Quick Answer
Trade reporting captures an executed transaction in a trade report, and corrections fix that record through an as/of report or a past-settlement-date correction. Best execution and trading capacity govern how the order was handled, quotations must be honored as stated, and prohibited trading activities cover conduct that puts the firm's interest first.
This sheet condenses the exam's largest function: how a trade becomes a record, how that record gets corrected, and which trading conduct crosses the line.
Which One-Liners Win Points?
- A trade report follows execution, never precedes it. The sequence runs execution, then trade report, then market and regulatory information.
- Bona fide standards differ by type. A member publishes a transaction report only when it believes the trade is bona fide, and needs reasonable cause to believe a published quotation is bona fide, not fictitious, and free of any fraudulent, deceptive, or manipulative purpose.
- A quotation is broader than a displayed price. It includes any bid, offer, or formula, such as "bid wanted," designed to induce a person to make or submit a bid or offer.
- Best execution is a diligence standard, not a price guarantee. The member must use reasonable diligence to find the best market and make the price as favorable as possible under prevailing conditions.
- Capacity names who the broker-dealer represents. Agent capacity executes a transaction on behalf of a customer; principal capacity buys or sells for the broker-dealer's own account.
- A stated-price offer must be honored under its stated conditions. The one exception lets the member revise the size immediately after completing a transaction already in progress in that security.
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Equity transaction generally treated as a block | 10,000 shares or more (a smaller transaction can still qualify) |
| Markup fairness guidance | The 5% policy is guidance, not a safe harbor or fixed ceiling |
Which Correction Fits: As/Of or Past-Settlement-Date?
- An as/of report is submitted after the execution date and must carry the original execution date.
- A past-settlement-date correction applies once the original transaction's settlement date has already passed. The two labels answer different questions: report timing against execution date, or settlement status.
- A FINRA/NYSE Trade Reporting Facility report corrected after its report date needs two steps: the firm reverses the trade, then submits a new as/of trade report.
- An error account separates and controls a trading error, which can arise from handling, execution, reporting, or correction, while the firm resolves it.
Which Trading Practices Cross the Line?
- Front running of a block transaction trades on material, nonpublic information about an imminent block before that information is public, stale, or obsolete. The block stays nonpublic until it is fully completed and reported.
- Trading ahead of a customer order happens when a member holding a customer equity order trades for itself on the same side at a satisfying price, without immediately executing the customer order up to the proprietary size at the same or a better price.
- Excessive trading (churning) looks at a series of recommended transactions together, not one transaction alone. Regulation Best Interest (Reg BI) requires a covered recommendation to a retail customer to serve that customer's best interest, covering disclosure, care, conflict-of-interest, and compliance obligations.
- Market manipulation involves conduct intended to improperly affect a security's market price.
- Payments tied to publications or market making cannot reward influence over a security's price, or come from an issuer, affiliate, or promoter for quoting or making a market.
- A prohibited breakpoint sale sells investment-company shares just below a breakpoint so the seller keeps the higher sales charge instead of the customer's discount.
- Improper sharing in a customer account's profits or losses is prohibited on either side of the result.
Which Gotchas Trip Students Up?
- Best execution and a stated-price offer test different things. Best execution concerns handling a customer order; a stated-price offer concerns the firmness of the firm's own quotation.
- Ordinary quotation changes do not erase firmness. A member may change inter-dealer quotations in the ordinary course of trading, but each offer must be firm at its stated price and conditions when made.
- The customer-limit-order exception is narrow. It excuses misaligned real-time OTC equity quotations across mediums, not inconsistent proprietary quotations generally.
- An as/of report and a past-settlement-date correction test different facts. One concerns report timing against the execution date; the other concerns whether settlement already passed.
One-Breath Recap
Trade reporting and its corrections run in sequence: an executed transaction becomes a trade report only when the member believes it is bona fide, a quotation needs reasonable cause to believe the same, and a stated-price offer stays firm under its stated conditions with one narrow size exception. Best execution asks whether the customer's order found the best market, and capacity names whether the firm acted as agent or principal. When a record needs fixing, an as/of report restores the original execution date, a past-settlement-date correction answers a different question, whether settlement already passed, and a Trade Reporting Facility correction reverses and refiles. An error account isolates the mistake meanwhile. Prohibited conduct spans front running, trading ahead, excessive trading, manipulation, unfair markups, improper payments, breakpoint sales, and profit or loss sharing.
Need more than the recap? Read the full Trade Reporting and Corrections unit.