Creating, Retaining and Reporting Required Records of Orders and Transactions

Who identifies itself, what firms publish, what the audit trail demands, and how long records live.

Which One-Liners Win Points?

• Large trader: exercises investment discretion over accounts and effects national market system (NMS) securities transactions through registered broker-dealers at or above the identifying activity level, or registers voluntarily on Form 13H.
• No netting. For the large trader test, purchases and sales add, and accounts are never disaggregated to avoid identification.
• Monthly execution report: owed by every market center, and by a broker or dealer that is not one only if it introduces or carries 100,000 or more customer accounts through which NMS stock transactions are effected.
• Quarterly routing report: every broker or dealer reports its routing of non-directed held-basis orders in NMS stocks and non-directed customer orders in listed options, naming, per section, the ten venues receiving the most non-directed orders and any venue receiving five percent or more of them, so the list can exceed ten.
• Consolidated audit trail (CAT): record each reportable event contemporaneously, report by 8:00 a.m. Eastern Time on the trading day after the data is recorded or received, and correct identified errors by 8:00 a.m. Eastern Time on T+3, whoever found them.
• Business clocks for the CAT stay within 50 milliseconds of the National Institute of Standards and Technology atomic clock, or one second for a clock used solely for manual order events or solely for allocation times.
• Order memorandum: terms, account, time received, time of entry (transmission for execution), execution price, responsible associated person, and, to the extent feasible, time of execution or cancellation. A discretionary order is so designated.
• Account designation goes on a customer order before execution, except that a qualifying investment adviser may allocate an order for more than one customer if the member receives specific account designations or customer names by the end of the trade date.
• A change in account name or designation, including into an error account, needs a qualified and registered principal designated by the member, personally informed of the essential facts, approving in writing on the order or similar record.
• Pre-time stamping order tickets in connection with block positioning is contrary to the recordkeeping rule.

Which Numbers Matter Most?

• Both retention periods keep the first two years in an easily accessible place.

Which Gotchas Trip Students Up?

• Form 13H has one dated clock. The annual filing runs 45 days; a first crossing is filed promptly, and an inaccuracy promptly after the end of that calendar quarter.
• Recording and reporting are separate duties. Accurate data assembled overnight and reported on time still fails the contemporaneous recording duty.
• For electronic order events, milliseconds are a baseline, not a cap. A firm whose systems use finer increments reports in them, up to nanoseconds.
• The order ticket is a three-year record. The six-year group is the firm-level books.

One-Breath Recap

A large trader exercises investment discretion and trades national market system securities through registered broker-dealers at or above 2 million shares or $20 million in a calendar day, or 20 million shares or $200 million in a calendar month, or registers voluntarily, and, unless excepted, files Form 13H. Every market center publishes a monthly execution report, and every broker or dealer a quarterly routing report. Industry Members record consolidated audit trail events contemporaneously and report them by 8:00 a.m. Eastern Time the trading day after recording or receipt. Each customer order carries its account name or designation before execution unless the investment adviser allocation exception applies, and order tickets are kept three years, the first two easily accessible.

Need more than the recap? Read the full Creating, Retaining and Reporting Required Records of Orders and Transactions unit.