Reporting Requirements for Clearing Firms

The rule authorizes prescribed reporting from clearing and self-clearing members concerning themselves and firms for which they clear. INSITE collection ended in November 2023. Examples below involving a prescribed account dataset are illustrative requests under the retained authority, not descriptions of an active INSITE feed or proof of its historical field layout.

FINRA determines the prescribed data and format. A clearing firm may arrange for a third party to fulfill the reporting work, but retains responsibility for compliance. A carrying agreement does not override that regulatory responsibility.

What Clearing Firms Must Report

The clearing-firm reporting rule requires clearing firms to report prescribed data pertaining to the clearing member and any broker-dealer for which it clears, in the format FINRA may require. That reporting was designed to support:

• Surveillance of trading activity (insider trading, market manipulation, layering, spoofing)
• Sales-practice review (concentrating trading patterns, churning, suitability concerns)
• Exam targeting (deciding which firms to examine and what areas to focus on)

Current status: FINRA discontinued INSITE collection effective November 30, 2023. The rule remains in force. Do not assume that every data field in an illustrative question was historically collected through INSITE or is currently submitted under that program.

Illustrative Account Data and Supervisory Uses

A prescribed account-data request could draw on fields such as:

• Account identifying information
• Registered representative assignment to each account
• Account type (cash, margin, IRA, custodial, etc.)
• Balances
• Transaction activity

These examples illustrate the difference between account information and firm operating data. The actual reporting instructions determine what must be supplied. Underlying recordmaking and preservation duties continue independently.

For example, account balances and activity can support turnover or concentration analysis. Representative assignments can link those patterns to the responsible personnel. Do not infer that FINRA already holds every customer's complete records; it may use its applicable reporting and examination powers to obtain information needed for a review.

Why It Is a Clearing-Firm Obligation, Not an Introducing-Firm Obligation

The clearing-firm reporting requirement imposes the reporting on the clearing firm, not the introducing firm, even though the introducing firm typically owns the customer relationship. The reporting rule fixes this obligation directly on each member that is a clearing firm or self-clearing firm. It does not depend on how the carrying agreement allocates other functions. That said, the practical reasons for the pairing are:

• The carrying firm commonly maintains custody and account records needed for the relationship. Maintenance of books and records is one of nine functions a carrying agreement must allocate between the two firms, and carrying firms usually take it on, but the carrying-agreement rule does not fix it to them the way it fixes safeguarding of funds and securities
• The carrying firm has the structured, machine-readable transaction data that the reports require
• The introducing firm also maintains records for its own duties and may assist with preparation without displacing the clearing firm's responsibility

The rule expressly assigns responsibility to clearing and self-clearing firms. It also requires prescribed data to distinguish an introducing member's accounts from accounts of members using that introducing member as an intermediary. Specified exemptive relief is available on application; a firm must not assume an exemption without meeting the applicable conditions.

Exam Tip: Gotchas

• The reporting obligation is a CLEARING-FIRM obligation, not an introducing-firm obligation. Even though the introducing firm "owns the relationship," the reporting rule names the clearing or self-clearing firm as the reporter directly. The carrying firm usually also holds the books-and-records function the filing draws on, but that is a typical allocation under the carrying-agreement rule, not the legal source of the reporting duty.
• The introducing firm is not RELIEVED from suitability or supervisory obligations by the clearing-firm reporting requirement. The introducing firm still owes its customers the substantive duties; the rule just shifts the data-reporting paperwork to the carrying firm. The exam may try to test whether the introducing firm has any reporting obligation; under the clearing-firm reporting requirement, it does not.

How Clearing-Firm Reporting Connects to the Surveillance Infrastructure

The clearing-firm reporting requirement was designed as one piece of FINRA's broader market-surveillance infrastructure:

Account records, order events, execution reports, and short-interest reports can support different aspects of supervision. Ending INSITE collection did not end FINRA's other data sources or its ability to request records.

Exam Tip: Gotchas

• The clearing-firm rule covers data prescribed by FINRA. Distinguish an illustrative account summary from separately required CAT, trade, and short-interest reports; the authority itself is not limited by an invented universal field list.
• FINRA discontinued collecting the clearing-firm reporting data (INSITE) effective November 30, 2023 (Regulatory Notice 23-17). The rule itself is still in force and still names clearing/self-clearing firms as the reporters, but the exam should not be answered as if this feed is presently flowing to FINRA.

What Should You Check on Exam Day?

• Can you state which firm, the clearing firm or the introducing firm, bears the customer account information reporting obligation to FINRA?
• Do you know why the introducing firm is not relieved of its suitability and supervisory obligations by the clearing-firm reporting requirement?
• Can you distinguish what the clearing-firm report covers from what the Consolidated Audit Trail and trade reporting facilities cover?
• Can you explain why the reporting obligation falls on the firm that carries the accounts, regardless of which firm the carrying agreement assigns books-and-records to?