Comparisons, Confirmations, and DK Notices

The comparison and confirmation framework is the broker-to-broker procedure for documenting trades. The principal must understand the deadlines (when comparisons must be exchanged), the content (what the comparison must contain), and the DK procedure (how a member that gets no comparison back makes the contra confirm or DK the trade).

Uniform Comparison/Confirmation

When two members trade with each other, each side must send the other a Uniform Comparison or Confirmation documenting the trade.

Timing Requirements

The rule sets a single deadline for every trade. It does not give regular-way (non-cash) trades an extra day.

Required Contents

The comparison must include:

• Trade date
• Settlement date
• Security (CUSIP, name, type)
• Quantity (number of shares or par amount)
• Price
• Parties to the trade
• Capacity: principal or agent
• Special terms (if any)

A comparison missing any of these elements is incomplete, and the party in error sends a corrected comparison.

Why Both Sides Send

The comparison is mutual. Each member sends one to the other. This double-entry matching is what catches discrepancies:

• If both sides report the same trade with the same terms, the comparison matches and settlement proceeds
• If the terms differ on price, quantity, security, or capacity, the mismatch surfaces immediately

Think of it this way: The inter-member comparison is the broker-to-broker version of "two parties agree on what just happened." Without it, the two firms could carry mismatched bookings into settlement and the fail wouldn't surface until delivery breaks down.

Exam Tip: Gotchas

• Both members must send their comparison by the end of the trade date. The rule sets one deadline; it does not give non-cash trades an extra day. The exam will give a fact pattern with a specific date and ask whether the comparison was timely.
• Both parties must send comparisons (it's mutual, not unilateral). A firm that receives a comparison but does not send its own has not complied with the comparison rule.
• The inter-member comparison is between MEMBERS, not between a firm and its customer. The customer-facing confirmation is governed by the customer-confirmation requirements. The exam mixes these constantly.

Don't Know (DK) Notice Procedure

The DK notice procedure is written for one situation: a member sends its own comparison and gets nothing back (no comparison and no signed DK) by the end of the trade date.

The rule also names a signed DK as an answer the contra can send: a member that receives a comparison for a trade it has no record of can answer with a signed DK instead of its own comparison. A discrepancy between two comparisons that both arrived is different. The party in error corrects it by sending a corrected comparison, not a DK notice.

When the DK Procedure Is Available

A DK notice applies to non-receipt, not to a plain term discrepancy:

• The submitting member received no comparison or signed DK from the contra-party by the end of the trade date

A member that has no record of a trade it was sent a comparison for answers with a signed DK; that is the contra's answer, not the notice procedure.

A discrepancy between two comparisons that both arrived is not a DK trigger. The party in error sends a corrected comparison (price, quantity, security, capacity, or settlement date).

The procedure is available, not mandatory: the rule says it "may be utilized." The DK notice is the formal way a member that has heard nothing back tells its contra: confirm this trade or DK it.

The Response Window

After a DK notice is issued, the contra-member has one business day after receipt of the DK to:

• Confirm the trade as compared by the member that sent the notice, OR
• DK the trade (rejecting it; the trade does not settle)

If the contra-member fails to respond within that one-business-day window, the trade is treated as DK'd. The confirming member then has no further liability on the trade.

This is not the same as saying no cost exists anywhere. A DK'd trade never becomes a matched, completed transaction between the two firms, so there is nothing left for the confirming member to settle: no delivery owed, no payment owed.

"No further liability" describes this one interbroker trade, not the firm's broader market position. If the firm still needs the security or the proceeds, it has to source them through a new trade.

The DK Sequence in Practice

Exam Tip: Gotchas

• The contra-member has ONE BUSINESS DAY after receipt of the DK to respond. Not two days, not "promptly," not "by settlement date."
• Failure to respond to a DK notice = trade treated as DK'd. Silence is rejection. The confirming member walks away with no liability.
• A DK notice is the proper response to a missing comparison, not to a plain term discrepancy. A discrepancy between two comparisons that both arrived is fixed by the party in error's corrected comparison; a firm that ignores a comparison it does not recognize (without returning a signed DK) has unresolved exposure on the books.

The Confirmation Trap

The Function 4 exam outline lists "trade confirmation requirements and disclosures" under the comparison and confirmation framework. This is the street-side broker-to-broker comparison process, not the customer-facing confirmation requirement.

The exam will distinguish these two:

A fact pattern about the firm sending a confirmation to its customer points to the customer-confirmation requirement. A fact pattern about two firms exchanging trade details points to the inter-member comparison rule. The exam tests this distinction directly.

Exam Tip: Gotchas

• Customer confirmation = customer; inter-broker comparison = inter-broker. Memorize this mapping. The exam will give a fact pattern about a confirmation and ask which framework applies.
• The inter-member comparison content (trade date, settlement date, security, quantity, price, parties, capacity) overlaps with customer confirmation content. The overlap is intentional, but the rules are distinct. The exam tests the rulebook, not just the content.
• A DK notice is an inter-member concept (between members). There is no "customer DK" mechanism. A customer who disputes a confirmation files a complaint, which triggers regulatory event reporting.

What Should You Check on Exam Day?

• Can you state the deadline for sending a Uniform Comparison or Confirmation between members: by the end of the trade date?
• Do you know a discrepancy between two received comparisons is fixed by the party in error sending a corrected comparison, while a DK notice is for non-receipt, when the member's own comparison drew neither a comparison nor a signed DK?
• Do you know a contra-member has one business day after receiving a DK notice to confirm or DK the trade?
• Can you state what happens if the contra-member does not respond to a DK notice within one business day?
• Do you know the difference between the inter-member comparison, broker to broker, and the customer-confirmation requirement, broker-dealer to customer?