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The Exchange is taking this opportunity to remind the membership of its audit trail responsibilities and to introduce important changes for NASDAQ listed securities involving the application of new Audit Trail account type codes "3", "4" and "5" to identify orders for NASDAQ Market Makers transmitted to the specialist by telephone, which will take effect immediately.
The need for complete and timely trading information is essential to the Exchange's regulatory effort and the Exchange wishes to emphasize the importance of accurate audit trail submissions by its members and member firms.
1) Floor Member Procedures
The following are the prescribed audit trail procedures that each floor member must adhere to:
Specialist - for the unit's account, legibly indicate for each trade in time sequence on
Form191 (the "bought and sold book"), or an Exchange approved substitute: time of execution, quantity, price, tick (equity trades only), contra give-up and contra broker badge number.
Equity specialists need only record crowd and destabilizing "PER"
transactions.
-as agent for orders entrusted to the "Book", clearly indicate for each trade or
partial fill on each report either written or entered through the system:
price, quantity for each contra give-up, each contra broker badge number,
and time of execution for each trade or partial fill. The report to each firm
will indicate the specialist's badge number as agent and time of report.
Registered Trader (ROT, OPM, LTP, RET, REMM)
- for the trader's own account, clearly indicate for each trade on the clearing
firm's trading card or the trader's own stationery or in a hand held device:
price, quantity for each contra give-up, each contra broker badge number,
and time of execution for each trade. The trader's give-up and badge number
will be pre-printed or written on each card or ticket.
Members utilizing hand held devices are reminded that trade
information must be entered at the time of transaction in order to
capture the correct trade time.
Firm Floor Member
- clearly indicate for each trade or partial fill on each order ticket: the broker's
own badge number as agent, quantity, price, contra give-up, contra broker
badge number and time of execution for each trade or partial fill.
Two Dollar Broker
- clearly indicate for each trade or partial fill on the order ticket: the order's
give up, price, quantity for each contra give-up, each contra broker badge
number, and time of execution for each trade or partial fill. The standardized
tickets have pre-printed commission bill numbers and two dollar broker badge
numbers.
Members are also reminded that it is the responsibility of the initiating Floor member to report the trade immediately after the transaction has been effected. A Floor member is considered to be initiating a trade when he hits a bid or takes an offer.
For example, if a Floor Broker enters a crowd with a market order to buy 100 shares, with the market 5.25-5.50, he may initiate a trade by taking the 5.50 offer. If he decides to bid 5.40 for the 100 shares, and his bid is hit, the selling member would then be the initiating broker.
2) Member Firm Procedures
Clearing member organizations must provide comparison and clearing input with the following trade details with respect to each transaction processed by them: security, volume, price, trade date, clearing member number and contra clearing member number. Clearing firms also are responsible for providing the Exchange with the following audit trail information for each trade processed by them:
Equities Major (executing) broker badge number (or acronym for registered equity traders), minor (contra) broker badge number, time of execution, and account type [i.e., agency (A), principal (P), specialist principal (S), registered trader (G), competing Market Maker (O), (T), (R), Short exempt (E), (F), (H), (B), Competing Market Maker Short Exempt (L), (X), (Z), Individual Investor (I), Member/Member Organization as agent for other member (W)].
Appropriate use of New York Stock Exchange audit trail account type
indicators is also acceptable:("C, U, J, D, M, Y, K, Q")
Effective September 1, 2002, any order entered for the proprietary account of a non-member broker dealer, who is not a competing market maker, must be entered with the account type (V).
Orders entered by a non-member broker dealer for the account of a customer, who is not a broker dealer, should continue to be entered with the account type (A).
Orders entered for the account of a Registered Option Trader in a Paired Security previously coded "V" should be entered with account type "P".
Exchange Traded Fund Shares (e.g. - SPY, DIA, QQQ, HOLDRS, Sector SPDRs…)
All Audit trail information required for Equities is required for Equity Traded Derivative Products including Fund Shares and structured products. Clearing Members are reminded that all transactions for Registered Option Traders in Exchange Traded Fund Shares should be input with the Account Type "G" (Registered Trader).
Effective September 1, 2002, any order entered for the account of a non-member broker dealer, who is not a competing market maker, must be entered with the account type (V).
Orders entered by a non-member broker dealer for the account of a customer, who is not a broker dealer, should continue to be entered with the account type (A).
Orders entered for the account of a Registered Option Trader in a Paired Security previously coded "V" should be entered with account type "G".
NASDAQ UTP Securities
Major (executing) broker badge number (or acronym for registered equity traders), minor (contra) broker badge number, time of execution, and account type [i.e., agency (A), principal (P), specialist principal (S), registered trader (G), competing Market Maker (O), (T), (R), Short exempt (E), (F), (H), (B), Competing Market Maker Short Exempt (L), (X), (Z), Individual Investor (I), Member/Member Organization as agent for other member (W)].
Appropriate use of New York Stock Exchange audit trail account type
indicators is also acceptable:("C, U, J, D, M, Y, K, Q")
Effective immediately the following new Account Type Codes for NASDAQ listed securities will also be utilized for the purpose of identifying orders for NASDAQ Market Makers telephoned to the specialist:
Transactions cleared for a Nasdaq Market Maker, who is affiliated with, the Amex Clearing Member, which resulted from telephone access to the specialist must be entered with account type (3).
Transactions cleared for a member's Nasdaq Market Maker, who is not affiliated with the Amex Clearing Member, which resulted from telephone access to the specialist must be entered with account type (4).
Transactions cleared for a non-member Nasdaq Market Maker, who is not affiliated with the Amex Clearing Member, which resulted from telephone access to the specialist must be entered with account type (5).
Options
Major (executing) broker badge number applicable, minor (contra) broker badge number, time of execution, opening or closing transaction and account type [i.e., customer (C), firm (F), specialist (S), registered trader (P) and non-member market maker (N). Clearing members also must supply the acronym for specialists, registered traders and market makers.]
Clearing member firms must supply the foregoing audit trail data with respect to each trade processed by them including equity trades that are crossed on the Floor. In addition, clearing members may not "summarize" multiple trades in the same security, executed at the same price with the same contra clearing firm as this results in degradation of the audit trail.
3) Disciplinary Action
Individual members and member organizations are advised that failure to comply with the Exchange's audit trial elements will result in disciplinary action pursuant to Exchange Rule 590 as follows:
| Amount |
Individual |
Member Organization |
| First Offense |
$ 500 |
$1,000 |
| Second Offense* |
$1,000 |
$2,000 |
| Frequent Offenses* |
$2,500 |
$5,000 |
Based a "rolling" 12-month period.
It should be noted that the Exchange may impose more substantial fines for first or second violations under Rule 590 than those noted in the above schedule (up to a maximum of $2,500 for individuals or $5,000 for member firms) in cases where there are aggravating circumstances. The Exchange, in addition, may issue full disciplinary charges for violations of its audit trail policies in appropriate circumstances. Members and member organizations that clear their trades through another firm will be held responsible for any inaccuracies in the audit trail that are caused by their own errors or omissions.
Questions regarding the changes outlined in this memo and possible disciplinary action for violations of the Exchange's audit trail policies should be addressed to Larry McDonald at (212) 306-1865 or Arne Michelson at (212) 306 - 1860.
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