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94-71 SEC Approves Amendments To Trade-Reporting Requirements For Trades Executed Outside Normal Market Hours

SUGGESTED ROUTING

Legal & Compliance
Operations
Systems
Trading

Executive Summary

On August 11, 1994, the SEC approved a series of related changes to NASD rules governing transaction reporting in Nasdaq National Market® securities, The Nasdaq SmallCapSM Market securities, Nasdaq convertible debt securities ("Nasdaq convertibles"), over-the-counter equity securities (OTC equities), and exchange-listed securities eligible for inclusion in the Consolidated Quotation Service (CQS issues).1 These amendments will eliminate the manually prepared Form T as the principal means of reporting transactions in the foregoing securities when executed outside normal market hours (9:30 a.m. to 4 p.m., Eastern Time (ET)) or outside the hours of the Automated Confirmation Transaction Service (ACT) (currently 9 a.m. to 5:15 p.m. ET). Instead, the covered transactions will be reported electronically through ACT on either trade date or the next business day. The amendments also recognize that the morning window for reporting contemporaneous trades in Nasdaq-listed securities and OTC equities into ACT will expand by one hour, starting at 8 a.m. ET. Member firms can input the required trade reports via a Nasdaq Workstation® unit or a computer-to-computer interface. These changes take effect December 12, 1994. The language of the rule change follows this Notice.

Background And Description

Since inception of real-time trade reporting, the NASD has relied on members' submission of a paper Form T to collect transactional data on off-hours trades. This information was compiled and reviewed solely for regulatory purposes without public dissemination. Subsequently, the NASD introduced the .T function to enable the electronic entry of trade reports for trades executed between 9 and 9:30 a.m. ET2 or between 4 and 5:15 p.m. ET. This rule change continues the progression by expanding the morning window for .T entries to 1 1/2 hours (8 a.m. to 9:30 a.m. ET) and by establishing procedures for electronic reporting of trades executed outside of ACT's normal operating hours.

This rule change is meant to achieve the electronic capture of virtually every round-lot trade executed by NASD members in the covered securities, regardless of execution time. Currently, the only off-hours trades that are reportable electronically are those executed between 9 and 9:30 a.m. ET and between 4 and 5:15 p.m. ET. Such trades are designated .T trades to denote execution outside normal market hours. At present, trades done outside these hours are reportable only via paper Form T.

This latest initiative also will permit .T trades (except .T trades in the subset of OTC equities comprised of foreign issues, Canadian issues, and American Depositary Receipts (ADRs)) to be disseminated to market data vendors and to subscribers of Level 2/3 Nasdaq Workstation service. However, any "as/of trades reported under the amended rules will be collected solely for audit-trail and regulatory purposes. After implementation, NASD staff will evaluate member firms' overall compliance with the new requirements; examine various alternatives for public dissemination of "as/of trade data; consider the feasibility of expanding the time period for reporting "as/of trades on T +1; and focus on the complete elimination of paper Form T as a trade-reporting vehicle. Meanwhile, the paper Form T will be maintained solely as a back-up mechanism for reporting last-sale information to the NASD.

Ultimately, these enhanced procedures will enable the NASD to compile and publish comprehensive volume data for individual securities, including block-size and other round-lot trades reported electronically by NASD members.

Rule Changes

By implementing the following procedures, this rule change will substantially reduce the need for reporting any trades via the paper Form T:

  • The morning .T window for reporting contemporaneous trades in Nasdaq National Market issues, The Nasdaq SmallCap Market issues, Nasdaq convertibles, and domestic OTC equities (including Canadian issues and ADRs) will be expanded by one hour to run from 8 a.m. to 9:30 a.m. ET. Trades executed during this interval must be reported into ACT within 90 seconds of execution and be designated .T to denote execution outside normal market hours (See Schedule D, Parts X, XI, XII, and XIII);

  • Trades executed between midnight and 8 a.m. ET in Nasdaq National Market issues, The Nasdaq SmallCap Market issues, Nasdaq convertibles, and domestic OTC equities (including Canadian issues and ADRs) must be reported into ACT on trade date during the expanded .T period (8 a.m. to 9:30 a.m. ET); these trades must be designated .T trades to denote execution outside normal hours and be accompanied by time of execution since they are not being reported in real-time (See Schedule D, Parts X, XI, XII, and XIII);

  • Trades executed in Nasdaq National Market issues, The Nasdaq SmallCap Market issues, Nasdaq convertibles, and domestic OTC equities (including Canadian issues and ADRs) between 5:15 p.m. and midnight ET must be reported into ACT on the next business day (T+1) between 8 a.m. and 1:30 p.m. ET; these entries must be designated "as/of trades to denote execution on a prior day and be accompanied by a time of execution (See Schedule D, Parts X, XI, XII, and XIII);

  • Trades executed in foreign OTC equities (excluding Canadian issues and ADRs) shall be reported into ACT on T+1 between 8 a.m. and 1:30 p.m. ET regardless of the time the trade was actually executed; such trade reports must be designated "as/of trades and be accompanied by a time of execution (See Schedule D, Part XIII, (3)(ii)(C));

  • Trades executed in CQS issues outside the hours of 9:30 a.m. and 5:15 p.m. ET must be reported into ACT on T+1 between 8 a.m. and 1:30 p.m. ET, be designated "as/of trades, and be accompanied by a time of execution (See Schedule G, Section

Electronic trade reporting will result in greater and more timely dissemination of reliable information for transactions executed outside normal market hours. This will provide broker/dealers and investors with additional information to facilitate investment decisions.

Questions regarding this Notice can be directed to Michael J. Kulczak, Associate General Counsel, Office of General Counsel, at (202) 728-8811; Bernard Thompson, Assistant Director, Market Surveillance; (301) 590-6436; or Nasdaq Market Operations at (203) 378-0284.

Following is a chronicle of the revised reporting requirements to be implemented on December 12, 1994:


Nasdaq National Market, Nasdaq SmallCap, Nasdaq Convertible Bonds, And Domestic OTC Equities (Including Canadian Issues And ADRs)

If the trade was executed between:

Report to ACT:

Midnight - 8 a.m.

Between 8 and 9:30 a.m.; enter .T modifier and include execution time.

8 -9:30 a.m.

Enter .T modifier and include execution time if not reported within 90 seconds.

4 -5:15 p.m.

Enter .T modifier and include execution time if not reported within 90 seconds.

5:15 p.m. - midnight

On T+1 between 8 a.m. and 1:30 p.m.; enter execution time and designate "as/of."

CQS Trades:

 

Midnight - 9:30 a.m.

On T+1 between 8 a.m. and 1:30 p.m.; enter execution time and designate "as/of."

5:15 p.m. - midnight

On T+1 between 8 a.m. and 1:30 p.m.; enter execution time and designate "as/of."

Foreign OTC Equities (Excluding Canadian Issues and ADRs)

Any time on trade date†

On T+1 between 8 a.m. and 1:30 p.m.; enter execution time and designate "as/of."

† Member firms that have the operational capability to report transactions in foreign securities within 90 seconds of execution, between 8 a.m. and 5:15 p.m. ET, may do so at their option. If a firm chooses this option, it need not report the same transaction(s) on T+1.


1 See Securities and Exchange Act Release No. 34-34527 (August 11, 1994); 59 FR. 42613 (August 18, 1994).

2 The morning .T window cannot be used to enter trade reports on contemporaneous transactions in CQS issues because the central processor (The Securities Industry Automation Corporation) of such information does not open until 9:30 a.m. ET. This situation will not change as a result of the NASD's new trade-reporting requirements. However, it will now be possible to report, electronically, trades in CQS issues that are executed outside the hours of 9:30 to 5:15 p.m. ET on the next business day. These will be designated "as/of trades.


Text Of Amendments To Schedule D And G Of The NASD By-Laws

(Note: New text is underlined; deleted text is in brackets.)

Schedule D

Part X

REPORTING TRANSACTIONS IN NASDAQ NATIONAL MARKET [SYSTEM DESIGNATED] SECURITIES

* * *

Sec. 2. Transaction Reporting

(a) When and How Transactions are Reported
2(a)(1)-2(a)(3) No change.
(4) Transaction Reporting Outside Normal Market Hours
(i) Last sales reports of transactions in designated securities executed between [9:00] 8:00 a.m. and 9:30 a.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution and shall be designated as ".T" trades to denote their execution outside normal market hours. Additionally, last sale reports of transactions in designated securities executed between the hours of 4:00 p.m. and 5:15 p.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as ".T" trades to denote their execution outside normal market hours. Transactions not reported within 90 seconds must include the time of execution on the trade report.
(ii) Last sale reports of transactions in designated securities executed outside the hours of 8:00 a.m. and 5:15 p.m. Eastern Time shall be reported as follows:
(A) Last sale reports of transactions executed between midnight and 8:00 a.m. Eastern Time shall be transmitted through ACT between 8:00 a.m. and 9:30 a.m. Eastern Time on trade date, be designated as ".T" trades to denote their execution outside normal market hours, and be accompanied by the time of execution. The party responsible for reporting on trade date, the information to be reported, and the applicable procedures shall be governed, respectively, by subsections (b), (c), and (d) below:
(B) Last sale reports of transactions executed between 5:15 p.m. and midnight Eastern Time shall be transmitted through ACT on the next business day ("T+1") between 8:00 a.m. and 1:30 p.m. Eastern Time, be designated "as/of trades to denote their execution on a prior day, and be accompanied by the time of execution. The party responsible for reporting on T+1, the trade details to be reported, and the applicable procedures shall be governed, respectively, by subsections (b), (c), and (d) below.
(5) All members shall report weekly to the Market Operations Department in [New York City] Trumbull. Connecticut, on [a] Form T [designated by the Board of Governors], last sale reports of transactions in designated securities [executed outside the hours of 9:00 a.m. and 5:15 p.m. Eastern Time.] that were not transmitted through ACT, for whatever reason, either on the trade date or the next business day. Form T shall be used exclusively as a backup mode whenever electronic entry of trade data is not feasible due to system malfunctions or other unusual conditions.

Part XI

REPORTING TRANSACTIONS IN NASDAQ SMALL[-]CAPSM SECURITIES

* * *

Sec. 2. Transaction Reporting

(a) When and How Transactions are Reported
2(a)(1)-2(a)(3) No change.
(4) Transaction Reporting Outside Normal Market Hours
(i) Last sales reports of transactions in designated securities executed between [9:00] 8i0Q a.m. and 9:30 a.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution and shall be designated as ".T" trades to denote their execution outside normal market hours. Additionally, last sale reports of transactions in designated securities executed between the hours of 4:00 p.m. and 5:15 p.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as ".T" trades to denote their execution outside normal market hours. Transactions not reported within 90 seconds must include the time of execution on the trade report.
(ii) Last sale reports of transactions in designated securities executed outside the hours of 8:00 a.m. and 5:15 p.m. Eastern Time shall be reported as follows:
(A) Last sale reports of transactions executed between midnight and 8:00 a.m. Eastern Time shall be transmitted through ACT between 8:00 a.m. and 9:30 a.m. Eastern Time on trade date, be designated as ".T" trades to denote their execution outside normal market hours, and be accompanied by the time of execution. The party responsible for reporting on trade date, the information to be reported, and the applicable procedures shall be governed, respectively, by subsections (b), (c), and (d) below:
(B) Last sale reports of transactions executed between 5:15 p.m. and midnight Eastern Time shall be transmitted through ACT on the next business day CT+D between 8:00 a.m. and 1:30 p.m. Eastern Time, be designated "as/of trades to denote their execution on a prior day, and be accompanied by the time of execution. The party responsible for reporting on T+1, the trade details to be reported, and the applicable procedures shall be governed, respectively, by subsections (b), (c) and (d) below.
(5) All members shall report weekly to the Market Operations Department in [New York City] Trumbull. Connecticut on [a] Form T [designated by the Board of Governors], last sale reports of transactions in designated securities [executed outside the hours of 9:00 a.m. and 5:15 p.m. Eastern Time.] that were not transmitted through ACT, for whatever reason, either on the trade date or the next business day. Form T shall be used exclusively as a back-up mode whenever electronic entry of trade data is not feasible due to system malfunctions or other unusual conditions.

Part XII

REPORTING TRANSACTIONS IN OVER-THE-COUNTER EQUITY SECURITIES

Sec. 2. Transaction Reporting

(a) When and How Transactions are Reported
2(a)(1)-2(a)(2) No change.
(3) Transaction Reporting Outside Normal Market Hours
(i) Last sale reports of transactions in OTC Equity Securities executed between [9:00] 8:00 a.m. and 9:30 a.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution and shall be designated as ".T" trades to denote their execution outside normal market hours. Last sale reports of transactions in OTC Equity Securities executed between the hours of 4:00 p.m. and 5:15 p.m. Eastern Time shall also be transmitted through ACT within 90 seconds after execution; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as ".T" to denote their execution outside normal market hours. Transactions not reported within 90 seconds must include the time of execution on the trade report.
(ii) Last sale reports of transactions in OTC Equity Securities executed outside the hours of 8:00 a.m. and 5:15 p.m. Eastern Time shall be reported as
(A) Last sale reports of transactions in American Depositary Receipts ("ADRs"). Canadian issues, or domestic OTC Equity Securities that are executed between midnight and 8:00 a.m. Eastern Time shall be transmitted through ACT between 8:00 a.m. and 9:30 a.m. Eastern Time on trade date, be designated as ".T" trades to denote their execution outside normal market hours, and be accompanied by the time of execution. The party responsible for reporting on trade date, the trade details to be reported, and the applicable procedures shall be governed, respectively, by subsections (b). (c"). and (d) below:
(B) Last sale reports of transactions in ADRs. Canadian issues, or domestic OTC Equity Securities that are executed between 5:15 p.m. and midnight Eastern Time shall be transmitted through ACT on the next business day ("T+1") between 8:00 a.m. and 1:30 p.m. Eastern Time, be designated "as/of trades to denote their execution on a prior day, and be accompanied by the time of execution. The party responsible for reporting on T+1, the trade details to be reported, and the applicable procedures shall be governed, respectively, by subsections (b), (c), and (d) below: and
(C) Last sale reports of transactions in foreign securities (excluding ADRs and Canadian issues) shall be transmitted through ACT on T+1 regardless of time of execution.† Such reports shall be made between 8:00 a.m. and 1:30 p.m. Eastern Time in the same manner as described in subsection (ii)(B) above.
(4) All members shall report weekly to the Market Operations Department in [New York City] Trumbull. Connecticut, on [a] Form T [designated by the Board of Governors], last sale reports of transactions in OTC Equity Securities that [are executed outside the hours of 9:00 a.m. and 5:15 p.m. Eastern Time.] were not transmitted to ACT, for whatever reason, either on trade date or the next business day. Form T shall be used exclusively as a back-up mode whenever electronic entry of trade data is not feasible due to system malfunctions or other unusual conditions.

Part XIII

REPORTING TRANSACTIONS IN NASDAQ CONVERTIBLE DEBT SECURITIES

* * *

Sec. 2. Transaction Reporting

(a) When and How Transactions are Reported
2(a)(1)-2(a)(3) No change.
(4) Transaction Reporting Outside Normal Market Hours
(i) Last sales reports of transactions in designated securities executed between [9:00] 8£Q a.m. and 9:30 a.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution and shall be designated as ".T" trades to denote their execution outside normal market hours. Additionally, last sale reports of transactions in designated securities executed between the hours of 4:00 p.m. and 5:15 p.m. Eastern Time shall be transmitted through ACT within 90 seconds after execution; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as ".T" trades to denote their execution outside normal market hours. Transactions not reported within 90 seconds must include the time of execution on the trade report.
(ii) Last sale reports of transactions in designated securities executed outside the hours of 8:00 a.m. and 5:15 p.m. Eastern Time shall be reported as follows:
(A) Last sale reports of transactions executed between midnight and 8:00 a.m. Eastern Time shall be transmitted through ACT between 8:00 a.m. and 9:30 a.m. Eastern Time on trade date, be designated as ".T" trades to denote their execution outside normal market hours, and be accompanied by the time of execution. The party responsible for reporting on trade date, the information to be reported, and the applicable procedures shall be governed, respectively, by subsections (b). (c). and (d) below:
(B) Last sale reports of transactions executed between 5:15 p.m. and midnight Eastern Time shall be transmitted through ACT on the next business day ("T+1") between 8:00 a.m. and 1:30 p.m. Eastern Time, be designated "as/of trades to denote their execution on a prior day, and be accompanied by the time of execution. The party responsible for reporting on T+1, the trade details to be reported, and the applicable procedures shall be governed, respectively. by subsections (b), (c), and (d) below.
(5) All members shall report weekly to the Market Operations Department in [New York City] Trumbull. Connecticut, on [a] Form T [designated by the Board of Governors], last sale reports of transactions in designated securities [executed outside the hours of 9:00 a.m. and 5:15 p.m. Eastern Time.] that were not transmitted through ACT, for whatever reason, either on the trade date or the next business day. Form T shall be used exclusively as a backup mode whenever electronic entry of trade data is not feasible due to system malfunctions or other unusual conditions.

Schedule G

REPORTING TRANSACTIONS IN LISTED SECURITIES

* * *

Sec. 2. Transaction Reporting

(a) When and How Transactions are Reported
2(a)(1)-2(a)(2) No change.
[(3) Non-Registered Reporting Members shall report weekly to the Market Operations Department in New York City, on Form T, last sale reports of transactions in eligible securities that are not required to be reported under paragraph (2).]
[(4)] (3) All Members shall report [weekly to the NASDAQ Department in New York City, on Form T, last sale reports of] transactions in eligible securities executed outside the hours of 9:30 a.m. and 5:15 p.m. Eastern Time[.] as follows: (T) by transmitting the individual trade reports through ACT on the next business day ("T+1") between 8:00 a.m. and 1:30 p.m. Eastern Time: (ii) by designating the entries "as/of trades to denote their execution on a prior day: and (iii) by including the time of execution. The party responsible for reporting on T+1 the trade details to be reported, and the applicable procedures shall be governed, respectively by subsections (b), (c), and (d) below.

All members shall report weekly to the Market Operations Department in Trumbull. Connecticut, on Form T. last sale reports of transactions in eligible securities that were not transmitted through ACT, for whatever reason, either on the trade date or the next business day. Form T shall be used exclusively as a back-up mode whenever electronic entry of trade data is not feasible due to system malfunctions or other unusual conditions.

† Member firms that have the operational capability to report transactions in foreign securities (excluding ADRs and Canadian issues) within 90 seconds of execution, between the hours of 8:00 a.m. and 5:15 p.m. Eastern Time, may do so at their option. If a firm chooses this option, it need not report the same transaction(s) on T+1 as prescribed by subsection (ii)(C).


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