Intermarket Surveillance Group (ISG)1 Requires Validation of Electronic Blue Sheet Submissions

GUIDANCE

Executive Summary

This Notice to Members reminds members of their reporting requirements concerning the automated submission of trading information via the Electronic Blue Sheet (EBS) System and provides information on the validation of certain data fields in a firm's EBS submission.

This Notice was prepared by the following self-regulatory organizations (SROs) acting jointly as members of the Intermarket Surveillance Group (ISG):

Questions/Further Information

Questions concerning this Notice may be directed to any of the following SRO staff:

If you have questions regarding the interpretation of SEC Rule 17a-25 under Section 17 of the Exchange Act of 1934, or if you need to report problems concerning EBS submissions to the SEC, please contact:

ISG Regulatory Memorandum, ISG 2005-01

Since 1988, member and member organizations have been submitting trading information requested by self-regulatory organizations (SROs) through the Electronic Blue Sheet (EBS) System. The ISG SROs and the Securities and Exchange Commission (SEC), during the course of inquiries and investigations, have encountered an increase in the number of EBS data submissions containing inaccuracies (e.g., options symbol, trade date, name address, buy/sell indicators, TIN1 and others). Some of these inaccuracies have been in existence for a significant period of time and have resulted in regulatory action being initiated by one or more of the ISG SROs. This is a reminder that EBS information is to be furnished in a timely and accurate manner.²

In order to ensure that members and member organizations are reporting EBS data correctly, the ISG SROs require that all members and member organizations or their EBS data providers immediately conduct a validation of all required EBS data elements to ensure that EBS transmissions are consistent with current standards and accurately reflect members' books and records. The validation is to be conducted and completed by no later than March 31, 2006, and will require that documentation confirming that the validation has occurred be retained by members and member organizations.

Members and member organizations have a continuing obligation to ensure that EBS submissions meet the requirements noted.

Attachment A, Record Layout for Submission of Trading Information, describes the data elements required in EBS transmissions. While all EBS data is important and needs to be reported correctly for the purpose of complying with the validation requirement noted above, all layout records that include an "R" in the "Field Format" must be validated.

Any inconsistency with overall EBS standards (discovered either as a result of the validation process or otherwise) should be reported immediately as follows:

If pursuant to an individual EBS request a member firm experiences reporting difficulties, it should contact the requesting SRO.

Members and member organizations are reminded of their obligations as to timeliness, accuracy and completeness of data submitted by them or by service bureaus on their behalf.

Timeliness

Members and member organizations, pursuant to the rules governing the submission of blue sheet information, are required to meet the following requirements:

Accuracy

It is the responsibility of members and member organizations to ensure that the EBS information submitted to the requesting organization is accurate. Items [1] through [6] below are areas in which inaccurate reporting of EBS data by certain members/member organizations has surfaced. Therefore, the ISG SROs are restating members' obligations with respect to certain codes in an effort to assist the membership in the submission of accurate EBS data. (This list is not all-inclusive as to EBS requirements. See above and also Attachment A.)

[1] Buy/Sell Code—Members and member organizations are reminded that buy/sell codes for each trade must be designated:

NOTE: Buy/Sell Codes 3 through 6 and D through G pertain only to options information. Only these codes can be used when reporting options transactions.

[2] Exchange Code—Each trade reported must contain the marketplace of execution:

[3] Ticker Symbol — When submitting EBS information, all members and member organizations are required to use the recognized stock symbol, or when options information is requested, the appropriate OPRA symbol to identify transactions in the different option series of the underlying issue. The OPRA symbol must be reported in the following format:

OPRA option symbol (space), OPRA expiration month symbol and OPRA strike price symbol. (For example, the Maytag January 25 call option series would be reported via blue sheets as MYG AE. This example uses six spaces in the field designated by SIAC as "symbol" in the automated format.)

[4] Manual Components — Any members/member organizations that have to manually input any data as part of their EBS submission must use upper case alphas.

[5] Average Price Account — The average price account field should be used to identify whether the account is the average price account itself or the recipient of transactions for an average price account.

[6] Account Type Identifiers — In January 1993, members and member organizations were required to submit EBS information that contained expanded account type identifiers used by the SROs for audit trail purposes. A matrix containing the current account type identifiers is attached as Attachment B. To the extent that account type identifiers are expanded/changed in the future by one or more SRO, all EBS information, going forward, should reflect any such expansion/ change. The account type identifier in the EBS submission should correspond to the audit trail requirements of the market of execution. It should be noted that NASD currently accepts all expanded account type identifiers.

In no event should EBS information contain summarized activity for accounts that purchased and/or sold the security under review. Transactions made through an average price account must be identified by the price of execution, as well as the average price given to the customer's account for which the transactions were effected. Every trade executed in a requested security by a member or member organization must be reported to the requesting organization, including partial fills on orders not completed.

Members and member organizations must ensure that all EBS information is provided correctly to the SROs and SEC and that EBS information is regularly validated. Validation procedures and records pertaining to such validations are subject to examination by the SROs and SEC. These records must be retained for the time period set forth by Section 17 of the Securities Exchange Act of 1934. Any inconsistencies should be reported to the SROs immediately, in the manner previously described. Members and member organizations are reminded that failure to comply with EBS requirements will subject them to disciplinary action.

To facilitate timely receipt of SROs' EBS requests, members and member organizations are to promptly notify the SROs of any changes regarding the identities and locations of the designated recipients of such EBS requests. This includes the situation where an SRO uses the Internet as its medium for transmitting its EBS requests. It is suggested that in situations where a member or member organization receives EBS requests via the Internet, such member/member organization create a shared Internet email mailbox address that would be accessible by several individuals, to facilitate transmission in the event that the primary recipient of EBS requests is unable to access his/her mailbox.

Additionally, please be advised that the ISG SROs are contemplating possible future enhancements to EBS (e.g., the inclusion of order identification information to facilitate market reconstructions and more defined account name and address fields). In this context, the SROs would welcome having dialogue with the member and member organization community as such enhancements are initiated.

Endnotes

¹ This Notice was prepared by the following self-regulatory organizations as members of the ISG: American Stock Exchange LLC (AMEX), Boston Stock Exchange, Inc. (BSE), Chicago Board Options Exchange, Inc. (CBOE), Chicago Stock Exchange, Inc. (CHX), International Securities Exchange (ISE), NASD Inc. (NASD), National Stock Exchange (NSX), New York Stock Exchange, Inc. (NYSE), Pacific Exchange, Inc. (PCX) and Philadelphia Stock Exchange, Inc. (PHLX).

² AMEX Rule 153A; CBOE Rule 15.7; ISE Rule 1404; NASD Rules 8211, 8212 and 8213; NSX Rules 5.3 and 8.2; NYSE Rules 342.20, 410A and 476(a) (11); PCX Rule 10.2 (c); PHLX Rule 785; and SEC Rule 17a-25 under Section 17 of the Securities Exchange Act of 1934, as amended.

ATTACHMENT A Record Layout for Submission of Trading Information
Date: 09/07/2005

Attachment B   Account Type Identifiers

^* Equity securities include those securities that trade like equities. For instance, ETFs and Structured Products.