On April 7, 2010, the SEC published approval of a proposal by the Financial Industry Regulatory Authority (“FINRA”) to reduce the time frame for reporting over-the-counter (“OTC”) transactions in equity securities (“OTC equity transactions”) from 90 to 30 seconds after execution.1 This includes transactions in NMS stocks,2 transactions in “OTC Equity Securities” (e.g., OTC Bulletin Board and Pink Sheets securities), and secondary market transactions in non-exchange-listed direct participation program (“DPP”) securities.3 Trade cancellations currently subject to 90-second reporting will now be reported within 30 seconds.4 The SEC approval notice explained that FINRA would implement 30-second reporting in phases, with firms that use a manual process for all or substantially all OTC equity transaction reporting given additional time to comply. The approval notice also stated that FINRA would announce the implementation dates in a Regulatory Notice.
On April 28th, FINRA issued Regulatory Notice 10-24, setting forth the implementation schedule for the new reporting requirements:
- Phase I implementation (all firms other than qualifying “Manual Reporting Firms”): Monday, November 1, 2010; and
- Phase II implementation (qualifying Manual Reporting Firms only): Monday, May 2, 2011.
A “Manual Reporting Firm” is a firm that uses a manual process, such as WeblinkACT (also known as the NASDAQ or ACT workstation) for reporting all or substantially all of its OTC equity transactions.5 To qualify, a Manual Reporting Firm must submit advance written notice, which must include a description of its current process, to FINRA’s Market Regulation Department by September 20, 2010 (30 business days prior to the Phase I implementation date). Until May 2, 2011, qualifying Manual Reporting Firms will be required to report as “promptly as practicable,” but in no event more than 90 seconds after execution. However, beginning November 1, 2010, all trades reported more than 30 seconds after execution, including those reported by qualifying Manual Reporting Firms, will carry a modifier indicating that they are late for reporting and dissemination purposes. This will enable market participants to know that trades disseminated as timely were executed within the previous 30 seconds.
Effective May 2, 2011, all firms must comply with the 30-second trade reporting requirement. The Regulatory Notice reiterates the importance of timely reporting and reminds firms that they must report trades as soon as practicable and cannot withhold reports, (e.g., by programming systems to delay reporting until the last permissible second). A pattern and practice of late reporting may be considered inconsistent with high standards of commercial honor and just and equitable principles of trade, in violation of FINRA Rule 2010.