Multiple MPIDs for Reporting Facility Participants

A market participant identifier is how the audit trail knows who reported a trade. The rules on second and third identifiers exist so that one firm cannot blur its own activity, and so that an alternative trading system's volume can be told apart from its operator's.

When Does a Participant Need Approval for a Second Identifier?

Any Trade Reporting Facility (TRF) Participant that is required to obtain, or otherwise wishes to use, more than one market participant identifier (MPID) for purposes of reporting trades to a Trade Reporting Facility must submit a written request, in the form required by FINRA, to FINRA Market Operations, and obtain approval for the additional identifiers.

The Alternative Display Facility (ADF) rule says the same for any ADF participant, and its scope is wider: it covers identifiers used for displaying quotes or orders or reporting trades through the ADF.

Exam Tip: Gotchas

• Wanting a second identifier and needing one lead to the same place. The rule reaches a participant that is required to obtain one and a participant that merely wishes to use one, and both need written approval.
• The Alternative Display Facility version covers quoting as well as reporting. Its request requirement reaches identifiers used for displaying quotes or orders, which the Trade Reporting Facility version does not mention.

When Must a Quote and Its Trade Report Share an Identifier?

A Trade Reporting Facility Participant that posts a quotation on a FINRA system, and reports to that FINRA system or another FINRA system a trade resulting from that posted quotation, must use the same identifier for reporting purposes.

The Alternative Display Facility rule states the same duty from the quoting side. An ADF Market Participant that posts a quotation on the ADF and reports a resulting trade to the ADF or to a Trade Reporting Facility must use the same identifier.

So a member that is both a Trade Reporting Facility Participant and a Registered Reporting ADF electronic communications network (ECN) has to report a trade resulting from its posted quotation under the identifier it quoted with.

Exam Tip: Gotchas

• The same-identifier duty survives a change of venue. It applies where the resulting trade is reported to the system that carried the quotation or to another FINRA system.

What Identifier Must an Alternative Trading System Use?

Except as set out in the two-identifier permission below, a Trade Reporting Facility Participant that operates an alternative trading system (ATS), as that term is defined in Regulation ATS, must obtain a single, separate identifier for each such system, designated for exclusive use in reporting that system's transactions. The Alternative Display Facility rule states the same duty for a member that reports trades to the ADF.

• The Trade Reporting Facility Participant must use that separate identifier to report all transactions executed within the alternative trading system to a Trade Reporting Facility, or Facilities.
• The member reporting to the ADF must use its separate identifier to report all transactions executed within the alternative trading system to the ADF.
• The one exception in each rule is a clearing-only, non-regulatory report.
• The member shall not use that separate identifier to report any transaction not executed within the alternative trading system.
• Any member that operates multiple alternative trading systems must obtain a separate identifier for each one.
• Members must have policies and procedures in place to ensure that trades reported with a separate identifier obtained under the rule are restricted to trades executed within that system.

Exam Tip: Gotchas

• The separate identifier is a fence in both directions. It has to carry every trade executed within the system to the destination its own rule names, a Trade Reporting Facility or the ADF, apart from a clearing-only, non-regulatory report, and it must carry nothing else.
• Operating two systems means obtaining two identifiers. The rule requires a separate identifier for each alternative trading system, not one identifier covering the operator's systems together.

When May an Alternative Trading System Hold Two Identifiers?

An alternative trading system is permitted to use two separate identifiers only if one is used exclusively for reporting transactions to the Trade Reporting and Compliance Engine (TRACE), and the other is used exclusively for reporting transactions to the equity trade reporting facilities.

The rule names those equity facilities: the Alternative Display Facility, the OTC Reporting Facility, the FINRA/Nasdaq Trade Reporting Facility and the FINRA/NYSE Trade Reporting Facility.

Exam Tip: Gotchas

• The two-identifier permission exists for one split only. It separates debt reporting from equity reporting, so a second identifier taken for any other reason falls outside it.
• Both halves of the split are exclusive. One identifier goes only to the debt reporting engine and the other only to the four named equity facilities.

What Can FINRA Do About Multiple Identifiers?

FINRA considers the issuance of, and trade reporting with, multiple identifiers (and, at the ADF, their display) to be a privilege and not a right. A participant must identify the purposes and systems for which the multiple identifiers will be used.

If FINRA determines that the use of multiple identifiers is detrimental to the marketplace, or that the participant is using one or more additional identifiers improperly or for other than the purposes identified by the participant, FINRA staff retains full discretion to limit or withdraw its grant of the additional identifiers.

Two further provisions sit on the Alternative Display Facility side, and the first points to a third rule:

• Each of a Registered Reporting ADF electronic communications network's identifiers is subject to the requirements of the rule under which an alternative trading system or an electronic communications network uses FINRA-provided means to meet the display requirements of Regulation ATS and the terms of the electronic communications network display alternative provided for in Regulation NMS, the SEC's national market system rules.
• That rule requires a system or network that uses FINRA-provided means to meet its display obligations, or that provides orders to the ADF voluntarily, prior to entering the prices and sizes it agrees to provide, to register with FINRA Market Operations as a Registered Reporting ADF electronic communications network.
• An ADF Market Participant that no longer fulfills the conditions appurtenant to one of its identifiers, for example by being placed into an unexcused withdrawal, may not use another identifier for any purpose in that security.

Exam Tip: Gotchas

• Withdrawal is discretionary and has two independent triggers. Detriment to the marketplace is one; improper use, or use for a purpose the participant never identified, is the other.
• Losing the conditions for one identifier closes the security, not just that identifier. The participant may not switch to another identifier for any purpose in that security.

How Is Dark Pool Volume Published?

Any FINRA Trade Reporting Facility Business Member that chooses to publish aggregate daily trading volume for transactions executed within an alternative trading system "dark pool" and reported to the Trade Reporting Facility will base that volume solely on transactions reported by the dark pool.

The Business Member will prominently disclose that its web site may not reflect 100% of the volume for any given dark pool, and that interested parties must consult all Business Members' web sites to obtain a dark pool's total volume.

For purposes of that rule, a dark pool is an alternative trading system that does not display quotations or subscribers' orders to any person or entity, either internally within the dark pool or externally beyond it, other than employees of the system.

A member's dark pool transaction data will not be included in the published volume unless the member affirmatively opts in. A member operating a dark pool must certify in writing to FINRA all three of the following:

1. That it is affirmatively opting in, and that it acknowledges its data may be presented as an overall percentage volume only or may be broken down by security.
2. That it meets the definition of a dark pool above.
3. That it has obtained a separate identifier to be used exclusively for reporting all transactions executed within the dark pool, as the separate-identifier paragraph requires.

Exam Tip: Gotchas

• Dark pool publication is an opt-in, not a default. A member's data stays out of the published volume until the member affirmatively opts in and certifies in writing.
• One Business Member's site is not the whole picture. The rule requires prominent disclosure that the site may not reflect all of a dark pool's volume and that all Business Members' sites must be consulted.

What Should You Check on Exam Day?

• Confirm a second identifier was requested in writing, in the form required by FINRA, and approved by FINRA Market Operations before use.
• Check whether the trade was executed within the alternative trading system; if it was not, the system's separate identifier must not carry it.
• Confirm an alternative trading system holding two identifiers uses one only for the debt reporting engine and the other only for the equity trade reporting facilities; an alternative trading system has no other route to a second separate identifier.
• Confirm a dark pool publication scenario has an affirmative opt-in plus all three written certifications, including the separate identifier.
• Read the same-identifier rule when a quotation on one FINRA system produces a trade reported on another; the identifier must match.