Trade Report Input, Acceptance and Processing

Reporting is one half of the job; getting the trade locked in and sent to clearing is the other. The input rules set the data elements, the response window, and the three ways a trade reaches locked-in status.

What Does a Facility Accept for Input?

Members shall comply with the facility's own rule series when reporting transactions, including executions of less than one round lot if those executions are to be compared and locked-in. The FINRA/NYSE Trade Reporting Facility states the sub-round-lot coverage without that condition.

All trades that are reportable transactions will be processed pursuant to an effective transaction reporting plan.

The facilities then split on what happens to a trade that arrives unlocked:

• At the Alternative Display Facility (ADF), the FINRA/Nasdaq Trade Reporting Facility (TRF) and the OTC Reporting Facility (ORF), trades that are not already locked-in trades will be compared and locked-in through the system.
• At the FINRA/NYSE TRF, trades that are not already locked-in trades will not be accepted by the system, and members must use an alternative mechanism to report and clear those trades.

Exam Tip: Gotchas

• The FINRA/NYSE facility does not compare anything. A trade that is not locked in before entry is rejected there, which is why its rules also require an alternative mechanism.
• A sub-round-lot execution is not automatically outside the system. Three of the four rules cover it where the execution is to be compared and locked-in.

How Long Does a Participant Have to Input or Respond?

At the Alternative Display Facility and both Trade Reporting Facilities, participants shall transmit trade reports as soon as practicable but no later than 10 seconds after execution, or such other time period prescribed by rule. At the OTC Reporting Facility they shall transmit within the time period its own transaction reporting rule requires.

The ADF, the FINRA/Nasdaq facility and the OTC Reporting Facility then offer the alternative of accepting or declining trades within twenty (20) minutes after execution, which at the OTC Reporting Facility reaches trades in OTC equity securities only.

The FINRA/NYSE facility's input rule carries only the transmit limb and no accept-or-decline alternative. The four facilities describe the requirement differently:

The Browse function is defined as the function that permits a participant to review, or query, for trades in the system identifying the participant as a party to the transaction, subject to the specific uses contained in the System Users Guide.

Either way, trade reports shall be submitted by the member as required by the facility's reporting rule, so the accept-or-decline route does not change who owes the report.

Exam Tip: Gotchas

• The OTC accept-or-decline alternative does not reach restricted equity securities. Its wording limits the twenty-minute route to trades in OTC equity securities.
• Twenty minutes is a response window, not a reporting deadline. The member with the reporting obligation still owes its report inside the reporting rule's own clock.

What Information Must Be Input?

The Alternative Display Facility requires seventeen data elements. The other three facilities require fifteen each.

Unless the contra side will have an opportunity to provide its own trade information, the Reporting Member is responsible for the complete and accurate submission of information for both sides of the trade.

All four lists carry these elements:

• The security identification symbol of the eligible security, called the SECID.
• The number of shares, which the FINRA/NYSE facility writes as the number of shares or bonds.
• The unit price, excluding commissions, mark-ups or mark-downs.
• The time of execution in hours, minutes and seconds, Eastern Time, in military format, unless another FINRA rule requires a different time.
• A symbol showing whether the submitter represents the Reporting Member side (the Executing Party side) or the Non-Reporting Party side (the Contra Party side).
• A symbol showing buy, sell or cross, and if applicable a short indicator from the Reporting Member or contra side perspective, irrespective of whether the contra side is a member, except that the short indicator is not required on a clearing-only, non-regulatory report.
• A symbol showing whether the trade is as principal, riskless principal, or agent.
• The reporting side clearing broker, if other than the normal clearing broker.
• The reporting side executing broker as a give-up, if any.
• The contra side executing broker, the contra side introducing broker on a give-up trade, and the contra side clearing broker if other than the normal one.
• An order identifier for any order carrying consolidated audit trail recording and reporting obligations.
• Where the facility is used to transfer a transaction fee between two FINRA members, the report must comply with the fee paragraph below.
• If applicable, the unique indicator denoting a clearing-only, non-regulatory report.

The Alternative Display Facility list adds the two elements that make it seventeen:

• A designated indicator for special trades and "step outs".
• For any transaction for which the system is used to clear a transaction, an indication of whether the trade is to be compared in the system or is locked-in pursuant to an Automatic Give Up Agreement (AGU) or a Qualified Special Representative Agreement (QSR).

The OTC Reporting Facility writes its short sale indicator as sell short alone, without sell short exempt.

Exam Tip: Gotchas

• The short indicator does not depend on the contra side's status. It is required from the Reporting Member or contra side perspective irrespective of whether the contra side is a member.
• Responsibility for both sides is the default, not the exception. The Reporting Member owes complete and accurate information for both sides unless the contra side will have an opportunity to provide its own.

How Is a Transaction Fee Passed to the Other Member?

FINRA members may agree in advance to transfer a transaction fee charged by one member to another member on a transaction reported to the facility (at the FINRA/Nasdaq facility, an NMS stock transaction effected otherwise than on an exchange), through the submission of a clearing report. That report, inclusive of the transaction fee, will be submitted to the National Securities Clearing Corporation for processing.

To facilitate the transfer, the report shall provide, in addition to all other information required to be submitted by any other rule, a total per share or contract price amount inclusive of the transaction fee. The price reported for publication stays exclusive of it.

The rule's own example makes the split concrete. On a sale of 100 shares to another member at a price of 10, plus a transaction fee of one cent per share, the member reports 100 shares at 10 for publication and reports pricing information showing 10.01 per share, inclusive of the fee, for clearance and settlement.

Before submitting any such report:

• Both members and their respective clearing firms, as applicable, must have executed an agreement, as specified by FINRA, permitting the facilitation of the transfer.
• They must also have executed any other applicable agreement, such as a give up agreement.
• They must have submitted the executed agreements to the office each rule names: FINRA Market Operations at the Alternative Display Facility, and the relevant Trade Reporting Facility or the OTC Reporting Facility at the other three.

Those agreements are considered member records for purposes of the general recordkeeping rule and must be made and preserved by both members in conformity with applicable FINRA rules.

Nothing in that paragraph relieves a member from its obligations under FINRA rules and the federal securities laws, including but not limited to the customer confirmation rule and the SEC confirmation rule.

Exam Tip: Gotchas

• The transaction fee changes the clearing price and never the tape price. Publication takes the price exclusive of the fee while clearance and settlement take the inclusive figure.
• The savings sentence keeps the confirmation duties alive. Passing a fee through a clearing report does not relieve either member of its confirmation obligations under FINRA rules or the federal securities laws.

How Does a Trade Become Locked In?

At the Alternative Display Facility, the FINRA/Nasdaq Trade Reporting Facility and the OTC Reporting Facility, locked-in trades may be determined through three methods:

1. Trade by trade match. Both parties submit transaction data and the system performs an on-line match.
2. Trade acceptance. The Reporting Party enters its version of the trade and the contra party reviews the report and accepts or declines it. An acceptance results in a locked-in trade.
3. Automatic lock-in, described in the next section.

A declined trade report will be carried over at the end of trade date processing and will remain in the system, but will not be subject to the automatic lock-in process. A declined trade must be cancelled by the Reporting Party if the trade was originally reported to the system for dissemination purposes.

The FINRA/NYSE Trade Reporting Facility has none of this. All trades submitted to that system must be locked-in trades prior to entry.

Exam Tip: Gotchas

• Declining a trade creates work for the Reporting Party. Where the trade was originally reported for dissemination, the Reporting Party has to cancel it rather than leave it standing.
• A declined report does not disappear. It is carried over and remains in the system, simply outside the automatic lock-in process.

When Does the System Lock a Trade In by Itself?

Any trade that remains open, meaning unmatched or unaccepted, at the end of its entry day will be carried over for continued comparison and reconciliation.

The system will automatically lock in, and submit to the Depository Trust and Clearing Corporation (DTCC), any carried-over T to T+21 calendar day trade if it remains open as of noon Eastern Time on the next business day.

The system will carry over any T+22 calendar day or older "as/of" trade that remains open, but that trade will not be subject to the automatic lock-in process.

Exam Tip: Gotchas

• The automatic lock-in cut-off is not the end of the entry day. A carried-over trade is locked in only if it is still open at noon Eastern Time on the next business day.
• Age takes a trade out of the process. A carried-over "as/of" trade of T+22 calendar days or older stays in the system without being locked in automatically.

How Late Can an "As/Of" Entry Be Submitted?

Entries on a subsequent date, the "as/of" entries, may be submitted until 6:30 p.m. each business day at the Alternative Display Facility and until 8:00 p.m. each business day at the other three facilities.

At all four, "as/of" reports of trades executed on non-business days, and T+365 or greater trades, will not be submitted to clearing by the system.

The input rules also repeat the cancellation duty. With the exception of trades cancelled by FINRA staff under the clearly erroneous transaction rules, members shall report the cancellation or reversal of any trade previously submitted, and the member responsible for the original trade report submits it, on the deadlines the reporting rule sets.

Exam Tip: Gotchas

• Not being submitted to clearing is not the same as not being reported. A non-business-day "as/of" report still goes in; the system simply does not pass it to clearing.
• The two cut-offs match the cancellation cut-offs. The Alternative Display Facility runs to 6:30 p.m. and the other three to 8:00 p.m., in both places.

What Should You Check on Exam Day?

• Confirm the facility before applying the twenty-minute window; the FINRA/NYSE facility offers no accept-or-decline alternative at all.
• Count the data elements by facility: seventeen at the Alternative Display Facility, fifteen at the other three.
• Check whether a trade was declined; if it was originally reported for dissemination, the Reporting Party must cancel it.
• Confirm an automatic lock-in scenario is a carried-over trade from T to T+21 calendar days, still open at noon Eastern Time the next business day.
• Confirm a fee-transfer scenario has the executed agreements on file with the right office before any such report is submitted.