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93-9 SEC Approves Amendments to NASD® Rules Governing Transaction Reporting

SUGGESTED ROUTING

Legal & Compliance
Operations
Trading

Executive Summary

On December 14, 1992, the Securities and Exchange Commission (SEC) approved a series of changes to the NASD® rules governing transaction reporting in Nasdaq National Market,® Nasdaq Small-Cap,SM and exchange-listed securities. These changes eliminate certain inconsistencies among parallel rules covering Nasdaq® securities and recognize the Automated Confirmation Transaction (ACTSM) service as the principal vehicle for reporting transactional data between the hours of 9:30 a.m. and

5:15 p.m., Eastern Time (ET), on each business day. Additionally, the amended rules eliminate the minimum activity thresholds for real-time reporting by firms that are not registered market makers in the affected securities. All of the modified rules will take effect on March 8, 1993.

Background and Description of Amendments

On December 14, 1992, the SEC approved various amendments to the NASD rules that prescribe trade-reporting requirements for members' transactions in Nasdaq National Market, Nasdaq Small-Cap, and exchange-listed securities. Overall, these amendments make the terminology and reporting procedures more consistent, recognize ACT as the primary vehicle for reporting over-the-counter transactions in equity securities, and reduce manual reporting of transactional data on Form T. Although largely technical in nature, the changes facilitate member compliance with the reporting rules and optimize the automated capture of trade details for both operational and regulatory purposes.

Part XII of Schedule D of the NASD By-Laws applies exclusively to the reporting of transactional data on Nasdaq National Market securities. It has been modified in the following respects. First, changes to the opening paragraph and Sections l and 2 delete outmoded references to reporting mechanisms that have been replaced by ACT and the support facilities of the ACT service desk in New York City. Second, Section 2(a)(2) has been amended to eliminate the de minimis thresholds for real-time reporting of transactions by a member firm that is not a registered market maker in a given Nasdaq National Market security. For example, if a firm acts as a dual agent and crosses two customer orders in a stock in which it is not a registered market maker, the firm will now be required to report that trade through ACT within 90 seconds of execution, regardless of the magnitude of the firm's recent trading activity in that stock or other Nasdaq National Market issues. Ordinarily, this trade will be reported through an authorized Nasdaq Workstation® PC or the firm's Computer-to-Computer Interface (CTCI) with the ACT processor. The reporting of trades by telephone to the ACT service desk will continue to be limited to firms without access to Nasdaq equipment and that have averaged five or fewer trades per day during the preceding calendar quarter. Of course, firms unable to report directly into ACT due to a system or transmission failure may still satisfy their trade-reporting obligations by telephoning the NASD's Market Operations Department in New York City.

The amendments to Sections 2(a)(3), (4), and (5) of Part XII will permit manual trade reporting via Form T in fewer instances because of the elimination of the thresholds for real-time reporting by firms classified as non-market makers or "non-registered reporting members." Additionally, Section 2(a)(5) now limits Form T reporting to trades executed outside the hours that ACT is available to accommodate trade reports from the U.S. market session, 9:30 a.m. to 5:15 p.m., ET. Finally, Section 2(a)(4) incorporates new language specifying that trades executed between the hours of 4 and 5:15 p.m., ET, are reportable within 90 seconds after execution and that such trades must be designated as ".T" or after-hours trades. This change reflects an expansion of the .T reporting procedure to all trades in Nasdaq National Market issues that are executed after 4 p.m., ET, and reported into ACT. (Currently, the .T reporting procedure does not begin until 4:10 p.m., ET.) The foregoing change is intended to differentiate more clearly, via the trade-reporting process, all trades executed in Nasdaq National Market securities after the 4 p.m., ET, close of the Nasdaq market and before ACT closes at 5:15 p.m., ET. Nonetheless, trades executed during normal business hours but reported as late trades after 4 p.m., ET, will be accepted with a late indicator (.SLD) until 4:39 p.m., ET.

Part XIII of Schedule D contains the trade-reporting requirements applicable to members' trades in Nasdaq Small-Cap securities. Part XIII has been modified to reflect the following: (1) elimination of the activity thresholds for real-time reporting by any member firm that is not a registered market maker in a given Nasdaq Small-Cap security; (2) limitation of transactional reporting via Form T to members' transactions executed outside the hours of 9:30 a.m. to 5:15 p.m., ET, on each U.S. business day; (3) expansion of the .T reporting process to all trades executed after the 4 p.m., ET, close of the Nasdaq market and before ACT closes at 5:15 p.m., ET; and (4) clarification that the 90-second trade-reporting requirement encompasses after-hours trades executed between 4 p.m. and 5:15 p.m., ET, and reported into ACT. Essentially, these amendments are designed to ensure uniformity in the reporting procedures applicable to members' transactions in either Nasdaq Small-Cap or Nasdaq National Market securities.

The recent amendments to Schedule G to the NASD By-Laws (which governs trade reporting in exchange-listed securities) track most of the changes being made to Parts XII and XIII of Schedule D. The major exception involves definitional changes in Section 1 of Schedule G. First, the terms "Registered Reporting Member" and "Non-Registered Reporting Member" are being substituted for "Designated Reporting Member" and "Non-Designated Reporting Member" in Sections 1(c) and 1(e), respectively. These definitions distinguish, for trade-reporting purposes, between NASD members that are either registered as Consolidated Quotation System (CQS) market makers in a given security and members that are not so registered. Second, clarifying language has been added to Section 1(c) to indicate that a member has the status of a "Registered Reporting Member" solely in those listed securities in which it has registered with the NASD as a CQS market maker. Without such registration in a given CQS security, the firm is deemed to be a "Non-Registered Reporting Member" for purposes of its trade-reporting obligations in that issue under Schedule G. This change serves to conform Schedule G to Parts XII and XIII of Schedule D in terms of defining market makers and non-market makers on a security-by-security basis.

Lastly, it should be noted that the foregoing amendments do not alter the established conventions in Parts XII and XIII of Schedule D and in Schedule G for determining which party has the obligation of entering a transaction report. The amended rules will take effect on March 8, 1993.

Questions regarding this Notice can be directed to Michael J. Kulczak, Associate General Counsel, NASD Office of General Counsel at (202) 728-8811. Specific questions on the application of the NASD's trade-reporting rules can be directed to NASD Market Surveillance staff members Barbara Neurell or Mary Rose Murray at (800) 925-8156 or (301) 590-6080.

Amendments to Parts XII and XIII Of Schedule D and Schedule G to The NASD By-Laws

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

Part XII

Reporting Transactions in Nasdaq National Market Designated Securities

This part has been adopted pursuant to Article VII of the Corporation's By-Laws and applies to the reporting by all members of transactions in NASDAQ/National Market System securities ("designated securities") through the [Transaction Reporting System] Automated Confirmation Transaction Service ("ACT").

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Section 1 — Definitions

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(b) ["Transaction Reporting System" means the transaction reporting system for the reporting and dissemination of last sale reports in designated securities.] "Automated Confirmation Transaction Service" or "ACT" is the service that, among other things, accommodates reporting and dissemination of last sale reports in designated securities.

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Section 2 — Transaction Reporting

(a) When and How Transactions are Reported
(1) Registered Reporting MarketMakers shall, [transmit through the Transaction Reporting System,] within 90 seconds after execution, transmit through ACT last sale reports of transactions in designated securities executed during [the] normal market hours. [of the Transaction Reporting System.] Transactions not reported within 90 seconds after execution shall be designated as late.
(2) Non-Registered Reporting Members shall, within 90 seconds after execution, transmit through ACT or the ACT Service Desk (if qualified pursuant to Part IX of Schedule D to the By-Laws), or if ACT is unavailable due to system or transmission failure, by telephone to the Market Operations Department in New York City, last sale reports of transactions in designated securities executed during normal market hours. [transmit through the Transaction Reporting System, or if such System is unavailable, via Telex, TWX or telephone to the NASDAQ Operations Department in New York City, within 90 seconds after execution, last sale reports of transactions in designated securities executed during the trading hours of the Transaction Reporting System unless all of the following criteria are met:
(A) The aggregate number of shares of designated securities which the member executed and is required to report during the trading day does not exceed 1,000 shares; and
(B) The total dollar amount of shares of designated securities which the member executed and is required to report during the trading day does not exceed $25,000; and
(C) The member's transactions in designated securities have not exceeded the limits of (A) or (B) above on five or more of the previous ten trading days.]
Transactions not reported within 90 seconds after execution shall be designated as late. [If the member has reason to believe its transactions in a given day will exceed the above limits, it shall report all transactions in designated securities within 90 seconds after execution; in addition, if the member exceeds the above limits at any time during the trading day, it shall immediately report and designate as late any unreported transactions in designated securities executed earlier that day.]
(3) Non-Registered Reporting Members shall report weekly to the Market [NASDAQ] Operations Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities which are not required to be reported under paragraph (2) or (4). [by paragraph (2) to be reported within 90 seconds after execution.]
(4) Last sale reports of transactions in designated securities executed between the hours of 4:00 p.m. and [5:00] 5:15p.m. Eastern Time shall be transmitted through [the Transaction Reporting System no later than 5:00 p.m. Eastern Time] ACT within 90 seconds after execution; trades executed and reported after 4:00 p.m. Eastern Time shall be designated as ".T" or after hours trades.
(5) All members shall report weekly to the [NASDAQ] Market Operations Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities executed outside the hours of 9:30 a.m. and 5:15 [5:00] p.m. Eastern Time.

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Part XIII

Reporting Transactions in Nasdaq Small-CapSM Securities

This Part has been adopted pursuant to Article VII of the Corporation's By-Laws and sets forth the applicable reporting requirements for transactions in Nasdaq Small-CapSM securities ("designated securities"). [that are not classified as Nasdaq/National Market System securities.] Members shall utilize the Automated Confirmation Transaction Service ("ACT") for transaction reporting.

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Section 2 — Transaction Reporting

(a) When and How Transactions are Reported

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(2) Non-Registered Reporting Members shall, within 90 seconds after execution, transmit through ACT or the ACT service desk (if qualified pursuant to Part IX of Schedule D to the By-Laws), or if ACT is unavailable due to system or transmission failure, by telephone to the Market Operations Department in New York City, last sale reports of transactions in designated securities executed during normal market hours. [unless all of the following criteria are met:
(A) The aggregate number of shares of designated securities which the member executed and is required to report during the trading day does not exceed 1,000 shares; and
(B) The total dollar amount of shares of designated securities which the member executed and is required to report during the trading day does not exceed $25,000; and
(C) The member's transactions in designated securities have not exceeded the limits of (A) or (B) above on five or more of the previous ten trading days.]
Transactions not reported within 90 seconds after execution shall be designated as late. [If the member has reason to believe its transactions in a given day will exceed the above limits, it shall report all transactions in designated securities within 90 seconds after execution; in addition, if the member exceeds the above limits at any time during the trading day, it shall immediately report and designate as late any unreported transactions in designated securities executed earlier that day.]
(3) Non-Registered Reporting Members shall report weekly to the [Nasdaq] Market Operations Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities which are not required to be reported under paragraph (2) or (4). [by paragraph (2) to be reported within 90 seconds after execution.]
(4) Last sale reports of transactions in designated securities executed between the hours of 4:00 p.m. and 5:15 [5:00] p.m. Eastern Time shall be transmitted through [the] ACT [system] within 90 seconds after execution; trades executed and reported after [4:10] 4:00 p.m. Eastern Time shall be designated as ".T" or after hours trades.
(5) All members shall report weekly to the [Nasdaq] Market Operations Department in New York City, on a form designated by the Board of Governors, last sale reports of transactions in designated securities executed outside the hours of 9:30 a.m. and 5:15 [5:00] p.m. Eastern Time.

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Schedule G

Reporting Transactions in Listed Securities

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Section 1 — Definitions

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(c) "Registered [Designated] Reporting Member" means a member of the Association that is registered as a CQS Market Maker [in an eligible security], pursuant to Part VII of Schedule D of the Association's By-Laws, in a particular eligible security. A member is a Registered Reporting Member in only those eligible securities for which it has registered as a CQS market maker. A member shall cease being a Registered Reporting Member in an eligible security when it has withdrawn or voluntarily terminated its quotations in that security or when its quotations have been suspended or terminated by action of the Corporation.

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(e) "Non-Registered [Designated] Reporting Member" means [all] a member[s] of the Association that [which are] is not a Registered [Designated] Reporting Member[s].
(f) "Automated Confirmation Transaction Service" or "ACT" is the service that, among other things, accommodates reporting and dissemination of last sale reports in eligible securities.

Section 2 — Transaction Reporting

(a) When and How Transactions are Reported
(1) Registered [Designated] Reporting Members shall transmit through ACT, [the NASDAQ Transaction Reporting system,] within 90 seconds after execution, last sale reports of transactions in eligible securities executed during the trading hours of the Consolidated Tape otherwise than on a national securities exchange. Registered [Designated] Reporting Members shall also transmit through ACT, [the NASDAQ Transaction Reporting System,] within 90 seconds after execution, last sale reports of transactions in eligible securities executed in the United States otherwise than on a national securities exchange between 4:00 p.m. and 5:15 p.m. Eastern Time. Transactions not reported within 90 seconds after execution shall be designated as late.
(2) Non-Registered [Designated] Reporting Members shall, within 90 seconds after execution, transmit through ACT or the ACT Service Desk (if qualified pursuant to Part IX of Schedule D to the NASD By-Laws), or if ACT is unavailable due to system or transmission failure by telephone to the Market Operations Department in New York City, [the Transactions Reporting System, or if such System is unavailable, via Telex, TWX or telephone, to the NASDAQ Department in New York City, within 90 seconds after execution,] last sale reports of transactions in eligible securities executed during the trading hours of the Consolidated Tape otherwise than on a national securities exchange. [unless all of the following criteria are met:
(A) The aggregate number of shares of eligible securities which the member executed and is required to report does not exceed 1,000 shares in any one trading day; and
(B) The total dollar amount of shares of eligible securities which the member executed and is required to report does not exceed $25,000 in any one trading day; and
(C) The member's transactions in eligible securities have not exceeded the limits of (A) or (B) above on five or more of the previous ten trading days.]
Non-Registered [Designated] Reporting Members shall [transmit through the NASDAQ Reporting System, or if such System is unavailable, via Telex, TWX or telephone, to the NASDAQ Department in New York City], within 90 seconds after execution, transmit through ACT or the ACT service desk (if qualified pursuant to Part IX of Schedule D to the By-Laws), or if ACT is unavailable due to system or transmission failure, by telephone to the Market Operations Department in New York City, last sale reports of transactions in eligible securities executed in the United States otherwise than on a national securities exchange between the hours of 4:00 p.m. and 5:15 p.m. Eastern Time. [unless all of the criteria specified in paragraphs (A), (B) and (C) above are met.]

Transactions not reported within 90 seconds after execution shall be designated as late. [If the member has reason to believe its transactions in a given day will exceed the above limits, it shall report all transactions in eligible securities within 90 seconds after execution; in addition, if the member exceeds the above limits at any time during the trading day, it shall immediately report and designate as late any unreported transactions in eligible securities executed earlier that day.]
(3) Non-Registered [Designated] Reporting Members shall report weekly to the [NASDAQ] Market Operations Department in New York City, on Form T, last sale reports of transactions in eligible securities that [which] are not required [by paragraph (2)] to be reported [within 90 seconds after execution] under paragraph (2).

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(b) Which Party Reports Transaction

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(2) In transactions between two Registered [Designated] Reporting Members, only the member representing the sell side shall report.
(3) In transactions between a Registered [Designated] Reporting Member and a Non-Registered [Designated] Reporting Member, only the Registered [Designated] Reporting Member shall report.
(4) In transactions between [the] Non-Registered [Designated] Reporting Members, only the member representing the sell side shall report.

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