Timing of Trade Reports

Ten seconds is the number every candidate remembers. The harder material is what happens on either side of it: the outside-hours windows, the overnight exception, the cancellation clocks, and what "as soon as practicable" actually demands.

How Fast Must a National Market System Stock or OTC Equity Trade Be Reported During Normal Market Hours?

Members (participants, at the Trade Reporting Facilities and the OTC Reporting Facility) shall, as soon as practicable but no later than 10 seconds after execution, transmit to the facility last sale reports of transactions in national market system stocks, and of transactions in OTC equity securities, executed during normal market hours. Transactions not reported within 10 seconds after execution shall be designated as late.

Normal market hours means 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time. The Trade Reporting Facility definitions and the OTC equity definitions both state it that way, and the Alternative Display Facility (ADF) rule writes the same hours into its own reporting paragraph.

Exam Tip: Gotchas

• Ten seconds is a ceiling, not a target. The duty is to report as soon as practicable, and 10 seconds is the outer limit of that duty as well as the point past which the report is designated late.
• The late designation is automatic, not discretionary. A report that misses the window is designated late whether or not anything else follows from it.

What Happens When the Facility Is Unavailable?

If the facility is unavailable due to system or transmission failure, the report goes by telephone. The ADF alone also permits facsimile or e-mail.

Each rule names its own destination, and the names differ:

Exam Tip: Gotchas

• The outage route is triggered by a system or transmission failure, not by inconvenience. The rule opens the telephone alternative only where the facility itself is unavailable for that reason.
• Only the Alternative Display Facility offers facsimile or e-mail. The other three rules name the telephone alone.

What Are the Outside-Hours Deadlines?

Each facility sets four windows, and every report in the table below also carries the unique trade report modifier, as specified by FINRA, denoting execution outside normal market hours.

All times are Eastern. A non-business day is a weekend or holiday, and the "as/of" designation denotes execution on a prior day.

At the OTC Reporting Facility those four windows are written for OTC equity securities. Restricted equity securities run on the separate clock set out under When Does a Restricted Equity Security Clock Differ? below.

Exam Tip: Gotchas

• The late pre-market and after-hours windows still run on 10 seconds. Only the early pre-market and overnight windows move to a fixed clock time, so an 8:30 a.m. trade at the Alternative Display Facility is a 10-second report with a modifier.
• The two Trade Reporting Facilities open earlier and close later than the Alternative Display Facility. Their day runs from 4:00 a.m. to 8:00 p.m., against 8:00 a.m. to 6:30 p.m. at the Alternative Display Facility.

Which Overnight Trades Get a Relaxed Deadline?

Both Trade Reporting Facilities carry a temporary exception that operates notwithstanding the outside-hours paragraph above. A qualifying overnight transaction may be reported as follows:

• Executed between midnight and 8:00 a.m. Eastern Time: may be reported by 8:15 a.m. Eastern Time on trade date, with the outside-hours modifier.
• Executed between 8:00 p.m. and midnight Eastern Time, or on any non-business day: may be reported the following business day by 8:15 a.m. Eastern Time, designated "as/of", with the outside-hours modifier.

A qualifying overnight transaction is a transaction that satisfies both limbs of its definition:

1. The last sale report is appended with the trade report modifier FINRA specifies for a trade at a price based on an average weighting or another special pricing formula; and
2. It either results from an overnight batch process, or involves a trade for exchange-traded fund shares agreed upon during normal market hours where the trade is executed based on the net asset value of the underlying investments published after the close of that Trade Reporting Facility.

The exception is in effect until the earlier of the effective date of any amendments to the rule further extending that facility's operating hours, or December 31, 2027.

Exam Tip: Gotchas

• Both limbs are required, so the relaxed deadline does not reach every overnight trade. A batch-process trade without the special-pricing modifier does not qualify, and neither does a modifier-bearing trade from neither named source.
• The exception is permissive and temporary. It says a qualifying transaction may be reported on the later clock, and it expires on the earlier of extended operating hours or the end of 2027.

When Does a Restricted Equity Security Clock Differ?

At the OTC Reporting Facility (ORF), transactions in restricted equity securities effected under the qualified institutional buyer resale safe harbor run on their own clock:

• Executed between midnight and 8:00 p.m. Eastern Time: reported on the same business day as the transaction.
• Executed between 8:00 p.m. and midnight Eastern Time, or on any non-business day: reported the following business day by 8:00 p.m. Eastern Time, designated "as/of".

The ORF rule also fixes when the clock starts for a secondary market transaction in a non-exchange-listed direct participation program security. "Date of execution" means the date, and "time of execution" the time, when the parties have agreed to all of the essential terms of the transaction, including the price and number of the units to be traded.

Exam Tip: Gotchas

• The restricted equity security clock is a same-day clock, not a 10-second clock. A trade executed at 2:00 p.m. is due that business day rather than within seconds of execution.
• A direct participation program trade is timed from agreement on all essential terms. Price and the number of units are named among them, so a partly agreed deal has not started the clock.

What Does "As Soon as Practicable" Actually Require?

A member with the trade reporting obligation must adopt policies and procedures reasonably designed to comply, and must implement systems that commence the trade reporting process without delay upon execution or cancellation.

Where a member has such reasonably designed policies, procedures and systems in place, it generally will not be viewed as violating the requirement because of delays due to extrinsic factors that are not reasonably predictable, and where the member does not purposely intend to delay the report.

In no event may a member purposely withhold trade reports, for example by programming its systems to delay reporting until the last permissible second.

FINRA also recognises that a very small universe of trades are reported manually.

For the very small universe of trades reported manually, where the member does not purposely withhold, in deciding whether "reasonable justification" excuses what might otherwise look like a pattern or practice of late reporting, FINRA will take into consideration such factors as the complexity and manual nature of the execution and reporting of the trade, where the trade details must be manually entered into the trade reporting system following execution.

Exam Tip: Gotchas

• A system programmed to report at the ninth second breaches the rule. The rule never allows a member to purposely withhold trade reports, and it names programming systems to report at the last permissible second as an example.
• The extrinsic-factor relief is conditional three times over, and even then only general. It requires reasonably designed policies, procedures and systems, delays due to extrinsic factors that are not reasonably predictable, and no purpose to delay; the member then generally will not be viewed as violating the rule.

What Happens When a Report Is Late?

The late chain runs in three steps, and each step keeps the late designation:

• Transactions not reported within 10 seconds after execution, or such other time period prescribed by rule, shall be designated as late.
• A transaction required to be reported on trade date but not reported then must be reported "as/of" on a subsequent date and shall be designated as late.
• A transaction required to be reported "as/of" the following business day, but not reported then, must be reported on a subsequent date and shall be designated as late.

A pattern or practice of late reporting without reasonable justification or exceptional circumstances may be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade, in violation of the standards of commercial honor rule. That consequence, and the separate timely reporting rules, are covered in the lesson on violation of the reporting rules.

Exam Tip: Gotchas

• A late report is still a required report. Missing trade date does not remove the obligation; it converts the report into a late "as/of" report on a subsequent date.
• One late report is not a pattern. The commercial honor consequence attaches to a pattern or practice without reasonable justification or exceptional circumstances.

When Does a Report Go on a Paper Form Instead?

At the Alternative Display Facility, the FINRA/Nasdaq Trade Reporting Facility and the OTC Reporting Facility, all members shall report as soon as practicable to the Market Regulation Department on Form T those last sale reports for which electronic submission to the facility is not possible, for example where the ticker symbol for the security is no longer available or a market participant identifier is no longer active.

Transactions that can be reported to the facility, whether on trade date or on a subsequent date on an "as/of" basis, shall not be reported on Form T.

The FINRA/NYSE Trade Reporting Facility rule is written differently and is stricter in two ways, the first of which takes two bullets:

• Participants must first use an alternative mechanism, and comply with all rules applicable to that alternative mechanism, to report a transaction for which electronic submission to the facility is not possible.
• Form T is reached only where the last sale reports cannot be submitted to FINRA via an alternative electronic mechanism, in which case members shall report such transactions as soon as practicable to the FINRA Market Regulation Department on Form T.
• Its bar on the form is wider: a transaction that can be reported to FINRA electronically, whether on trade date or on a subsequent date on an "as/of" basis, shall not be reported on Form T.

Exam Tip: Gotchas

• The paper form is a last resort with an affirmative deadline. The duty is to report as soon as practicable to the Market Regulation Department, not merely to file at some later convenience.
• The FINRA/NYSE bar is measured against FINRA, not against one facility. A trade that can reach FINRA electronically by any route stays off the form there.

How Fast Must a Cancellation or Reversal Be Reported?

With the exception of trades cancelled in accordance with FINRA's clearly erroneous transaction rules, members shall report the cancellation or reversal of any trade previously submitted. The member responsible for submitting the original trade report submits the cancellation or reversal report. Clearly erroneous transactions are covered in the unit on identifying and handling clearly erroneous transactions.

Each facility runs the deadlines against its own cut-off, which is 6:30 p.m. Eastern Time at the Alternative Display Facility and 8:00 p.m. Eastern Time at both Trade Reporting Facilities and the OTC Reporting Facility.

Restricted equity securities at the OTC Reporting Facility get their own three-part list, all of it on the 8:00 p.m. clock:

• Cancelled before 8:00 p.m. on the date of execution: report by 8:00 p.m.
• Cancelled at or after 8:00 p.m. on the date of execution: report the following business day by 8:00 p.m.
• Cancelled or reversed on any date after the date of execution: report by 8:00 p.m. that day if the cancellation is before 8:00 p.m., otherwise the following business day by 8:00 p.m.

"Cancelled", or "reversed", means whichever of these three events occurs first:

1. The member with the reporting responsibility informs its contra party, or is informed by its contra party, that a trade is being cancelled or reversed.
2. The member and its contra party agree to cancel or reverse, where neither party can do so unilaterally.
3. The member takes an action to cancel or reverse the trade on its books and records.

A reversal carries a content requirement the cancellation deadlines do not. When submitting a report of a reversal, members must identify the original report of the previously submitted trade by including the original report date and the control number the facility assigned to the original trade report.

Exam Tip: Gotchas

• Only the first row runs on 10 seconds. Every other cancellation deadline runs to the facility's cut-off, so a trade executed after hours and cancelled the same evening is not a 10-second report.
• The cancellation clock starts at the earliest of three events. A member that has already cancelled on its own books cannot wait for its contra party to agree before the clock starts.

What Should You Check on Exam Day?

• Confirm the execution time against the facility's own windows before applying any deadline; the two Trade Reporting Facilities run from 4:00 a.m. to 8:00 p.m.
• Check that an outside-hours report carries the outside-hours modifier, because every window in the table requires it.
• Test a qualifying overnight transaction against both limbs, the special-pricing modifier and either the batch process or the fund net asset value branch.
• Confirm the cut-off before answering a cancellation question: 6:30 p.m. at the Alternative Display Facility, 8:00 p.m. at the other three.
• Read a reversal for its two extra fields, the original report date and the facility's control number for the original report.