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
Section 105: Obtaining OTC Equity Security Symbols for Trade Reporting Purposes
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—Which Party Has Trade Reporting Obligation
Section 205: Determining “Executing Party”
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 Including Reversal Entries
Section 306: Reporting Matches of Customer Orders by a Member (Including an ATS or ECN)
Section 307: Reporting Matches of Broker-Dealer Orders by a Member (Including an ATS or ECN)
Trade Report Modifiers and Other Indicators
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
Section 405: Related Market Center
Transactions Not Reported to FINRA
Section 501: Sales of Restricted Securities
Reporting Transactions for Regulatory 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); see also FAQ 102.3. 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 non-exchange-listed 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).
FINRA has filed a proposed rule change to reduce the 90-second reporting requirement to 30 seconds and also to require that trades in non-exchange-listed DPP securities be reported within 30 seconds of execution. See SR-FINRA-2009-061.
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).
Q102.3: When must a trade that is executed outside normal market hours be reported?
A102.3: Trades that are executed outside normal market hours (i.e., outside the hours of 9:30 a.m. and 4:00 p.m. Eastern Time) and during the hours the FINRA Facility to which the member is reporting is open must be reported within 90 seconds of execution. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a).
Trades executed during the hours the FINRA Facility to which the member is reporting is closed are not subject to 90-second reporting. Effective January 11, 2010, trades executed between midnight and 8:00 a.m. must be reported by 8:15 a.m. Eastern Time on trade date. Trades executed between the close of the Facility (6:30 p.m. for the ADF and 8:00 p.m. for the TRFs and the ORF) and midnight must be reported on an "as/of" basis by 8:15 a.m. Eastern Time the following business day. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). See also the Reporting Requirements: OTC Equity Transactions Outside Normal Market Hours Chart and Regulatory Notice 09-52 (August 2009) for additional guidance on reporting trades executed outside normal market hours.
Q102.4: If a trade is not reported within the time period prescribed by the trade reporting rules, must it still be reported?
A102.4: Yes. If a trade is not reported within the time period prescribed by the trade reporting rules (e.g., within 90 seconds of execution), it must be reported as soon as practicable and shall be designated as late. Trades that are required to be reported on trade date, but are not reported on trade date, must be reported on an "as/of" basis on a subsequent date (T+N) and shall be designated as late. Trades that are required to be reported on an "as/of" basis the following business day (T+1) (e.g., certain trades executed outside normal market hours), but are not reported on T+1, must be reported on a subsequent date (T+N) and shall be designated as late. See Rules 6282(a), 6380A(a), 6380B(a) and 6622(a).
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: Members BD1 and BD2 execute an OTC trade and BD2 has 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. If the trade is executed during the hours that a FINRA Facility is closed, BD1 has until 8:20 a.m. Eastern Time to accept or reject the trade information submitted by BD2. See Rules 7130(b), 7230A(b) and 7330(b).
Q103.3: Members BD1 and BD2 execute an OTC trade and BD2 has 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 (or by 8:20 a.m. Eastern Time, with respect to trades executed during the hours that a FINRA Facility is closed). 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: Members BD1 and BD2 execute an OTC trade and BD2 has 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 reporting trades to FINRA. Rules 6160 and 6480 provide that any member that wishes to use more than one MPID for purposes of reporting trades to a TRF or the ORF, respectively, 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 member is required to identify on its application the bona fide business and/or regulatory purpose(s) and the system(s) for which the multiple MPIDs will be used, as well as the identity of the other SROs on whose systems the member intends to use the MPID(s), as applicable. 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 member is using one or more additional MPIDs improperly or for other than the purpose(s) identified by the member in its application, FINRA staff retains full discretion to limit or withdraw its grant of the additional MPID(s). See Rules 6160, 6170 and 6480.
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.
Section 105: Obtaining OTC Equity Security Symbols for Trade Reporting Purposes
Q105.1: What should a member do if it executes a trade in an OTC Equity Security that does not have a symbol, but is reportable under Rule 6622?
A105.1: In those situations where an OTC Equity Security does not have a valid U.S. symbol assigned, the member must promptly request that FINRA Operations assign a symbol to the security so that the member can fulfill its trade reporting obligations. If there is no symbol at the time the trade is executed, the trade should be reported to the ORF immediately upon the issuance of the symbol and be marked late, as applicable. If the trade is not reported on trade date, it should be reported on an "as/of" basis using the original execution date as the trade date.
Q105.2: Security ABCD is the subject of an initial public offering (IPO) and will later be listed on the NYSE. Immediately after the distribution and before the security becomes listed on the NYSE, the security begins trading OTC. Must these trades be reported to FINRA?
A105.2: Yes, these trades must be reported to FINRA. Until the security becomes listed, it generally would be considered an OTC Equity Security, as defined in Rule 6420, or a TRACE-eligible security, as defined in Rule 6710, and must be reported to either the ORF or TRACE, as applicable. If the security is deemed an OTC Equity Security and there is no OTC symbol for the security, the member should request a symbol from FINRA in accordance with FAQ 105.1.
Q105.3: Does FINRA assign symbols for securities listed on a national securities exchange?
A105.3: No. FINRA only assigns symbols for OTC Equity Securities. Members should contact the relevant exchange to determine the symbol for a listed security.
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: 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 party to the trade, a valid, executed give-up agreement must be in place.
Where a tape only report is being submitted to a FINRA Facility, a give-up agreement is not required for the member with the reporting obligation to identify the contra party to the trade on the trade report. For example, two FINRA members (BD1 and BD2) execute a trade and under the trade reporting rules, BD1 has the reporting obligation. A give-up agreement is not required for BD1 to identify BD2 as the contra party to the trade on a tape only report.
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 as agent 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 a party to the trade?
A200.6:No. BD1 is a party to the trade and must appear on the trade report as such. It would be a rule violation for BD1 to submit a single trade report identifying BD2 and BD3 as the only 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 parties to the trade: the reporting member and two contra parties. The three-party report would allow BD1 to report all three parties to the trade (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 a 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 identifying BD2 and BD3 as the 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 parties to the trade on the tape report? Does the same guidance apply where BD1 clears through BD2?
A201.1: The parties to the trade 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.
This guidance also applies where, in the example above, BD1 clears through BD2, including on a fully disclosed basis.
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. See FAQ 200.1. BD1 and BD3 must be identified on the tape report as the 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 parties to the trade on the tape report? Does the same guidance apply where BD1 clears through BD2?
A201.3: The parties to the trade on the tape report must be BD2 and BD3. In this example, BD2 (and not BD1) is a party to the trade because BD2 is making the order routing and execution decision and directing BD1's order to BD3.
This guidance also applies where, in the example above, BD1 clears through BD2, including on a fully disclosed basis.
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 a 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. See FAQ 200.1. BD1 and BD2 must be identified on the tape report as the 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 party to the trade.
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 party to the trade and not as the reporting party. For any trade report on which a Canadian non-member appears as a party to the trade, the FINRA member must appear as the reporting 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 party to the trade?
A202.2: No. Only the parties that execute the trade should be identified as the parties to the trade on the tape report and, thus, BD3 should not appear on the tape report as the contra party. In this example, BD1 would report the trade and would not identify a contra party. If the parties want to clear the trade through a FINRA Facility, a separate non-tape clearing-only report identifying BD1 and BD3 as the parties to the trade may be submitted, where permitted by rule. See FINRA Regulatory Notice 07-38 (August 2007).
Q202.3: Two non-FINRA members execute an OTC 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 a party to the trade. If, however, the FINRA member is a party to the OTC trade, the FINRA member must 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 (effective through August 2, 2009): 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).
A203.1 (effective August 3, 2009): Yes. Under the "executing party" trade reporting structure, an ATS (a term that includes an ECN) is the executing party and has the reporting obligation where the transaction is executed on the ATS. If an ATS routes an order to another member firm for handling and/or execution, then the ATS would not be the executing party and would not have the reporting obligation. See Regulatory Notice 09-08 (January 2009).
Q203.2: Must an ATS or ECN report trades in the same manner for each of its subscribers?
A203.2 (effective through August 2, 2009): 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.
A203.2 (effective August 3, 2009): With the implementation of the "executing party" trade reporting structure, the three methods of reporting by an ECN or ATS are eliminated. See Regulatory Notice 09-08 (January 2009).
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 a 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 matches the orders of 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 (effective through August 2, 2009): 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 parties to the trade. 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).
A203.5 (effective August 3, 2009): Yes. Any member with the obligation to report the trade under FINRA rules that is acting in a riskless principal or agency capacity on behalf of one or more other members is required to 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 Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5); see also Regulatory Notice 09-08 (January 2009). This requirement applies to all members, including ATSs (which term includes ECNs). For example, an ECN matches the orders of two 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 parties to the trade. The ECN is required to submit a non-tape report to reflect the offsetting leg of the transaction; in this example, ECN vs. BD2.
The guidance in FINRA Trade Reporting Notice 2/19/08 (Guidance on Reporting Electronic Communications Network (ECN) Transactions) has been superseded by the adoption of these rules.
Section 204: Trade Reporting Structure — Which Party Has Trade Reporting Obligation
Q204.1: Which party has the reporting obligation under the trade reporting rules?
A204.1 (effective through August 2, 2009): 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.
A204.1 (effective August 3, 2009): The following trade reporting structure is in place for purposes of reporting OTC transactions in NMS stocks, OTC Equity Securities, PORTAL equity and DPP securities to FINRA:
- in transactions between members, the "executing party" reports; and
- in transactions between a member and a non-member or customer, the member reports.
See Rules 6282(b); 6380A(b) and 7230A(c); 6380B(b) and 7230B(c); 6622(b) and 7330(c); 6633(a)(3); and 6643(b). See also See Regulatory Notice 09-08 (January 2009).
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 (effective through August 2, 2009): 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.
A204.2 (effective August 3, 2009): With the adoption of the "executing party" trade reporting structure, guidance relating to the determination of market maker status for purposes of trade reporting is no longer applicable.
Q204.3: Which party has the obligation to report trade cancellations and reversals?
A204.3: The member with the obligation to report the original trade has the obligation to report the cancellation (if on trade date) or reversal (if on a date after trade date) of the trade to FINRA. See Rules 6282(j); 6380A(g)(1) and 7230A(f)(1); 6380B(f)(1) and 7230B(e)(1); and 6622(f)(1) and 7330(f)(1).
Q204.4 (effective through August 2, 2009): Member BD1 (a non-market maker) routes a sell order to member BD2 (a market maker). As a market maker trading with a non-market maker, BD2 has the obligation to report the trade under FINRA rules. If BD1 is selling short, is BD1 required to disclose this to BD2?
A204.4: The trade report submitted to FINRA must indicate that BD1 is selling short. If BD1 does not want to disclose to BD2 that it is selling short, then the parties may use the trade comparison and acceptance functionality of a FINRA Facility. In other words, BD2 will report the trade within 90 seconds of trade execution and BD1 will enter its own trade information—including that it was selling short—within 20 minutes of trade execution. See Section 103 (Trade Comparison and Acceptance). Additionally, BD1 could report on behalf of BD2 pursuant to a valid give-up agreement, in the form specified by FINRA (The Uniform Service Bureau/Executing Broker Agreement), and in that instance, would not be required to disclose to BD2 that it was selling short. See Section 200 (Reporting on Behalf of Another Member ("Give-Up" Relationships).
Q204.4 (effective August 3, 2009): Member BD1 routes a sell order to member BD2 for handling and execution. BD2 does not re-route the order and executes the trade OTC with BD1. As such, BD2 is the executing party and has the obligation to report the trade under FINRA rules. If BD1 is selling short, is BD1 required to disclose this to BD2?
A204.4: The trade report submitted to FINRA must indicate that BD1 is selling short. If BD1 does not want to disclose to BD2 that it is selling short, then the parties may use the trade comparison and acceptance functionality of a FINRA Facility. In other words, BD2 will report the trade within 90 seconds of trade execution and BD1 will enter its own trade information—including that it was selling short—within 20 minutes of trade execution. See Section 103 (Trade Comparison and Acceptance). Additionally, BD1 could report on behalf of BD2 pursuant to a valid give-up agreement, in the form specified by FINRA (The Uniform Service Bureau/Executing Broker Agreement), and in that instance, would not be required to disclose to BD2 that it was selling short. See Section 200 (Reporting on Behalf of Another Member ("Give-Up" Relationships).
Q204.5 (effective August 3, 2009): How is "executing party" defined for purposes of the trade reporting structure?
A204.5: Under FINRA rules, the "executing party" is defined as the member that receives an order for handling or execution or is presented an order against its quote, does not subsequently re-route the order, and executes the transaction. For transactions between two members where both members could reasonably maintain that they satisfy the definition of executing party (e.g., manually negotiated trades via the telephone), the member representing the sell-side must report the transaction to FINRA, unless the parties agree otherwise and the member representing the sell-side contemporaneously documents such agreement. See Rules 6282(b), 6380A(b), 6380B(b), 6622(b) and 6643(b); see also Regulatory Notice 09-08 (January 2009).
Q204.6 (effective August 3, 2009): What impact does the executing party trade reporting structure have on the processing of regulatory transaction fees pursuant to Section 3 of Schedule A to the FINRA By-Laws ("Section 3")?
A204.6: The executing party trade reporting structure has no impact on the processing of Section 3 fees. FINRA always bills Section 3 fees to the clearing member identified as the sell-side on the tape report and, as such, it makes no difference for billing purposes which member appears on the tape report as the reporting party and contra party. See, e.g., Member Alert: Additional Guidance Regarding the Automated Reporting of Transactions Subject to a Regulatory Transaction Fee (November 17, 2006).
Q204.7 (effective August 3, 2009): What impact does the executing party trade reporting structure have on reporting with give-up and Qualified Service Representative (QSR) agreements?
A204.7: The executing party trade reporting structure does not change the QSR process or member obligations with respect to give-up agreements. A QSR agreement is a National Securities Clearing Corporation agreement and, for FINRA purposes, merely establishes that one party to the trade can send the trade to clearing on behalf of the other party to the trade. 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 FINRA on behalf of another member, even if the parties have a QSR agreement in effect. Under the executing party trade reporting structure, members can continue to agree to allow another member to report and lock-in trades on their behalf in accordance with the requirements discussed in Section 200 (Reporting on Behalf of Another Member ("Give-Up" Relationships)).
Section 205: Determining "Executing Party" (effective August 3, 2009)
Section 205 provides guidance on members' obligations under the executing party trade reporting structure effective on August 3, 2009. FAQ 205.1 through 205.7 relate to determining which member is the executing party in different scenarios.
Q205.1 (member receives order for handling and execution): Member BD1 routes to member BD2 an order for handling and execution. BD2 does not re-route the order and executes the trade OTC with BD1. Which member is the executing party for purposes of reporting the trade to FINRA?
A205.1: In this example, BD2 is the executing party and has the trade reporting obligation, because BD2 received an order for handling and execution from BD1, did not re-route the order and executed the trade.
This guidance applies irrespective of the mechanism used by BD1 to route the order to BD2 (e.g., electronically, via the telephone, etc.).
Q205.2 (member receives order for execution): Member BD1 presents to member BD2 an order for execution. BD2 does not subsequently route BD1's order and executes the trade OTC with BD1 on the terms (i.e., quantity and price) presented. Which member is the executing party for purposes of reporting the trade to FINRA?
A205.2: In this example, BD2 is the executing party and has the trade reporting obligation, because BD2 received an order for execution from BD1, did not route the order and executed the trade.
This guidance applies irrespective of the mechanism used by BD1 to present the order to BD2 (e.g., electronically, via the telephone, etc.).
Q205.3 (matching scenario): Member BD1 matches as agent orders from members BD2 and BD3 and executes the trade OTC. Which member is the executing party for purposes of reporting the trade to FINRA?
A205.3: In this example, BD1 is the executing party and has the trade reporting obligation. See also Section 307 (Reporting Matches of Broker-Dealer Orders by a Member (Including an ATS or ECN)).
Q205.4 (member presented order against its quote): Member BD1 displays a quote (or order) and member BD2 presents an order to BD1 at BD1's quoted price. BD1 does not subsequently route BD2's order and executes the trade OTC. Which member is the executing party for purposes of reporting the trade to FINRA?
A205.4: In this example, BD1 is the executing party and has the trade reporting obligation, because BD1 was presented an order against its quote (or displayed order), did not route the order and executed the trade at BD1's quoted price.
This guidance applies irrespective of the mechanism used by BD2 to access BD1's quote (e.g., electronically, via the telephone, etc.).
Q205.5 (member asked to provide quote): Member BD1 requests a quote from member BD2, receives a quote and agrees to trade with BD2 at BD2's quoted price. Which member has the trade reporting obligation?
A205.5: In this example, BD2 is the executing party and has the trade reporting obligation, because BD2 was presented an order against its quote, did not route the order and executed the trade at BD2's quoted price.
Q205.6 (electronically negotiated and accepted trade): Member BD1 displays a quote (or order). Member BD2 electronically routes an order to BD1, but not at BD1's quoted price. The parties are using broker-to-broker negotiation software or a system, such as Pink Link, that permits parties to make and accept counter-offers electronically. BD1 electronically counters at a different price and BD2 accepts BD1's counter by pressing the "buy" or "accept" button. Which member has the trade reporting obligation?
A205.6: In this example, BD2 is the executing party because BD2 electronically accepted and executed the trade at the negotiated price.
Q205.7 (negotiated trade where both members may satisfy the definition of executing party): Member BD1 displays a quote (or order). Member BD2 contacts BD1 with an order, but not at BD1's quoted price. The two members negotiate the terms and ultimately agree to trade at a price different than BD1's quoted price. BD2 represents the sell-side, and based on the interaction between the members, both members could reasonably maintain that they satisfy the definition of executing party. Which member has the trade reporting obligation?
A205.7: In this example, because both members could reasonably maintain that they satisfy the definition of executing party, BD2, as the member representing the sell-side, has the trade reporting obligation, unless the parties agree otherwise. This guidance applies irrespective of the mechanism used by the members to negotiate the terms of the trade (e.g., via telephone or electronically) but only if both members could reasonably maintain they were the executing party because of the negotiated-nature of the interaction. In the vast majority of cases, it will be clear that one member is the ultimate executing party (e.g., during an electronic negotiation, the member that accepts and executes the trade) and that member has the trade reporting obligation. See FAQ 205.6.
FAQ 205.8 through 205.14 provide guidance on shifting the trade reporting obligation, and the applicable documentation requirements, if any, in the limited circumstance where it may not be clear which member is the executing party.
Q205.8: Member BD1 and member BD2 manually negotiate an OTC trade via the telephone. Because both members could reasonably maintain that they satisfy the definition of executing party, as the member representing the sell-side, BD2 has the trade reporting obligation under FINRA rules. If BD2 reports the trade, does the "contemporaneously documented agreement" requirement apply?
A205.8: No. The requirement relating to a contemporaneously documented agreement only applies where the trade reporting obligation is on the member representing the sell-side (in this example, BD2), but the parties have agreed that the member representing the buy-side (in this example, BD1) will report the trade. This requirement does not apply in this example because BD2, the member representing the sell-side, is reporting the trade in accordance with the trade reporting rules.
Q205.9: Member BD1 and member BD2 manually negotiate an OTC trade via the telephone. Because both members could reasonably maintain that they satisfy the definition of executing party, as the member representing the sell-side, BD2 has the trade reporting obligation under FINRA rules. Can the parties agree that BD1 will have the trade reporting obligation?
A205.9: Yes. Under FINRA rules, BD1 and BD2 can agree that BD1 will report the trade and in that instance, BD2 must contemporaneously document the parties' agreement. See Rules 6282(b), 6380A(b), 6380B(b), 6622(b) and 6643(b); see also Regulatory Notice 09-08 (January 2009).
Q205.10: Assume the same facts as FAQ 205.9. If the parties agree that BD1 will have the trade reporting obligation, what types of documentation would be acceptable for purposes of satisfying the requirement that BD2 contemporaneously document the parties' agreement?
A205.10: For purposes of satisfying this requirement, BD2 could produce, e.g., contemporaneous notes of a telephone conversation or notation on the order ticket. See Regulatory Notice 09-08 (January 2009).
Additionally, the parties may comply with the "contemporaneously documented agreement" requirement through the use of a previously executed blanket agreement that expressly shifts the trade reporting obligation in this scenario (i.e., that in a manually negotiated trade between BD1 and BD2 where it is not clear which member is the executing party, the parties agree that BD1, as the member representing the buy-side, will have the reporting obligation).
Q205.11: Assume the same facts as FAQ 205.9. If the parties agree to shift the trade reporting obligation to BD1, is BD2 responsible for timely reporting of the trade?
A205.11: No. Because the parties have agreed to shift the trade reporting obligation under FINRA rules, BD1 is responsible for reporting the trade in compliance with FINRA rules. If, for example, BD1 were to report the trade late, BD2 would not be subject to a late trade reporting violation.
Q205.12: Assume the same facts as FAQ 205.9, but in this example, the parties do not agree to shift the trade reporting obligation. Can BD1 report the trade on behalf of BD2 pursuant to a previously executed give-up agreement in the form of FINRA's Uniform Service Bureau/Executing Broker Agreement?
A205.12: Yes. BD1 can report on behalf of BD2 pursuant to a previously executed give-up agreement; however, the trade reporting obligation does not shift to BD1 in this instance. Accordingly, BD2 would remain responsible for compliance with FINRA trade reporting rules and, for example, could be subject to a late trade reporting violation if BD1 fails to submit the tape report within 90 seconds of execution. See Section 200 (Reporting on Behalf of Another Member ("Give-Up" Relationships).
A previously executed Uniform Service Bureau/Executing Broker Agreement can satisfy the "contemporaneously documented agreement" requirement required to shift the trade reporting obligation to BD1 only if it has been amended to contemplate this specific scenario (i.e., that in a manually negotiated trade between BD1 and BD2 where it is not clear which member is the executing party, the parties agree that BD1, as the member representing the buy-side, will have the reporting obligation).
Q205.13: Assume the same facts as FAQ 205.9. If the parties agree to shift the trade reporting obligation to BD1, can the trade comparison and acceptance functionality of the FINRA/NASDAQ TRF, ADF or ORF satisfy the requirement that BD2 contemporaneously document the parties' agreement? In other words, if BD1 (the member representing the buy-side) reports the trade and BD2 (the member representing the sell-side) accepts the trade information entered by BD1, would this be sufficient evidence of the parties' contemporaneous agreement to shift the trade reporting obligation to BD1?
A205.13: No. Use of the trade comparison and acceptance functionality (see Section 103) would not satisfy the "contemporaneously documented agreement" requirement for purposes of shifting the trade reporting obligation under FINRA rules.
Q205.14: Member BD1 routes to member BD2 an order for handling and execution. BD2 does not re-route the order and executes the trade OTC with BD1. BD2 is the executing party and, as such, has the trade reporting obligation. Can the parties agree to shift the trade reporting obligation to BD1 under FINRA rules?
A205.14: No. FINRA rules permit the parties to agree to shift the trade reporting obligation only where it may not be clear which party is the executing party (e.g., in the context of manually negotiated trades via the telephone). In this example, it is clear that BD2 is the executing party and has the trade reporting obligation. See FAQ 205.1. In this instance, BD1 could report on behalf of BD2 pursuant to a valid give-up agreement; however, BD2 would still be the member with the trade reporting obligation under FINRA rules and would be responsible for the trade information submitted by BD1.
Types of Reports/Transactions
Section 300: Non-Tape (Regulatory or Clearing-Only) Reports
Q300.1: Should trade report modifiers be used in non-tape (i.e., regulatory or clearing-only) reports submitted to a FINRA Facility?
A300.1: As a general rule, no. The only trade report modifiers that should be included in non-tape reports are: (1) trade settlement type modifiers (in byte 1); and (2) the modifiers used to designate that a trade is being reported for regulatory fee assessment purposes only (in byte 4). See FAQ 600.1. No other trade report modifiers should be used in a non-tape report.
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).
Effective March 1, 2010, members must 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 Section 405 (Related Market Center).
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.
Q302.9: Member BD1, as riskless principal on behalf of member BD2, routes an order to member BD3 for execution OTC. BD3 executes the trade with BD1 and has the trade reporting obligation under FINRA rules. Is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A302.9: If the tape report submitted by BD3 does not properly reflect BD1's capacity as riskless principal, then BD1 must submit a non-tape report identifying BD1 and BD2 as the parties to the trade with BD1's capacity marked as riskless principal. If BD1's capacity is properly marked as riskless principal on the tape report, then BD1 would not be required to submit a non-tape report for purposes of correcting its capacity. See Rules 6282(e)(1)(C)(ii), 6380A(d)(3)(B), 6380B(d)(3)(B) and 6622(d)(3)(B).
The new rules in effect on August 3, 2009, would create no new reporting obligation for BD1 in this instance because BD1 is not the member with the obligation to report the trade for tape purposes.
Q302.10: Member BD1 is handling a customer order on a riskless principal basis, and routes its order for handling to member BD2. BD2 handles BD1's order on a riskless principal basis and routes the order for execution to member BD3. BD3 executes the trade and the following reports are submitted to FINRA:
- Tape Report (submitted by BD3): BD3 vs BD2 (capacity incorrectly marked as principal)
- Non-Tape Report (submitted by BD2): BD2 (capacity correctly marked as riskless principal) vs BD1
Under FINRA rules, does BD1 have an obligation to submit a non-tape report reflecting the offsetting riskless leg with its customer?
A302.10: No. BD1 is not required to submit a non-tape report reflecting the offsetting leg with its customer. Under FINRA riskless principal reporting requirements, a member has an obligation to submit a non-tape report for the offsetting riskless leg with its customer only if its capacity is incorrectly reflected on the tape report submitted to FINRA. See Rules 6282(e)(1)(C)(ii), 6380A(d)(3)(B), 6380B(d)(3)(B) and 6622(d)(3)(B). In this example, BD1 is not identified on the tape report (BD2 and BD3 are identified on the tape report) and accordingly, BD1 does not have a non-tape reporting obligation.
Q302.11 (effective August 3, 2009): Member BD1, as riskless principal on behalf of member BD2, and member BD3 execute an OTC trade. For purposes of this example, BD1 has the trade reporting obligation under FINRA rules and correctly reports its capacity as riskless principal. Is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A302.11: Yes. Because BD1 has the obligation under FINRA rules to report the trade for tape purposes, BD1 is required to submit a non-tape report identifying BD1 and BD2 as the parties to the trade to indicate that BD1 was acting on behalf of BD2. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also See Regulatory Notice 09-08 (January 2009).
Q302.12 (effective August 3, 2009): Member BD1, as riskless principal on behalf of member BD2, executes a trade on an exchange, and the trade is reported to the tape by the exchange. Under the new rules in effect on August 3, 2009, is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A302.12: No. BD1 is not required under the new rules in effect on August 3, 2009, to submit a non-tape report to indicate that it was acting as riskless principal on behalf of BD2 because the trade was executed on and reported through an exchange. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). However, as explained in FAQ 302.4, BD1 may submit a clearing-only report to clear the offsetting leg of the transaction between BD1 and BD2 through a FINRA Facility. See Regulatory Notice 09-08 (January 2009) and 07-38 (August 2007).
Q302.13 (effective August 3, 2009): Member BD1, as riskless principal on behalf of non-member BD2, and member BD3 execute an OTC trade. For purposes of this example, BD1 has the trade reporting obligation under FINRA rules and correctly reports its capacity as riskless principal. Is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A302.13: No. Although BD1 has the obligation under FINRA rules to report the trade for tape purposes, BD1 is not required to submit a non-tape report to indicate it was acting on behalf of BD2, because BD2 is a non-member. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also Regulatory Notice 09-08 (January 2009).
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.
Q303.6: What are the requirements for reporting trades where a member matches, as agent, orders of customers and/or other broker-dealers?
A303.6: The requirements for reporting trades where a member matches, as agent, orders of customers and/or other broker-dealers are discussed in Sections 306, 307 and 308.
Q303.7 (effective August 3, 2009): Member BD1, as agent on behalf of member BD2, and member BD3 execute an OTC trade. For purposes of this example, BD1 has the trade reporting obligation under FINRA rules. Is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A303.7: Yes. Because BD1 has the obligation under FINRA rules to report the trade for tape purposes, BD1 is required to submit a non-tape report identifying BD1 and BD2 as the parties to the trade to indicate that BD1 was acting on behalf of BD2. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also Regulatory Notice 09-08 (January 2009).
Q303.8 (effective August 3, 2009): Member BD1, as agent on behalf of member BD2, routes an order to member BD3 for execution OTC. BD3 executes the trade and has the trade reporting obligation under FINRA rules. Is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A303.8: No. BD1 is not required to submit a non-tape report to indicate that it was acting on behalf of BD2 because BD1 is not the member with the obligation under FINRA rules to report the trade for tape purposes. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5).
Q303.9 (effective August 3, 2009): Member BD1, as agent on behalf of member BD2, executes a trade on an exchange, and the trade is reported to the tape by the exchange. Under the new rules in effect on August 3, 2009, is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A303.9: No. BD1 is not required under the new rules in effect on August 3, 2009, to submit a non-tape report to indicate that it was acting as agent on behalf of BD2 because the trade was executed on and reported through an exchange. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). However, as explained in FAQ 303.3, BD1 may submit a clearing-only report to clear the offsetting leg of the transaction between BD1 and BD2 through a FINRA Facility. See Regulatory Notice 09-08 (January 2009) and Regulatory Notice 07-38 (August 2007).
Q303.10 (effective August 3, 2009): Member BD1, as agent on behalf of non-member BD2, and member BD3 execute an OTC trade. For purposes of this example, BD1 has the trade reporting obligation under FINRA rules. Is BD1 required to submit a non-tape report to FINRA to reflect the offsetting leg between BD1 and BD2?
A303.10: No. Although BD1 has the obligation under FINRA rules to report the trade for tape purposes, BD1 is not required to submit a non-tape report to indicate that it was acting on behalf of BD2 because BD2 is a non-member. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also Regulatory Notice 09-08 (January 2009).
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 Including Reversal Entries
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.
Q305.6: Member BD1 and member BD2 execute an OTC trade and BD1 has the obligation under FINRA rules to report the trade. The next day, the parties agree to reverse the trade. How should the reversal be reported?
A305.6: The member with the obligation to report the original trade has the obligation to report the cancellation (if on trade date) or reversal (if on a date other than trade date) of the trade in accordance with FINRA rules. See Rules 6282(j); 6380A(g)(1) and 7230A(f)(1); 6380B(f)(1) and 7230B(e)(1); and 6622(f)(1) and 7330(f)(1).
In this example, BD1 must report the reversal on an "as/of" basis and must identify itself as the reporting member and BD2 as the contra party on the report. If BD1 was the sell-side (and BD2 was the buy-side) on the original trade report, BD1 should identify itself as the buy-side (and BD2 as the sell-side) on the reversal entry. Trade report modifiers should be appended on the reversal entry in accordance with FAQ 305.5.
Section 306: Reporting Matches of Customer Orders by a Member (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.
Section 307: Reporting Matches of Broker-Dealer Orders by a Member (Including an ATS or ECN) (effective August 3, 2009)
Q307.1: Member BD1 matches as agent a buy order from member BD2 and a sell order for the same quantity of shares at the same price from member BD3. How should this transaction be reported?
A307.1: BD1 is the executing party and has the trade reporting obligation.
BD1 can report this transaction in one of three ways:
Alternative #1
Tape report: BD1 (as agent) reports a cross
Non-tape report #1: BD1 (as agent) buys from BD3
Non-tape report #2: BD1 (as agent) sells to BD2
Alternative #2
Tape report: BD1 (as agent) buys from BD3
Non-tape report: BD1 (as agent) sells to BD2
Alternative #3
Tape report: BD1 (as agent) sells to BD2
Non-tape report: BD1 (as agent) buys from BD3
See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also Regulatory Notice 09-08 (January 2009).
Q307.2: Member BD1 matches as agent the orders of multiple members on one side with the orders of one or more members on the other side. For example, BD1 matches as agent a buy order from member BD2 for 100,000 shares with sell orders from members BD3, BD4 and BD5 for 50,000 shares, 20,000 shares and 30,000 shares, respectively. Should this be reported as a single transaction or separate transactions?
A307.2: 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.
If the transaction is a "single event" and BD1 reports the trade as a single cross, BD1 must also submit the following non-tape reports to indicate that BD1 was acting on behalf of the other members:
1) BD1 (as agent) sells 100,000 shares to BD2
2) BD1 (as agent) buys 50,000 shares from BD3
3) BD1 (as agent) buys 20,000 shares from BD4
4) BD1 (as agent) buys 30,000 shares from BD5
Q307.3: Member BD1 matches as agent a buy order from non-member BD2 and a sell order for the same quantity of shares at the same price from non-member BD3. How should this transaction be reported?
A307.3: BD1 should report this as an agency cross. Because BD1 is not acting on behalf of another member, BD1 has no non-tape reporting obligation under FINRA rules. See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5).
Q307.4: Assume the same facts as FAQ 307.1. Should the execution time on the non-tape report(s) be the same as the execution time on the tape report?
A307.4: Yes. Where a member is matching orders of one or more members and submitting non-tape report(s) to identify the other members that are parties to the trade, the execution time on the non-tape report(s) should be the same as the execution time on the tape report.
Section 308: Reporting Matches of Member Orders and Customer or Non-Member Orders by a Member (Including an ATS or ECN) (effective August 3, 2009)
Q308.1: Member BD1 matches as agent a buy order from member BD2 and a sell order for the same quantity of shares at the same price from a customer. How should this transaction be reported?
A308.1: BD1 is the executing party and has the trade reporting obligation.
BD1 can report this transaction in one of three ways:
Alternative #1
Tape report: BD1 (as agent) reports a cross
Non-tape report: BD1 (as agent) sells to BD2
Alternative #2
Tape report: BD1 (as agent) sells to BD2
Non-tape report: Not required
Alternative #3
Tape report: BD1 (as agent) buys from customer (blank contra or other way to indicate a trade with a customer)
Non-tape report: BD1 (as agent) sells to BD2
See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also Regulatory Notice 09-08 (January 2009).
Q308.2: Member BD1 matches as agent a buy order from member BD2 and a sell order for the same quantity of shares at the same price from non-member BD3. How should this transaction be reported?
A308.2: BD1 is the executing party and has the trade reporting obligation.
BD1 can report this transaction in one of three ways:
Alternative #1
Tape report: BD1 (as agent) reports a cross
Non-tape report: BD1 (as agent) sells to BD2
Alternative #2
Tape report: BD1 (as agent) sells to BD2
Non-tape report: Not required
Alternative #3
Tape report: BD1 (as agent) buys from non-member (blank contra or other way to indicate a trade with a non-member)
Non-tape report: BD1 (as agent) sells to BD2
See Rules 6282(e)(1)(D), 6380A(d)(4), 6380B(d)(4), 6622(d)(4), 6633(a)(3) and 6643(d)(5). See also Regulatory Notice 09-08 (January 2009).
Q308.3: Assume the same facts as FAQ 308.1. Should the execution time on the non-tape report(s) be the same as the execution time on the tape report?
A308.3: Yes. Where a member is matching orders of one or more members and submitting non-tape report(s) to identify the other members that are parties to the trade, the execution time on the non-tape report(s) should be the same as the execution time on the tape report.
Trade Report Modifiers and Other Indicators
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 Reporting Modifier Chart (originally published in NTM 07-23 (May 2007) and updated in Trade Reporting Notice 2/24/09) for guidance on how to populate each of the information levels or bytes. The chart provides the uniform methodology for reporting trade modifiers; however, the specific data entries used to report trades may vary depending upon the specific platform or system used. Therefore, the chart should be read in conjunction with the applicable technical specifications.
The facts and circumstances of the particular trade dictate the appropriate modifier that members must report in each field. Accordingly, the reporting firm must include in the transaction report all of the information that is pertinent to a particular transaction. To determine what modifiers firms must include in a particular transaction report, members should analyze each column individually in the Trade Reporting Modifier Chart to determine what, if any, modifier is applicable for the transaction that is being reported.
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 exception from the Regulation NMS requirements?
A400.3: Members should refer to NASD NTM 07-23 (May 2007) and Trade Reporting Notice 2/24/09 (FINRA Announces Two New Trade Reporting Modifiers Related to Regulation NMS) 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).
Section 405: Related Market Center
Q405.1: When is the Related Market Center indicator required?
A405.1: Effective March 1, 2010, members must use the Related Market Center (RMC) indicator when submitting a non-tape report for the offsetting leg of a riskless principal or agency transaction to a FINRA Facility that is related to a tape report that was not submitted to that same FINRA Facility. The RMC indicator identifies the market or facility where the associated tape report was submitted. See Regulatory Notice 09-54 (September 2009).
Q405.2: Is there any guidance on how to populate the Related Market Center field?
A405.2: Yes, members should refer to the Related Market Center Chart (originally published in Regulatory Notice 09-54 (September 2009) for guidance on how to populate the Related Market Center field.
Transactions Not Reported to FINRA
Section 500: General
Q500.1: What transactions do not get reported to FINRA for publication or regulatory purposes?
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. See Rules 6282(i)(1), 6380A(e)(1), 6380B(e)(1) and 6622(e)(1).
Effective January 12, 2009, the trade reporting rules expressly provide that where securities are transferred pursuant to an asset purchase agreement (APA), such transfer is not reportable if (1) the APA is subject to the jurisdiction and approval of a court of competent jurisdiction in insolvency matters; and (2) the purchase price under the APA is not based on, and cannot be adjusted to reflect, the current market prices of the securities on or following the effective date of the APA. See Rules 6282(i)(1), 6380A(e)(1), 6380B(e)(1), 6622(e)(1), 6633(a) and 6643(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).
See "Reporting Transactions for Regulatory Purposes" below for a discussion of the transactions that are not required to be reported to FINRA for publication purposes, but must be reported for regulatory purposes.
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 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"), purchases or sales of securities effected upon the exercise of an OTC option, and transfers of proprietary securities positions effected in connection with certain corporate control transactions must not be reported to FINRA for publication purposes, but must be reported for purposes of assessing a regulatory transaction fee under Section 3 of Schedule A to the By-Laws (Section 3). See Rules 6282(i)(2), 6380A(e)(2), 6380B(e)(2) and 6622(e)(2). Members must submit non-tape reports to FINRA with respect to such transactions and must report, in the manner specified by FINRA, to denote that the transactions are reported for regulatory and not dissemination purposes. 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), 602 (Transactions Effected Upon the Exercise of Options) and 603 (Transfers of Proprietary Securities Positions in Connection with Certain Corporate Control Transactions).
With respect to odd-lot transactions that are subject to regulatory transaction fees, members should report such transactions for publication, as applicable, and are not required to use a special indicator denoting their submission for regulatory fee purposes. See FINRA Regulatory Notice 07-63 (December 2007). With the exception of certain high-priced OTC Equity Securities, most transactions of fewer than 100 shares are not disseminated to the tape. See Trade Reporting Notice 3/18/08 (Revised Policy for Disseminating Reports of Fewer Than 100 Shares).
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.
Q601.4: How should an away from the market sale be reported?
A601.4: Members should report away from the market sales by submitting a non-tape report with a special trade report modifier (.RA) to denote that the transaction is reported for regulatory transaction fee assessment purposes. Such transactions must be reported by the close of the FINRA Facility on trade date, and can be entered for clearing or non-clearing. See Rules 7130(c), 7230A(g), 7230B(f) and 7330(g).
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: Under what circumstances 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 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.
Q602.3: How should transactions effected pursuant to the exercise of an OTC option be reported to FINRA?
A602.3: Members should report transactions effected pursuant to the exercise of an OTC option by submitting a non-tape report with a special trade report modifier (.RX) to denote that the transaction is reported for regulatory transaction fee assessment purposes. Such transactions must be reported by the close of the FINRA Facility on trade date, and can be entered for clearing or non-clearing. Rules 7130(c), 7230A(g), 7230B(f) and 7330(g).
Section 603: Transfers of Proprietary Securities Positions in Connection With Certain Corporate Control Transactions
Q603.1: To what types of transfers does this trade reporting exception apply?
A603.1: Effective May 4, 2009, members are not required to report to FINRA for purposes of publication transfers of proprietary positions between a member firm and another member firm or non-member broker-dealer under the following conditions. First, the transfer must be effected in connection with a merger of one firm with the other firm or a direct or indirect acquisition of one firm by the other firm or the other firm's parent company. Second, the transfer must not be in furtherance of a trading or investment strategy. While such transfers are not reportable for publication purposes, members nonetheless must report them to FINRA for regulatory purposes and for purposes of assessing applicable regulatory transaction fees and/or trading activity fees. See Rules 6282(i)(2) and 7130(c); 6380A(e)(2) and 7230A(g); 6380B(e)(2) and 7230B(f); and 6622 and 7330(g).
Members should refer to Regulatory Notice 09-21 (April 2009) for the specific reporting requirements—including the requirement to provide FINRA advance written notice—that members must follow when relying on this exception.
Q603.2: Member BD1 acquires all of the assets of BD2. In connection with this corporate control transaction, BD1 and BD2 consolidate their separate sales and trading businesses onto a single platform and, along with the migration of sales and trading personnel, clients and systems and technology, BD2's proprietary positions are transferred to BD1. Must this transfer be reported for publication purposes?
A603.2: No. In this instance, the transfer from BD2 to BD1 is not reportable for publication purposes, but must be reported to FINRA for regulatory purposes.
Q603.3: Member BD1 and BD2 are wholly owned by the same parent company and operate separately. BD1 owns 100,000 shares of ABCD security and the value of ABCD has increased substantially since BD1 purchased the shares. As part of an investment strategy, BD1 sells the shares to BD2. Must this transfer be reported for publication purposes?
A603.3: Yes. In this instance, the sale from BD1 to BD2 must be reported to FINRA for publication purposes.
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 FINRA assign a symbol in accordance with FAQ 105.1.
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).
