Comparisons, Confirmations, and DK Notices
Quick Answer
The Uniform Practice Code requires both parties to a non-cash transaction to send a Uniform Comparison or Confirmation by the first business day following trade date (cash trades exchange the comparison on the trade day). The comparison includes trade date, settlement date, security, quantity, price, parties, and capacity. If a member has no record of the trade or disputes any term, it must respond with a Don't Know (DK) notice. The contra-member then has one business day after receipt of the DK to either confirm or DK the transaction. If the contra-member fails to respond, the trade is treated as DK'd and the confirming member has no further liability.
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 disputes get resolved or trades get cancelled).
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
| Trade Type | When the Comparison Must Be Sent |
|---|---|
| Non-cash transactions (the typical case) | On or before the first business day following the trade date (T+1) |
| Cash transactions | On the day of the trade itself |
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; the receiving member can DK it and force a re-issuance.
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
- Non-cash trades exchange comparisons by T+1; cash trades exchange them on the trade 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
When a comparison arrives that the receiving member cannot match (no record of the trade, or terms differ), the member must respond with a Don't Know notice.
When a DK Notice Is Required
A DK notice must be issued when:
- The receiving member has no record of the trade in its books
- The receiving member disputes any material term (price, quantity, security, capacity, settlement date)
- The submitting member did not receive a corresponding confirmation from the contra-party by the close of T+1, and wants to demand a response
The DK notice is the formal mechanism by which one member says "I don't recognize this trade as you've described it. Confirm or correct."
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 originally compared (acknowledging the receiving member's terms), 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.
The DK Sequence in Practice
| Day | Event |
|---|---|
| Trade Date (T) | Two members execute a trade |
| T+1 (close) | Both members should have exchanged Uniform Comparisons |
| T+1 or later | Member A receives Member B's comparison, but B's comparison shows different terms (or no comparison received). Member A issues a DK notice to B |
| DK + 1 business day | Member B must respond: confirm or DK |
| DK + 1 business day (no response) | Trade is treated as DK'd. Member A has no further liability |
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 disputed comparison or a missing confirmation. A firm that simply ignores a comparison it disputes (without issuing a 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:
| Source | Who Sends to Whom | What It Documents |
|---|---|---|
| Customer-confirmation requirements | Broker-dealer to customer | Customer-facing confirmation (covered in Unit 12) |
| Inter-member comparison rule | Member to member | Broker-to-broker comparison/confirmation |
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.