?
A301.3: No. BD1 can only step-out of a trade on a FINRA Facility that was previously reported to that FINRA Facility. Thus, in this example, BD1 can step-out of 1,000 shares on TRF A.
Q301.4: What time should be entered in the execution time field on a non-tape report for a step-out?
A301.4: The time that should be entered in the execution time field on the non-tape report should be the time at which the step-out was allocated to another party. Firms must populate this field accurately and should not, for example, use an internal default time (e.g., 12:00 noon) on such reports.
Q301.5: What time should be entered in the execution time field on non-tape reports of "bulk" step-outs? For example, if member BD1 executes 100 shares at 12:00:00, 100 shares at 12:01:00 and 100 shares at 12:04:00 (and each of these trades is reported to the tape); determines the weighted average price of the three trades and communicates this to member BD2 at 12:20:00; and allocates the shares to BD2 at 12:21:00, what time should be entered in the execution time field on the non-tape report of the step-out?
A301.5: The time that should be entered in the execution time field on the report of a "bulk step-out" should be the time at which the step-out was allocated. Thus, in this example, the time in the execution time field should be 12:21:00.
Q301.6: My firm is a member and participant of both the FINRA/NASDAQ TRF and the NASDAQ Exchange and reports step-outs to both facilities. How does my firm distinguish between a step-out reported through the FINRA/NASDAQ TRF versus the NASDAQ Exchange?
A301.6: The Automated Confirmation Transaction Service (ACT) is a technology system owned by the NASDAQ Exchange that serves as a mechanism for the submission of certain non-tape reports under the NASDAQ Exchange. ACT also has been licensed for use by the FINRA/NASDAQ TRF as a technology platform for collecting OTC trade reports for public dissemination and regulatory purposes. In this dual role, ACT accepts step-out entries submitted to the NASDAQ Exchange as well as to the FINRA/NASDAQ TRF. However, although they share the ACT technology platform, the NASDAQ Exchange and the FINRA/NASDAQ TRF are separate facilities and are governed by separate rule sets. Thus, when using ACT, firms must be mindful of the facility to which they are submitting step-out entries and must comply with the rules and technology specifications applicable to that facility. For example, firms must indicate on the entry that the step-out is a FINRA step-out or a NASDAQ Exchange step-out as specified in ACT entry protocols. See NASDAQ Head Trader Alert 2008-019 (February 22, 2008).
Q301.7: Member BD1 purchases 100,000 shares of ABCD on behalf of its customer and the customer instructs BD1 to step-out of 30,000 of those shares to the customer's account at member BD2. BD1 and BD2 have agreed that BD1 will charge a per share fee for this service. Can BD1 include the fee in the price on the clearing-only report submitted to FINRA for purposes of allocating the shares to BD2?
A301.7: No, BD1 cannot include such a fee in the price on a clearing-only report submitted to FINRA. A step-out submitted to FINRA must be allocated at the same price as the previously executed trade and cannot include a fee; however, members can transfer a transaction fee in accordance with Rule 7230A(h) in connection with a step-out entry submitted to the FINRA/NASDAQ TRF.
Section 302: Reporting Riskless Principal Transactions
Q302.1: What is a "riskless principal" transaction?
A302.1: For purposes of OTC transaction reporting requirements applicable to equity securities, a "riskless principal" transaction is a transaction in which a member, after having received an order to buy (sell) a security, purchases (sells) the security as principal and satisfies the original order by selling (buying) as principal at the same price (the offsetting "riskless" leg). Generally, a riskless principal transaction involves two orders, the execution of one being dependent upon the receipt or execution of the other; hence, there is no "risk" in the interdependent transactions when completed. See NTM 99-65 (August 1999).
Q302.2: How are OTC riskless principal transactions reported to FINRA?
A302.2: Members can report OTC riskless principal transactions by submitting a single tape report to a FINRA Facility in the same manner as an agency transaction, marked with a "riskless principal" capacity indicator, excluding the mark-up or mark-down, commission-equivalent or other fee. Alternatively, members can report an OTC riskless principal transaction by submitting two (or more, as necessary) reports: (1) a tape report to reflect the initial leg of the transaction with a capacity of principal; and (2) a non-tape (regulatory or clearing-only) report to reflect the offsetting "riskless" leg of the transaction with a capacity of riskless principal. See Rules 6282(e)(1)(C)(ii), 6380A(d)(3)(B), 6380B(d)(3)(B) and 6622(d)(3)(B); NTMs 99-65 (August 1999), 99-66 (August 1999) and 00-79 (November 2000). Where the tape report for an OTC riskless principal trade incorrectly reflects a capacity of "principal," the non-tape report is required under the trade reporting rules.
Q302.3: If the tape report for the initial leg of a riskless principal transaction is submitted to a FINRA Facility, must the non-tape report for the offsetting "riskless" leg be submitted to that same FINRA Facility?
A302.3: No. The trade reporting rules require that where the tape report for the initial leg of a riskless principal transaction is reported to FINRA, the non-tape report for the offsetting "riskless" leg must also be reported to FINRA; however, in such instance, members are not required to report both legs of the transaction to the same FINRA Facility. See Rules 6282(e)(1)(C)(ii), 6380A(d)(3)(B), 6380B(d)(3)(B) and 6622(d)(3)(B).
FINRA amended the trade reporting rules to avoid the unintended consequence of requiring members to be participants in all TRFs in order to comply with the trade reporting rules. See FINRA Regulatory Notice 07-38 (August 2007). For example, members BD1 and BD2 execute an OTC trade, and BD2 is acting as riskless principal for its customer. BD1 submits a tape report to TRF A reflecting BD2's capacity as principal. BD2 would be required to submit a non-tape report reflecting the offsetting customer leg of the transaction and its correct capacity as riskless principal. However, BD2 would not be required to submit the non-tape report to TRF A; BD2 could submit the non-tape report to TRF B. (Where the tape report is properly marked "riskless principal," a non-tape report is not required under the trade reporting rules. See FAQ 302.2.)
FINRA expects that, where possible, members will report both legs of a riskless principal transaction to the same FINRA Facility. See FINRA Regulatory Notice 07-38 (August 2007). Thus, if one member is reporting both legs of the transaction, FINRA expects that the member will report both legs to the same FINRA Facility.
Q302.4: Can members report riskless principal transactions to FINRA where the initial leg is executed on and reported through an exchange?
A302.4: Yes. Where the initial leg of a riskless principal transaction was previously reported by an exchange for public dissemination, the member would be permitted, but not required, to submit a non-tape report to a TRF or the ADF for the offsetting "riskless" leg. See Rules 6282(e)(1)(C)(ii), 6380A(d)(3)(B) and 6380B(d)(3)(B). Similarly, members may, but are not required to, submit a non-tape report to the ORF for the offsetting "riskless" leg of a riskless principal transaction where the initial leg is executed on and reported through a foreign exchange. Members that choose to report such transactions to FINRA must include all data elements required to be reported under the trade reporting rules. Members should not report the exchange trade to FINRA for public dissemination purposes, as that would result in double (tape) reporting of the same transaction. See Rules 6282(i), 6380A(e), 6380B(e) and 6622(g).
Q302.5: Member BD1 receives an order to buy a security, purchases the security for its own account and then sells the security to satisfy the original order at a different price than the price at which BD1 acquired the security. Does this constitute a "riskless principal" transaction?
A302.5: No. Transactions at different prices are not riskless principal transactions for purposes of the trade reporting rules, even though the transactions may otherwise be "riskless." Thus, each trade, at each respective price, must be reported separately to the tape. See NTMs 99-65 (August 1999), 00-79 (November 2000) and 01-85 (December 2001). See also Section 304 (Reporting Net Trades).
Q302.6: Member BD1 receives an order to buy a security, purchases the security for its own account and then sells the security to satisfy the original order at the same price; however, the settlement types, and thus the settlement dates, of the two legs of the transaction are different. Does this constitute a "riskless principal" transaction?
A302.6: Yes. A riskless principal transaction for purposes of the trade reporting rules can comprise legs that are of differing settlement types, assuming that the legs are effected at the same price and the transaction is otherwise deemed "riskless" to the member. If, however, the staggered settlements result in the two legs being executed at different prices, then the transaction would no longer qualify as a riskless principal transaction and both legs must be reported to the tape.
Q302.7: What time should be entered in the execution time field on a non-tape report for the offsetting leg of a riskless principal transaction?
A302.7: The time that should be entered in the execution time field on the non-tape report should be the time at which the offsetting leg of the transaction was allocated to another party. Firms must populate this field accurately and should not, for example, use an internal default time (e.g., 12:00 noon) on such reports.
Q302.8: What time should be entered in the execution time field on the non-tape report for the offsetting "riskless" leg of a riskless principal transaction that is associated with multiple first legs? For example, if member BD1 buys 100 shares at 12:00:00, 100 shares at 12:01:00 and 100 shares at 12:04:00 (and each of these trades is reported to the tape); determines the weighted average price of the three trades and communicates this to the customer at 12:20:00; and at 12:21:00 allocates the shares to its customer at the weighted average price of the three trades, what time should be entered in the execution time field on the non-tape report of the offsetting leg?
A302.8: The time that should be entered in the execution time field on the non-tape report should be the time at which the offsetting leg of the transaction was allocated. Thus, in this example, the time in the execution time field should be 12:21:00.
Section 303: Reporting Agency Transactions
Q303.1: Can a broker-dealer (BD1) trade as agent for another broker-dealer (BD2)?
A303.1: Yes, BD1 can act as agent for BD2 and execute BD2's order with a third party, assuming that the trade is not executed in, or does not otherwise pass through, a proprietary account of BD1.
Q303.2: In an agency transaction where a member acts as agent on behalf of another member, if the tape report is submitted to a FINRA Facility, must the non-tape report for the offsetting leg be submitted to that same FINRA Facility?
A303.2: No. Similar to the riskless principal reporting structure, if the first leg of an agency transaction where a member acts as agent on behalf of another member is an OTC trade, the related tape and non-tape reports are not required to be submitted to the same FINRA Facility. See FINRA Regulatory Notice 07-38 (August 2007). FINRA expects that where possible, members will report both legs of an agency transaction to the same FINRA Facility. Thus, if one member is reporting both legs of the transaction, FINRA expects that the member will report both legs to the same FINRA Facility.
Q303.3: Member BD1, as agent on behalf of member BD2, executes a trade on an exchange. May BD1 submit a non-tape (regulatory or clearing-only) report to FINRA to reflect the offsetting portion of the agency transaction between BD1 and BD2?
A303.3: Yes. BD1 may submit a non-tape (regulatory or clearing-only) report to FINRA to reflect the offsetting portion of the agency trade between BD1 and BD2. Similar to the riskless principal reporting structure, where the initial leg of the transaction was previously reported by an exchange for public dissemination, the member would be permitted, but not required, to submit a non-tape report to FINRA for the offsetting leg. See FINRA Regulatory Notice 07-38 (August 2007). Members that choose to report such transactions to FINRA must include all data elements required to be reported under the trade reporting rules. Members should not report the exchange trade to FINRA for public dissemination purposes, as that would result in double (tape) reporting of the same transaction. See Rules 6282(i), 6380A(e), 6380B(e) and 6622(g).
Q303.4: What time should be entered in the execution time field on a non-tape report for the offsetting leg of an agency transaction where a member acts as agent for another member?
A303.4: The time that should be entered in the execution time field on the non-tape report should be the time at which the offsetting leg of the transaction was allocated to another party. Firms must populate this field accurately and should not, for example, use an internal default time (e.g., 12:00 noon) on such reports.
Q303.5: What time should be entered in the execution time field on the non-tape report for the second leg of an agency transaction that is associated with multiple first legs? For example, if member BD1, as agent on behalf of member BD2, buys 100 shares at 12:00:00, 100 shares at 12:01:00 and 100 shares at 12:04:00 (and each of these trades is reported to the tape); determines the weighted average price of the three trades and communicates this to BD2 at 12:20:00; and at 12:21:00 allocates the shares to BD2 at the weighted average price of the three trades, what time should be entered in the execution time field on the non-tape report of the second leg?
A303.5: The time that should be entered in the execution time field on the non-tape report should be the time at which the offsetting leg of the transaction was allocated. Thus, in this example, the time in the execution time field should be 12:21:00.
Section 304: Reporting Net Trades
Q304.1: What is a net trade?
A304.1: A net trade is a principal trade in which a broker-dealer, after having received an order to buy (sell) an equity security, purchases (sells) the security at one price and satisfies the original order by selling (buying) the security at a different price. The difference between the price of the initial transaction and the price of the offsetting transaction is the broker-dealer's compensation.
For net trades by a market maker, the market maker's compensation generally is not separately disclosed on a customer confirmation; however NASD Rule 2441 imposes certain disclosure and consent obligations on the market maker. See NTMs 00-79 (November 2000), 01-85 (December 2001) and 06-47 (September 2006). See also NASD Rule 2441(e), which is discussed in FAQ 304.3. Because a non-market maker's compensation would be separately disclosed on a customer confirmation under SEC Rule 10b-10(a), Rule 2441 does not impose disclosure and consent obligations on non-market makers.
Q304.2: Member BD1 receives an order to buy a security, purchases the security for its own account and then sells the security to satisfy the original order at a different price than the price at which BD1 acquired the security. How should these trades be reported?
A304.2: Because the two transactions are effected at two different prices, this is considered a net trade and both transactions must be reported to the tape. See NTM 01-85 (December 2001).
Q304.3: What disclosure requirements apply when a market maker is trading on a net basis with a customer?
A304.3: Pursuant to NASD Rule 2441, a market maker is required to provide disclosure to, and obtain consent from, a customer prior to executing a transaction with a customer on a net basis. The disclosure and consent requirements under the rule apply only to market makers and differ depending on whether the market maker is trading with an institutional or non-institutional customer. See NTM 06-47 (September 2006).
Q304.4: Does NASD Rule 2441 apply to riskless principal transactions?
A304.4: No. NASD Rule 2441 applies when a market maker, after having received an order to buy (sell) from a customer, purchases (sells) the security as principal at one price and then sells to (buys from) the customer at a different price. By contrast, in a riskless principal transaction, a firm, after having received an order to buy (sell) a security, purchases (sells) the security as principal at the same price (exclusive of a disclosed commission, mark-up or mark-down) to satisfy that order. The Rule does not apply to riskless principal transactions because the compensation is required to be disclosed on the confirmation pursuant to SEC Rule 10b-10.
Section 305: As/Of (T+N) Reports
Q305.1: What is an "as/of" (T+N) report?
A305.1: A report is marked "as/of" (T+N) when reporting a trade that occurred earlier than the current day and was not reported, or when reporting the cancellation of a trade that was reported in error from a previous day.
Q305.2: Should reports of "as/of" (or T+N) trades be marked "media" or "for publication" (i.e., for submission to the tape)?
A305.2: If the trade would have been marked "media" or "for publication" had it been reported on trade date, the "as/of" report should be marked "media" or "for publication." All other "as/of" reports should be marked as "non-media" (i.e., not for submission to the tape).
Q305.3: Should "as/of" reports include trade report modifiers?
A305.3: Yes, "as/of" reports marked for publication must include trade report modifiers. See Rules 6282, 6380A and 6380B. Thus, for example, all "as/of" reports for public dissemination should include the modifier denoting that the trade was reported more than 90 seconds after execution, unless the trade is not subject to the 90-second reporting requirement. "As/of" reports that are not media reported should not include trade report modifiers.
Q305.4: Are "as/of" reports that are submitted to a FINRA Facility disseminated by the appropriate Securities Information Processor (SIP)?
A305.4: Today, with the exception of odd-lot trade reports, all "as/of" reports of transactions in NMS stocks that are marked "for publication" are disseminated by the appropriate SIP. However, these reports are not commingled with current trade date reports and do not affect high-low-last statistics. "As/of" reports of transactions in OTC Equity Securities currently are not disseminated by FINRA via the Trade Data Dissemination Service (TDDS) feed.
Q305.5: Are trade report modifiers required on reports of reversals?
A305.5: If the original trade report was marked "for publication" or "media" and thus was disseminated, the reversal must also be marked "for publication" or "media." Accordingly, the reversal entry should include all modifiers that are on the original tape report.
Section 306: Reporting Matches of Customer Orders by a Broker-Dealer (Including an ATS or ECN)
Q306.1: Member BD1 matches as agent a customer (as defined in NASD Rule 0120(g)) buy order and a customer sell order for the same quantity of shares at the same price. Can this transaction be reported as a cross?
A306.1: Yes. This is an agency cross, also referred to as a dual agency trade. See Rules 6282(e)(1)(B), 6380A(d)(2), 6380B(d)(2) and 6622(d)(2).
Q306.2: Member BD1 satisfies a customer's order to buy with inventory from BD1's proprietary account. Can this transaction be reported as a cross?
A306.2: No. BD1 should report the trade as a principal sale to its customer.
Q306.3: Member BD1 matches as agent the orders of multiple customers on one side with the orders of one or more customers on the other side. For example, BD1 matches as agent a customer buy order for 100,000 shares with three customer sell orders for 50,000 shares, 20,000 shares and 30,000 shares. Should this be reported as a single transaction or separate transactions?
A306.3: If the matches occur in multiple executions, it would not be permissible to report the transactions as a single cross. Each individual execution must be reported separately to the tape. This is a more accurate reflection of the transaction. If, however, the matches occur in a single execution or a "single event" (e.g., with the press of a button or pursuant to an automated execution algorithm), the transaction could be reported to the tape as a single cross. Sequential executions-even those occurring very close in time-would not be considered a single event and must be reported separately to the tape.
Trade Report Modifiers
Section 400: General
Q400.1: Is there any guidance relating to the four level or byte trade report modifier format for reporting to a FINRA Facility?
A400.1: Yes, members should refer to the Trade Report Modifier Chart in NTM 07-23 (May 2007) for guidance on how to populate each of the information levels or bytes.
Q400.2: Does the four level or byte trade report modifier format allow for combinations of modifiers, where appropriate?
A400.2: Yes. Except with respect to reports of transactions in OTC Equity Securities, discussed in Section 401 (Trade Report Modifiers on Reports Submitted to the ORF) below, the four level or byte format allows for combinations of trade report modifiers. For example, a member can report that a transaction is both a weighted average price (.W) and outside market hours (.T) transaction. In the past, when both the .W and .T modifiers applied to a particular transaction, members were instructed to use the .W modifier rather than the .T modifier. Under the four level or byte modifier format, both modifiers can be accommodated on the transaction report and must be used if applicable.
Q400.3: How should members report to FINRA trades that qualify for an exemption or from the Regulation NMS requirements?
A400.3: Members should refer to NASD NTM 07-23 (May 2007) for guidance on the proper use of FINRA's trade report modifiers when reporting certain transactions to FINRA Facilities that are exempt or excepted from SEC Rule 611 of Regulation NMS.
Q400.4: Do the FINRA Facilities automatically append trade report modifiers to trade reports?
A400.4: Certain FINRA Facilities will automatically append certain trade report modifiers—e.g., the outside market hours (.T) modifier—where byte 3 is not populated on the trade report submitted by the member. Members should consult the trade reporting rules and technical specifications applicable to the relevant FINRA Facility to determine whether, and under what circumstances, a trade report modifier will be automatically appended by the system.
Section 401: Trade Report Modifiers on Reports Submitted to the ORF
Q401.1: Does the four level or byte trade report modifier format apply to reports of trades in OTC Equity Securities that are submitted to the ORF?
A401.1: Yes, members reporting trades in OTC Equity Securities to the ORF are required to use the four level or byte format. However, the Regulation NMS-related trade report modifiers do not apply to transactions in these securities and, accordingly, should not be used when reporting to the ORF. See NTM 07-23 (May 2007). In addition, members currently cannot populate certain bytes or submit certain modifier combinations (e.g., both byte 3 and byte 4) on a trade report submitted to the ORF and thus, for purposes of reporting trades in OTC Equity Securities, should use historical guidance to determine which modifier would take priority. Members should refer to NASDAQ Technical Update #2007-024 (June 25, 2007) for guidance on submitting trade reports to the ORF in the four level or byte format.
Q401.2: For purposes of reporting trades in OTC Equity Securities to the ORF, which trade report modifier would take priority as between the late (.Z) modifier in byte 3 and the stop stock modifier in byte 4?
A401.2: In this instance, members should use the stop stock trade report modifier. This guidance applies only to the reporting of transactions to the ORF because currently, both bytes 3 and 4 cannot be populated. See FAQ 401.1. See also FAQ 402.2 regarding the stop stock modifier for transactions in OTC Equity Securities.
Q401.3: For purposes of reporting trades in OTC Equity Securities to the ORF, which trade report modifier would take priority as between the outside market hours (.T) modifier in byte 3 and the stop stock modifier in byte 4?
A401.3: In this instance, members should use the stop stock trade report modifier. This guidance applies only to the reporting of transactions to the ORF because currently, both bytes 3 and 4 cannot be populated. See FAQ 401.1. See also FAQ 402.2 regarding the stop stock modifier for transactions in OTC Equity Securities.
Q401.4: For purposes of reporting trades in OTC Equity Securities to the ORF, which trade report modifier would take priority as between the outside market hours (.T) modifier in byte 3 and the prior reference price (.PRP) modifier in byte 4?
A401.4: In this instance, members should use the outside market hours trade report modifier. This guidance applies only to the reporting of transactions to the ORF because currently, both bytes 3 and 4 cannot be populated. See FAQ 401.1.
Section 402: Stop Stock Transactions
Q402.1: Is a "Stop Stock" transaction the same as a "Stop Order"?
A402.1: No. A "Stop Stock" transaction is defined under the trade reporting rules as any transaction that meets both of the following conditions: (1) the transaction is the result of an order in which a member and another party agree that the order will be executed at a Stop Stock Price or better; and (2) the order is executed at the Stop Stock Price or better. See Rules 6220, 6320A, 6320B and 6420. A report of a Stop Stock transaction must include the time at which the member and the other party agreed to the Stop Stock Price in lieu of the actual time the trade was executed. Stop Stock transactions are to be reported with a special trade report modifier as specified by FINRA; however, such modifier shall not be appended to the report if the Stop Stock transaction is executed and reported within 90 seconds of the time the member and the other party agree to the Stop Stock Price. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). Additionally, a report of a Stop Stock transaction may be flagged as trade-through exempt, if it qualifies as such under SEC Rule 611 of Regulation NMS.
A "Stop Order" is a market or limit order that does not become effective until a certain market price is reached (e.g., a transaction takes place in the market at that price), after which the order is executable according to its terms and conditions and applicable rules and regulations. For trade reporting purposes, the activated Stop Order is reported when executed, with the actual execution time and price, and unlike Stop Stock transactions, Stop Order transactions are not reported with a special trade report modifier.
Q402.2: How should members report a Stop Stock transaction in an OTC Equity Security, as that term is defined in Rule 6420?
A402.2: Rule 6622(a)(8) currently requires that Stop Stock transactions in OTC Equity Securities be identified by using the .W modifier. FINRA intends to file a rule change in the near future to conform the trade reporting requirements for OTC Equity Securities to those of NMS stocks, as appropriate, and as such, would require a special trade report modifier to specifically identify Stop Stock transactions.
Section 403: Aggregated or "Bunched" Reports
Q403.1: What does the prohibition on aggregation in the trade reporting rules cover?
A403.1: The trade reporting rules prohibit the aggregation of multiple executions into a single tape report (previously reported using the .B modifier). Such prohibition does not apply to the matching or crossing of multiple orders in a single execution (e.g., via an ATS or broker-dealer order management system) or to transactions that are designated as .W (i.e., exchange-for physical, weighted average price or other special pricing formula transactions). Such transactions previously were not reported as bunched or aggregated using the .B modifier. See Rules 6282(f), 6380A(f) and 6380B(h).
Q403.2: Can members use the .B modifier on any trade reports today?
A403.2: No. The .B modifier cannot be used on trade reports submitted to any FINRA Facility.
Section 404: Weighted Average Price/Special Pricing Formula Transactions
Q404.1: Member BD1 executes multiple trades to satisfy a customer order and then trades with the customer at a price equal to the volume-weighted average cost of the original trades plus a net difference in accordance with a net trading agreement with its customer. How should BD1 report the trade with its customer?
A404.1: The original trades and the customer leg of the transaction should be reported to the tape, and the report of the customer leg should include the weighted average price (.W) modifier. For example, member BD1 receives an order from a customer to buy 5,000 shares of ABCD security and accumulates the shares through five separate trades. Each of these five trades is reported to the tape. BD1 then sells the 5,000 shares of ABCD to its customer at its volume-weighted average cost with a net difference to reflect the compensation agreement between BD1 and its customer. BD1 should report the sale of 5,000 shares to its customer to the tape with the weighted average price modifier.
Q404.2: Should a net trade always be marked with a weighted average price (.W) modifier?
A404.2: No. The mark-up of a trade does not in itself qualify a trade to be marked with a weighted average price modifier. A net trade can be marked with this modifier only if, as in the example in FAQ 404.1, the price would qualify as a weighted average price or based on another special pricing formula.
Q404.3: Member BD1 executes multiple trades to fill a customer order and then trades with the customer at a price equal to the volume-weighted average cost of the original trades. How should BD1 report the trade with its customer?
A404.3: Assuming the transaction meets the riskless principal requirements, the transaction should be reported on a riskless principal basis and the weighted average price (.W) modifier should not be used. For example, member BD1 receives an order from a customer to buy 5,000 shares of ABCD security, and BD1, as principal, accumulates the shares through five separate trades. Each of these five trades is reported to the tape. When BD1, as principal, sells the 5,000 shares of ABCD to its customer at its volume-weighted average cost, BD1 should submit a non-tape report showing the sale of 5,000 shares to the customer; the weighted average price modifier should not be included on the non-tape report. Members should not rely on the guidance provided in NASDAQ Head Trader Alert 00-53 (July 28, 2000), which states that the sale to the customer of 5,000 shares should be reported to the tape with the weighted average price modifier. See NASDAQ General News: Riskless Principal Negative Consent Letters and .W Modifier (January 31, 2001).
Exceptions to Trade Reporting Rules
Section 500: General
Q500.1: What transactions are excepted from the trade reporting rules?
A500.1: The trade reporting rules expressly provide that certain types of transactions are not to be reported to FINRA for publication or regulatory purposes, including: (1) transactions reported on or through an exchange; (2) transactions that are part of a primary distribution by an issuer or of a registered secondary distribution (other than "shelf distributions") or of an unregistered secondary distribution; (3) transactions made in reliance on Section 4(2) of the Securities Act of 1933; (4) the acquisition of securities by a member as principal in anticipation of making an immediate exchange distribution or exchange offering on an exchange; and (5) purchases of securities off the floor of an exchange pursuant to a tender offer. These exceptions are consistent with those of the Consolidated Transaction Association Plan and NASDAQ Unlisted Trading Privileges Plan, which provide that such transactions shall not be reported to the tape. For a complete list of transactions that are not to be reported to FINRA for public dissemination, see Rules 6282(i), 6380A(e), 6380B(e) and 6622(e).
Additionally, the trade reporting requirements of Rule 6622 do not apply to transactions in foreign equity securities if: (1) the transaction is executed on and reported to a foreign securities exchange; or (2) the transaction is executed OTC in a foreign country and is reported to the regulator of securities markets for that country. See Rule 6622(g) and NTM 07-25 (May 2007).
A member should have policies and procedures and internal controls in place to determine whether a transaction qualifies for an exception under the trade reporting rules.
Section 501: Sales of Restricted Securities
Q501.1: Member BD1 buys at a discount a large block of previously restricted securities in XYZ Corp. from an XYZ Insider in compliance with SEC Rule 144, and then sells the block in pieces into the marketplace at market price (e.g., to BD2 and BD3). Is the sale from the XYZ Insider to BD1 reportable? Are the sales from BD1 to BD2 and BD3 reportable?
A501.1: If all applicable conditions of SEC Rule 144 are satisfied, BD1 has received unrestricted stock for purposes of the trade reporting rules and, therefore, the sale from the XYZ Insider to BD1 should be reported to the tape. The sales from BD1 to BD2 and BD3 are also tape reportable. Note, however, that this guidance may not address all administrative steps that must be taken before a restricted security can be sold freely (e.g., CUSIP conversion from restricted to unrestricted status and symbol creation for a security that was not otherwise publicly traded).
Reporting Transactions for Regulatory Transaction Fee Purposes
Section 600: General
Q600.1: Are there certain transactions that are not required to be reported for public dissemination purposes, but nonetheless must be reported to FINRA for regulatory purposes?
A600.1: Yes. Transactions where the buyer and seller have agreed to a price substantially unrelated to the current market for the security (also referred to as "away from the market sales") and purchases or sales of securities effected upon the exercise of an OTC option must not be reported to FINRA for publication purposes. See Rules 6282(i), 6380A(e), 6380B(e) and 6622(e). However, the trade reporting rules require members to submit non-tape reports to FINRA with respect to away from the market sales and transactions effected upon the exercise of OTC options that are subject to a regulatory transaction fee pursuant to Section 3 of Schedule A to the By-Laws (Section 3) and to use a special indicator denoting that such transactions are reported in accordance with Section 3. See Rules 7130(c), 7230A(g), 7230B(f) and 7330(g); NTM 06-39 (August 2006). See also Sections 601 (Away from the Market Sales) and 602 (Transactions Effected Upon the Exercise of Options).
FINRA adopted new requirements for the reporting of odd-lot transactions that are subject to regulatory transaction fees effective March 3, 2008. Members should report odd-lot transactions for publication, as applicable, and are no longer required to use the special indicator denoting that such transactions are reported for regulatory fee purposes. See FINRA Regulatory Notice 07-63 (December 2007).
Section 601: Away from the Market Sales
Q601.1: What is an "away from the market" sale?
A601.1: "Away from the market sale" for purposes of Rules 6282(i), 6380A(e), 6380B(e) and 6622(e) applies to transactions that occur without reference to current market pricing and investment, commercial or trading considerations. Given the underlying goals of transaction reporting, FINRA interprets the exception from the trade reporting rules for away from the market sales very narrowly, and the mere fact that a trade has occurred outside of the current inside would not, in and of itself, qualify for the exception. See NTM 05-11 (February 2005). Gifts and inheritances where the shares must be transferred by giving nominal consideration would be deemed away from the market sales. For example, Party 1 wants to give Party 2 50 shares of ABCD security, but to have the shares transferred correctly, Party 2 must "buy" them for a nominal value that is unrelated to the share price. Member BD1 effects the sale from Party 1 to Party 2 and would be required to submit a non-tape report to FINRA with the .RA trade report modifier.
Q601.2: Would the sale of a block of stock at a discount reflecting the risk in purchasing such a large block constitute an "away from the market sale" under the trade reporting rules, such that it would not be reportable to the tape?
A601.2: No. Trades at a discount (or a premium) are not considered "away from the market sales" under Rules 6282(i), 6380A(e), 6380B(e) and 6622(e). Members are reminded that trades at a discount (or premium) are subject to the Regulation NMS Order Protection Rule. See SEC Rule 611.
Q601.3: If shares are acquired or sold as part of a structured transaction and the price is not based on the current market (e.g., the month-end closing price or the volume-weighted average price for the month), would this be considered an away from the market sale?
A601.3: No, this would not be considered an away from the market sale because it was based on investment, commercial or trading considerations.
Section 602: Transactions Effected Upon the Exercise of Options
Q602.1: BD1 buys an option to purchase stock and later decides to exercise the option. Is the purchase effected upon the exercise of the option a reportable event?
A602.1: Except as discussed in FAQ 602.2, the purchase or sale of a security effected upon the exercise of an option pursuant to the terms thereof should not be reported to FINRA. See Rules 6282(i), 6380A(e), 6380B(e) and 6622(e).
Q602.2: When should a transaction effected pursuant to the exercise of an option be reported to FINRA?
A602.2: Members must submit non-tape reports to FINRA with respect to certain transactions that are subject to a regulatory transaction fee pursuant to Section 3 of Schedule A to the By-Laws, including transactions effected pursuant to the exercise of an OTC option. See Rules 7130(c), 7230A(g), 7230B(f) and 7330(g); NTM 06-39 (August 2006). Specifically, members must report to FINRA, with the .RX trade report modifier, transactions resulting from the exercise of options settled by physical delivery and not listed or traded on a national securities exchange (i.e., unlisted or conventional options). Thus, the requirement does not apply to transactions resulting from the exercise of cash-settled or exchange-listed options.
Foreign Securities Transactions
Section 700: Reporting Transactions in Foreign Securities
Q700.1: Are members required to report trades in foreign securities to FINRA?
A700.1: Rule 6622 requires members to report transactions in OTC Equity Securities, the definition of which includes foreign equity securities. However, Rule 6622(g) excludes from the reporting requirements transactions in foreign equity securities if (1) the transaction is executed on and reported through a foreign securities exchange or (2) the transaction is executed OTC and reported to the regulator of a foreign securities markets. See NTM 07-25 (May 2007). For purposes of the trade reporting rules, a "foreign equity security" is any OTC Equity Security that is issued by a corporation or other entity incorporated or organized under the laws of any foreign country.
Q700.2: What should a member do if it trades a foreign equity security OTC that does not have a U.S. symbol, but is reportable under Rule 6622?
A700.2: Rule 6622(c)(1) requires that a last sale report include the symbol of the OTC Equity Security that is the subject of the trade. In those situations where the security does not have a valid U.S. symbol, the member must promptly request that NASDAQ Corporate Data Operations (Market Data Integrity) assign a symbol to the security so that the member can fulfill its trade reporting obligations. After a symbol is assigned, the member should report the trade on an "as/of" basis using the original execution date as the trade date, pursuant to Rule 6622(a).
Q700.3: If a member effects a trade in a foreign security that must be reported to FINRA, can the member report the trade in a foreign currency if the trade was effected in that currency?
A700.3: No. All trades reported to FINRA must be reported in U.S. dollars. When converting the currency, a member is permitted to use any reasonable business practice for the conversion. The member should document its practice regarding currency conversion and must apply the methodology consistently. See NTM 07-25 (May 2007).
Q700.4: Member BD1 receives an order from its customer to buy a foreign security, purchases the foreign security for its own account in the foreign country and the transaction is reported by a foreign market. BD1 then sells the security to its customer at the same price, adjusted solely to reflect the conversion to U.S. dollars, at which BD1 acquired the security on a riskless principal basis. How should the transaction be reported?
A700.4: Because the first leg of the transaction is reported by a foreign market, it should not be reported to FINRA. Assuming the transaction meets the riskless principal requirements, it is permissible to submit to FINRA a non-tape report for the offsetting leg of the transaction, but it is not required. For example, BD1 executes a trade on a Canadian exchange at $1 Canadian per share and the transaction is reported through the Canadian exchange. As discussed in FAQ 700.1, BD1 is not required to report this trade to FINRA because it was executed and reported in the foreign country. The trade at $1 Canadian per share converts to $1.40 US per share and BD1 sells the shares to its customer OTC in the U.S. at $1.40. BD1 may, but would not be required to, submit a non-tape report to the ORF for the offsetting customer leg at $1.40 with a capacity of riskless principal.
Q700.5: Member BD1 receives an order from its customer to buy a foreign security, purchases the foreign security for its own account and the transaction is reported in the foreign country. BD1 then sells the security OTC in the U.S. to satisfy the original customer order at a different price, in addition to any change in price due to currency conversion, from which BD1 acquired the security. How should the transactions be reported?
A700.5: Because the two transactions are effected at two different prices, this is considered a net trade and both transactions must be reported. See FAQ 304.2. For example, BD1 executes a trade in Canada at $1 Canadian per share and the transaction is reported in Canada. As discussed in FAQ 700.1, BD1 is not required to report this trade to FINRA because it was executed and reported in the foreign country. The trade at $1 Canadian per share converts to $1.40 US per share and BD1 sells the shares to its customer OTC in the U.S. at $1.41. BD1 must report the transaction at $1.41 to the ORF.
Q700.6: Member BD1 executes a transaction on behalf of member BD2 in a foreign security on a foreign exchange, which is reported to the foreign exchange. BD1 wants to charge a fee to member BD2 for the currency conversion into U.S. dollars. Can BD1 report the offsetting leg of the transaction with BD2 via the ORF and add the currency conversion fee to the per share price?
A700.6: No, BD1 cannot use the ORF for a back office function such as charging a currency conversion fee. For example, BD1 executes a trade in Canada for $1 Canadian per share and the transaction is reported in Canada. The trade at $1 Canadian per share converts to $1.40 US per share. BD1 adds a $.01 per share fee for the currency conversion. BD1 cannot submit a report to the ORF to reflect a transaction with BD2 at $1.41. While it may be permissible for BD1 to charge its customer a reasonable fee for the currency conversion, such fee cannot be transferred via the ORF.
Q700.7: Member BD1 and member BD2 execute a trade in a foreign security OTC and BD1 reports the trade to the regulator of the foreign securities market. Does BD2 have an obligation to report its side of the transaction to the ORF under Rule 7330(b) as an order-entry (OE)-side submission?
A700.7: No. As discussed in FAQ 700.1, BD1 would have no obligation to report the transaction to the ORF because it has reported the transaction to the regulator of the foreign securities market. In addition, BD2 would have no obligation to report its side of the transaction to the ORF where BD1 reported the transaction to the regulator of the foreign securities market.
Section 701: Dually Listed Securities
Q701.1: How should a member report a trade for a dually listed security (i.e., a security that is listed on both a foreign securities exchange and a national securities exchange in the U.S.)?
A701.1: The location and manner in which the trade is effected dictates whether and how the trade must be reported. Because dually listed securities are listed on a national securities exchange, they do not fall within the definition of "OTC Equity Securities" for purposes of the Rule 6620 Series. Consequently, transactions in dually listed securities should never be reported to the ORF. If a member effects an OTC transaction in a dually listed security, the trade must be reported to a TRF or the ADF. If a member effects a trade in a dually listed security on the foreign exchange and the trade is reported through that exchange, the member is not required to report the trade to FINRA because the trade was executed "on or through an exchange," namely, the foreign exchange. See Rules 6282(i), 6380A(e) and 6380B(e).
Section 702: ADR "Swap" Transactions
Q702.1: How should a member report a "cross-book" transaction (i.e., a transaction where the member "swaps" ordinary shares and American Depositary Receipts (ADRs) between two customers)?
A702.1: OTC "cross-book" transactions, also known as ADR swap transactions, must be reported to FINRA. In these types of transactions, a member matches holders of ADRs with holders of the foreign ordinary equity security (referred to as the "ordinary" or "ordinaries") in the same company. To effect the "swap," the member typically will execute the equivalent of two cross transactions in the two securities between the holders. Because the ADRs and the ordinary shares are separate securities and they are executed in separate transactions, both the ADR and the foreign ordinary share transactions must be reported separately to FINRA for public dissemination pursuant to the trade reporting rules. See NTM 07-25 (May 2007).
The conversion of ordinary shares into an ADR and the conversion of an ADR into ordinary shares are not OTC transactions for purposes of the trade reporting rules. Consequently, these types of conversions are not reportable to FINRA. See NTM 07-25 (May 2007).
