The Use of Market Participant Identifiers (MPIDs)

An identifier is how FINRA knows which member quoted, which member printed the trade, and how the two connect. That is why the rules attach the identifier to the moment before input rather than to the moment of the trade.

What Is a Market Participant Identifier, and Who Must Have One?

A market participant identifier (MPID) is the unique symbol FINRA issues a member. The trade reporting rule for the Alternative Display Facility (ADF) calls it a Market Participant Symbol and abbreviates it the same way.

Once the Participant Application Agreement has been executed and received by FINRA, a Participant may commence input and validation of trade information in ADF-eligible securities.

Prior to that input, all Participants, including those that have trade report information submitted to FINRA by any third party, must obtain from FINRA a unique identifying MPID, and use that identifier for trade reporting and audit trail purposes.

Exam Tip: Gotchas

• Outsourcing the reporting does not outsource the identifier. The rule reaches all Participants, including those whose trade report information a third party submits to FINRA. The Participant still obtains its own identifier.
• The duty attaches before input, not at the trade. A Participant must hold the identifier prior to input of trade information, so a firm cannot obtain one after its first report.
• The identifier does two jobs. It is used for trade reporting and for audit trail purposes, so an option describing it as a trade-reporting tag alone is short.

When May a Member Use More Than One MPID?

Under the multiple MPID rule for OTC equity quoting, any member that is required to obtain, or that otherwise wishes to use, more than one MPID for purposes of quoting and trading OTC equity securities, or for reporting trades to the OTC Reporting Facility (ORF), must submit a written request to FINRA Market Operations in the form FINRA requires, and obtain approval for the additional identifiers.

An OTC Reporting Facility Participant is any member of FINRA in good standing that uses the OTC Reporting Facility.

A member that posts a quotation in an OTC equity security and reports to a FINRA system a trade resulting from that posted quotation must use the same MPID for reporting purposes.

Exam Tip: Gotchas

• Wanting a second identifier is enough to trigger the request. The rule reaches a member that is required to obtain one and a member that otherwise wishes to use one, so a voluntary request still needs FINRA's approval on a written request.
• Approval comes from FINRA Market Operations, and the request must be written. A verbal arrangement or a request routed elsewhere does not meet the rule.
• The same-MPID duty links a quote to its own trade report. It applies where the member posted the quotation and the reported trade resulted from that posted quotation.

What Separate Identifier Does an Alternative Trading System Need?

Regulation ATS definitions supply the term. An alternative trading system (ATS) is any organization, association, person, group of persons, or system that constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities, or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of the exchange functions definition rule.

The definition then subtracts two things. The system must not set rules governing the conduct of subscribers other than the conduct of those subscribers' trading on it, and must not discipline subscribers other than by exclusion from trading.

Except where the two-identifier permission below applies, an ORF Participant that operates an ATS must obtain a single, separate MPID for each such ATS, designated for exclusive use for reporting each ATS's transactions. Four duties and one exception follow:

• The member must use that separate MPID to report all transactions executed within the ATS to the OTC Reporting Facility.
• The one exception is where the member is submitting a clearing-only, non-regulatory report under the OTC Reporting Facility trade input rule.
• The member must not use that separate MPID to report any transaction that is not executed within the ATS.
• Any member that operates multiple alternative trading systems must obtain a separate MPID for each one.
• The member must have policies and procedures in place to ensure trades reported with that separate identifier are restricted to trades executed within the ATS.

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

The rule names those facilities in the alternative: the Alternative Display Facility, the OTC Reporting Facility, the FINRA/Nasdaq Trade Reporting Facility (TRF), or the FINRA/NYSE Trade Reporting Facility.

Exam Tip: Gotchas

• The separate identifier names a destination. It reports all transactions executed within the ATS to the OTC Reporting Facility, apart from a clearing-only, non-regulatory report, so a scenario routing those reports somewhere else is outside what the rule permits.
• A member running two alternative trading systems needs two separate identifiers. One identifier shared across two systems does not satisfy the rule, because each system gets its own designated for exclusive use.
• The two-identifier permission is a split by destination, not a general allowance. It applies only where one identifier is used exclusively for TRACE and the other exclusively for the equity trade reporting facilities, which the rule names in the alternative.
• Policies and procedures are part of the requirement. The member must have policies and procedures restricting reports under the separate identifier to trades executed within that system.

Why Does FINRA Call Multiple MPIDs a Privilege?

FINRA considers the issuance of, and trade reporting with, multiple MPIDs to be a privilege and not a right. A member must identify the purposes and the 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 a member is using one or more additional identifiers improperly or for other than the purposes the member identified, FINRA staff retains full discretion to limit or withdraw its grant of the additional identifiers.

The multiple MPID rule for Trade Reporting Facility participants and the multiple MPID rule for ADF participants sit in a different part of the rulebook, and are covered in the unit on reporting trades to the designated reporting facility.

Exam Tip: Gotchas

• Two separate triggers let FINRA pull the grant. Use detrimental to the marketplace is one; improper use, or use for a purpose other than the one identified, is the other.
• The member's own stated purpose becomes the boundary. Because the member must identify the purposes and systems, using an extra identifier for a different purpose is itself a ground for withdrawal.

What Should You Check on Exam Day?

• Confirm the identifier was obtained before input of trade information, and that a third party submitting the reports does not excuse the Participant from holding its own.
• Check that a request for an additional identifier went in writing to FINRA Market Operations and was approved, whether the member was required to obtain it or simply wanted it.
• Match the quote and the report: a member that posted the quotation must report the resulting trade under that same identifier.
• For an alternative trading system, confirm one separate identifier per system, used for transactions executed within that system and reported to the OTC Reporting Facility.
• Treat a second identifier for one system as permitted only on the TRACE-versus-equity-facilities split, and remember FINRA may limit or withdraw the grant where the use is detrimental to the marketplace or improper.