Quick Answer
A participant reported by the system as a party to a trade that has been treated as locked-in and sent to clearing must act as a principal to that trade and honor it on the scheduled settlement date, notwithstanding any other agreement to the contrary. Every input data element carries an ongoing obligation to be input accurately and completely.
Two short rules sit near the end of each facility's series, just ahead of the violation rule that closes it. One binds a participant to the system's record of who traded, and the other explains why the data elements are not merely operational fields.
What Does the System's Record Bind a Participant To?
If a participant is reported by the system as a party to a trade that has been treated as locked-in and sent to the Depository Trust and Clearing Corporation (DTCC), then, notwithstanding any other agreement to the contrary, that party shall be obligated to act as a principal to the trade and shall honor such trade on the scheduled settlement date.
All four facilities carry that sentence in identical terms. The trigger is the system's own record, not the participant's view of whether it actually traded.
The mechanics of settlement itself are covered in the unit on clearance and settlement.
Exam Tip: Gotchas
- A private agreement does not override the system's record. The rule binds the participant notwithstanding any other agreement to the contrary, so a side agreement with the contra party changes nothing.
- The obligation is to act as principal, not merely to acknowledge the trade. A participant the system reports as a party to a locked-in trade sent to clearing is obligated to act as a principal to it and must honor it on the scheduled settlement date.
Why Are the Input Data Elements an Audit Trail Obligation?
The data elements specified in each facility's trade report input rule are critical to FINRA's compilation of a transaction audit trail for regulatory purposes.
Because of that, all member firms using the trade reporting service of the system have an ongoing obligation to input that information accurately and completely.
Two words do the work there. Ongoing means the obligation is not discharged by getting the fields right once, and completely means an accurate but partial submission still falls short.
Exam Tip: Gotchas
- Accuracy and completeness are both required. A report with correct entries in only some fields is accurate as far as it goes and still fails the obligation, because it is not complete.
- The audit trail rule reaches every element in the input list. It is keyed to the data elements the input rule specifies, not to a shorter set of headline fields.
What Should You Check on Exam Day?
- Confirm the system reported the participant as a party to a trade that was treated as locked-in and sent to clearing before applying the obligation to honor it; that is the rule's trigger.
- Check for a side agreement in the fact pattern, then apply the rule anyway, because it binds notwithstanding any other agreement to the contrary.
- Confirm the obligation runs to the scheduled settlement date and casts the participant as a principal to the trade.
- Read an input error question for both halves: whether the information was accurate, and whether it was complete.