FINRA/NASDAQ Market Center (NMC):
According to FINRA, market participants need to comply with the requirement that Order Entry Executing/Reporting Firms accept or decline trades in the NASDAQ Market Center (NMC) within 20 minutes of trade execution.
It provides information about the number of trades that compared in NMC within 20 minutes of executing time and in increasing lengths of time later than 20 minutes after execution time, as well as the percentage of those trades to total trades executed. (For trades marked with the.PRP modifier, the report time instead of execution time should be used.)
FINRA Order Audit Trail System (OATS):
FINRA has established the Order Audit Trail System (OATS), as an integrated audit trail of order, quote, and trade information for NASDAQ and OTC equity securities. FINRA uses this audit trail system to recreate events in the life cycle of orders and more completely monitor the trading practices of member firms.
Under FINRA Rules 7410 – 7470, FINRA member firms are required to develop a means for electronically capturing and reporting to OATS specific data elements related to the handling or execution of orders, including recording all times of these events in hours, minutes, and seconds and to synchronize their business clocks (also covered by FINRA Rule-7430 – Clock Synchronization).
Each FINRA member is responsible for transmitting to OATs whenever an order is originated, received, transmitted to another department within the member or to another member, modified, canceled, or executed. Each report is required to be transmitted on the day such an event occurred.
According to FINRA, OATs reporting compliance can be measured by the number and percentage of:
- OATS late submissions;
- Out-of-sequence events;
- Unmatched execution reports;
- Unmatched NASDAQ Execution System route reports;
- Unmatched inter-firm route reports;
- Unmatched inter-firm routes received; and,
- Unrepaired repairable rejected order events.
Trace Reporting – NASD Introduced TRACE (Trade Reporting and Compliance Engine):
TRACE reporting came into effect in July 2002 in an effort to increase price transparency in the U.S. corporate debt market. The system captures and disseminates consolidated information on secondary market transactions in publicly traded TRACE-eligible securities (investment grade, high yield, and convertible corporate debt) – representing all over-the-counter market activity in these bonds.
According to FINRA, TRACE reporting compliance can be measured by the number of late trades that a member firm reported to the Trade Reporting and Compliance Engine (TRACE).
Recent Regulatory Rule Changes
Proposed Rule Change Relating to the Expansion of TRACE to Include Asset-Backed Securities Mortgage-Backed Securities and Other Similar Securities:
FINRA is filing with the Securities and Exchange Commission (“SEC” or “Commission”) a proposed rule change to amend the FINRA Rule 6700 Series (except for Rule 6740) and FINRA Rule 7730 to designate asset-backed securities, mortgage-backed securities and other similar securities (collectively defined hereinafter as “Asset-Backed Securities”), including TRACE-Eligible Securities, and to establish reporting, fee and other requirements relating to such securities.