Which Party Reports, and What the Report Contains

An off-exchange trade that the reporting rules require to be reported produces exactly one tape report, so the rules have to name one reporter. They do it with a definition, a tiebreak, and an optional agreement that moves the keystrokes without moving the responsibility.

Which of Two Members Reports the Trade?

All four reporting rules answer this in two lines:

• In transactions between two members, the executing party shall report the trade.
• In transactions between a member and a customer or non-member, the member shall report the trade.

The executing party is the member that receives an order for handling or execution, or is presented an order against its quote, does not subsequently re-route the order, and executes the transaction.

All three elements have to be present. A member that receives an order and re-routes it is not the executing party for that order, because the definition excludes a member that subsequently re-routes.

Exam Tip: Gotchas

• Executing party is not a synonym for seller. The definition turns on receiving or being presented the order, not re-routing it, and executing it, and none of those steps depends on which side of the trade the member is on.
• A member facing a non-member is the reporter. Where the trade must be reported at all, the member files it, and the executing party test decides only trades between two members.

What Happens When Both Members Are the Executing Party?

In a transaction between two members where both may satisfy the definition of executing party, for example a manually negotiated transaction over the telephone, the member representing the sell-side shall report the transaction.

That tiebreak yields to agreement. The sell-side member reports unless the parties agree otherwise and the member representing the sell-side contemporaneously documents such agreement.

Exam Tip: Gotchas

• The sell-side tiebreak applies only where both members satisfy the definition. A scenario in which one member re-routed the order never reaches the tiebreak, because only one member is the executing party.
• Documentation of a contrary agreement must be contemporaneous and must come from the sell-side member. A later memorandum, or one written by the buy-side member, does not meet the wording.

Can Another Firm Report on a Member's Behalf?

A member may agree to allow a participant to report and lock-in trades on its behalf, if both parties have completed an agreement to that effect, as specified by FINRA, and submitted it. Where the agreement goes differs: to FINRA Market Operations at the Alternative Display Facility, and to the receiving facility itself at the two Trade Reporting Facilities and at the OTC Reporting Facility.

The OTC Reporting Facility (ORF) rule frames it as allowing another member to do so, and the FINRA/NYSE and OTC rules name the document a give up agreement.

Two responsibility sentences follow, and both matter:

• The member with the reporting obligation remains responsible for the transaction submitted on its behalf.
• Both the member with the reporting obligation and the member submitting the trade are responsible for ensuring that the information submitted complies with all applicable rules and regulations.

Exam Tip: Gotchas

• A give up agreement moves the submission, not the obligation. The member with the reporting obligation stays responsible for the transaction reported on its behalf.
• Responsibility for the content of the report is shared. Both the obligated member and the submitting member answer for the information's compliance with applicable rules and regulations.

What Must a Last Sale Report Contain?

The enumerated basic last-sale reporting-information lists contain six items for the Alternative Display Facility (ADF) and each Trade Reporting Facility, and five for the OTC Reporting Facility (ORF). These are list counts, not a complete inventory of what an actual submitted report must contain.

Separate trade report input rules still govern actual submissions. The ORF input rule requires time in military format and requires an order identifier for a transaction in an order subject to CAT recording and reporting obligations, even though the ORF basic list does not separately state those requirements.

The order identifier must meet such parameters as may be prescribed by FINRA and must uniquely identify the order for the date it was received. The consolidated audit trail obligations that trigger it are covered in the unit on creating, retaining and reporting required records of orders and transactions. Applicable timestamp-precision duties also continue to govern the time fields.

Short sale and short sale exempt marking is covered in the unit on handling and executing short sales.

Exam Tip: Gotchas

• The OTC Reporting Facility basic list is shorter and uses different wording. It does not separately enumerate the order identifier, it writes number of shares without or bonds, it writes sell short without sell short exempt, and its time entry carries no military format instruction. Its separate input rule still imposes the covered-order identifier and military-format duties.
• The size field is not identical across facilities. The three national market system facilities write number of shares or bonds; the OTC Reporting Facility writes number of shares.

How Is Price Reported for Agency, Dual Agency and Principal Trades?

The price item sends you to a separate paragraph that covers price, volume, capacity and identification of other members. Three of its branches set the price convention:

• Agency transactions. Report the number of shares and the price excluding the commission charged.
• Dual agency transactions. Report the number of shares only once, and report the price excluding the commission charged.
• Principal transactions. Except as the riskless principal exception provides, report each purchase and sale transaction separately, and report the number of shares and the price.

In these price procedures the volume wording is not uniform. The Alternative Display Facility and the FINRA/NYSE facility write the number of shares or bonds in all three branches, the FINRA/Nasdaq facility writes it in the principal branch only, and the OTC Reporting Facility writes the number of shares throughout.

Where a principal transaction is executed at a price that includes a mark-up, mark-down or service charge, the price reported shall exclude that mark-up, mark-down or service charge.

That reported price shall be reasonably related to the prevailing market, taking into consideration all relevant circumstances including, but not limited to, five named factors:

1. Market conditions with respect to the security.
2. The number of shares involved in the transaction (shares or bonds at the Alternative Display Facility and both Trade Reporting Facilities).
3. The published bids and offers with size at the time of the execution, including the reporting firm's own quotation.
4. The cost of execution.
5. The expenses involved in clearing the transaction.

The ORF version of the third factor is written for its market: the published bids and offers with size displayed in any inter-dealer quotation system at the time of the execution, including the reporting firm's own quotation.

Exam Tip: Gotchas

• The five factors are an open list. The rule reads "including, but not limited to", so a circumstance outside the five can still bear on whether the reported price is reasonably related to the prevailing market.
• A dual agency trade is one volume figure and two commissions. The shares are reported once, and the price excludes the commission charged on either side.

What Should You Check on Exam Day?

• Confirm both members satisfy the executing party definition before applying the sell-side tiebreak; a re-routed order leaves only one executing party.
• Check that a contrary reporting agreement was documented contemporaneously by the sell-side member, not later and not by the other side.
• Confirm a give up agreement scenario still leaves the reporting obligation, and shared responsibility for the information, where the rule puts them.
• Count items in the basic reporting-information lists: six at the Alternative Display Facility and both Trade Reporting Facilities, five at the OTC Reporting Facility; then apply the separate input requirements to an actual submission.
• Strip the commission, mark-up, mark-down or service charge out of any reported price before comparing it to the answer choices.