January 26, 2022

Volume XII, Number 26

Advertisement
Advertisement

January 26, 2022

Subscribe to Latest Legal News and Analysis

January 25, 2022

Subscribe to Latest Legal News and Analysis

January 24, 2022

Subscribe to Latest Legal News and Analysis
Advertisement

“Trade Match” and “Trade Acceptance” Clearing Submissions on FINRA’s Alternative Display Facility

On October 7, the Financial Industry Regulatory Authority issued a Trade Reporting Notice regarding its Alternative Display Facility (ADF). In particular, member firms that use the ADF to report over-the-counter trades in national market system stocks can elect to have their trades submitted by the ADF to the National Securities Clearing Corporation (NSCC) for clearance and settlement. However, to make this election, such trades must either be locked in prior to submission via agreement by both parties to the trade, or may be locked in by the system in accordance with FINRA rules.

FINRA Rule 7140(a) describes being locked in by the ADF in accordance with FINRA rules. For “Trade by Trade Match,” both parties to the trade submit transaction data and the system performs an on-line match. For “Trade Acceptance,” after the reporting party enters its version of the trade into the system, the other party reviews the submission and either accepts or declines the trade. An acceptance results in a locked-in trade that is sent to NSCC. Reporting firms submitting trades to the ADF using the Trade Match or Trade Acceptance functionality need to identify another ADF participant with access to the ADF and the ability to view and take action with respect to the reporting party’s submission. To become an ADF participant, member firms must execute the FINRA Participation Agreement (FPA). Pursuant to the FPA, reporting parties agree that if they submit a trade to the ADF for Trade Match or Trade Acceptance against a party that is not an ADF participant, they accept any and all potential liability resulting from the failure of such non-ADF participant to honor the trade. A list of ADF participants is provided on FINRA’s website.

The ADF system does not prevent the entry of a trade against a party that is not an ADF participant, and as such, FINRA also announced the disablement of the automatic lock-in functionality on the ADF as of October 24, 2016. If an alleged contra party takes no action on a clearing-eligible trade submitted to the ADF for Trade Acceptance, the trade will be carried over and remain open.

To see the notice, click here.

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume VI, Number 288
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

+44 0 20 7776 7625
Advertisement
Advertisement
Advertisement