CH 12 Reporting

Question 1

What is the ADF reporting system?

Answer 1

The ADF reporting system reports trades in securities quoted in the Alternative Display Facility (ADF).

Question 2

True or False: In a step-out transaction, a clearing report, but not a trade report, is submitted.

Answer 2

True

Question 3

What is the difference in reporting a riskless principal trade and a net basis trade?

Answer 3

Riskless principal trades may be reported as one trade, while net basis trades require two separate reports.

Question 4

True or False: Trades executed between 8:00 p.m. and 8:00 a.m. ET must be reported within 10 seconds of execution.

Answer 4

False. The 10-second reporting requirement applies to trades executed between 8:00 a.m. and 8:00 p.m. ET.

Question 5

True or False: TRACE disseminates information on debt securities sold under Rule 144A and transacted between two QIBs.

Answer 5

False. Although the trade information is reported to TRACE, it will not be disseminated.

Question 6

If a transaction is reported at a clearly erroneous price, when will review and action be taken by FINRA?

Answer 6

Under normal circumstances, within 30 minutes.

Question 7

What system is used for reporting corporate bond trades?

Answer 7

TRACE (Trade Reporting and Compliance Engine)

Question 8

To establish a give-up relationship, which BD is required to file the appropriate forms with Nasdaq?

Answer 8

Both BDs are required to file.

Question 9

True or False: An order-entry firm has 10 seconds to accept or reject a trade report submitted to FINRA.

Answer 9

False. The order-entry firm has 20 minutes to accept or reject a trade report submitted to FINRA.

Question 10

What system facilitates the mandatory reporting of secondary-market trades in eligible fixed-income securities?

Answer 10

TRACE (Trade Reporting and Compliance Engine)

Question 11

What is TRF?

Answer 11

The Trade Reporting Facility. TRF reports trades in Nasdaq and Third Market securities.

Question 12

Regulations consider riskless principal trades as ______ trades since the executing BD is not exposed to _______ risk.

Answer 12

Regulations consider riskless principal trades as agency trades since the executing BD is not exposed to market risk.

Question 13

True or False: Money-market instruments are TRACE-eligible securities.

Answer 13

False

Question 14

What type of transaction transfers the trade from one BD to another for clearing purposes?

Answer 14

A step out.

Question 15

What is CAT?

Answer 15

The Consolidated Audit Trail; it enables FINRA to review all trading activity in the U.S. equity and option markets.

Question 16

For a trade involving OTC securities, the __________ firm is responsible for reporting.

Answer 16

For a trade involving OTC securities, the executing firm is responsible for reporting.

Question 17

A firm buys 1,000 shares of ABC at $20 as a principal and sells the shares to a client at $20. What is this trade?

Answer 17

Since the price is the same, it is a riskless principal trade (the markup is required to be disclosed).

Question 18

Corporate bond trades are reported through TRACE within _____ minutes.

Answer 18

Corporate bond trades are reported through TRACE within 15 minutes. (TRACE then disseminates information in real time)

Question 19

What is TRACE?

Answer 19

The Trade Reporting and Compliance Engine. TRACE is a reporting system for corporate bonds.

Question 20

What two situations would require a trade to be reported to TRACE within 15 minutes of the next TRACE opening?

Answer 20

A trade occurs within 15 minutes of TRACE closing or a trade occurs when TRACE is not open.

Question 21

True or False: In a step-out relationship, only a client’s complete position may be transferred to another BD.

Answer 21

False. All or part of a client’s trade may be transferred to another BD for clearing purposes.

Question 22

True or False: Debt issued or guaranteed by a foreign government is TRACE-eligible.

Answer 22

False. Only debt issued or guaranteed by a U.S. Government agency or enterprise is TRACE-eligible.

Question 23

A trade in a TRACE-eligible security is executed at 2:55 p.m. When is the trade required to be reported?

Answer 23

By 3:10 p.m. (within 15 minutes)

Question 24

For trades that occur between 8:00 a.m. and 6:29:59 p.m. ET, when is a TRACE report made?

Answer 24

Within 15 minutes of the trade.

Question 25

Is a riskless principal trade reported to FINRA as one or two transactions?

Answer 25

It is reported as one transaction.

Question 26

True or False: CQS transactions must be reported within 10 seconds of completion.

Answer 26

True. CQS transactions must be reported within 10 seconds.

Question 27

Explain a give up transaction.

Answer 27

When one broker executes a trade on behalf of another broker and reports the trade to the clearing corporation.

Question 28

Once a TRACE report is made, when is the information available to the public?

Answer 28

Immediately.

Question 29

What is the trade reporting system for Nasdaq securities?

Answer 29

Trade Reporting Facility (TRF) - formerly the Automated Confirmation Transaction system (ACT).

Question 30

When do CAT reports need to be submitted to FINRA?

Answer 30

On the trading day after the data is recorded.

Question 31

When would the following trades be reported to TRACE? One was executed at 6:20 p.m., the other at 8:40 p.m.

Answer 31

Both need to be reported within 15 minutes of TRACE opening on the next business day.

Question 32

True or False: TRF is used to execute trades in Nasdaq securities.

Answer 32

False. TRF is a reporting, not execution, system for Nasdaq securities.

Question 33

What information is included in a CAT report?

Answer 33

The life of an order including receipt, routing, display, modification, cancellation, and execution.

Question 34

True or False: Only a FINRA member involved in a trade with a nonmember is required to report it to TRACE.

Answer 34

True. The FINRA member reports the entire trade.

Question 35

Between 8:00 a.m. and 6:29:59 p.m. ET, two FINRA members are involved in a trade. Who reports it to TRACE?

Answer 35

Each FINRA member is required to report its side of the trade.

Question 36

When are trades in foreign securities excluded from the reporting requirement?

Answer 36

When executed on, and reported through, a foreign exchange or when executed OTC and reported to a foreign regulator.

Question 37

For trades effected between a member firm and a nonmember firm or customer, the ________ reports the trade.

Answer 37

For trades effected between a member firm and a nonmember firm or customer, the member reports the trade.

Question 38

Explain a step-out transaction.

Answer 38

An executing BD allocates all or part of a trade to another BD for clearing purposes.

Question 39

FINRA disseminates __________ trade information for TRACE-eligible securities.

Answer 39

FINRA disseminates real-time trade information for TRACE-eligible securities.

Question 40

What is the trade reporting system for OTC equities?

Answer 40

Over-the-Counter Reporting Facility (ORF).

Question 41

When must trades executed between 8:00 a.m. and 8:00 p.m. be reported?

Answer 41

Within 10 seconds of execution.

Question 42

Give some examples of TRACE-eligible securities.

Answer 42

Depository-eligible, U.S. dollar-denominated debt of U.S. and foreign companies, investment or non-investment-grade debt.

Question 43

If a trade is effected between two member firms, who is responsible for reporting the trade?

Answer 43

The executing firm.

Question 44

Transactions effected on an exchange or OTC must be reported within ____ seconds.

Answer 44

Transactions effected on an exchange or OTC must be reported within 10 seconds.

Question 45

True or False: If a give-up transaction is not reported appropriately, neither firm is responsible.

Answer 45

False. If reporting is not done appropriately, both firms are responsible.

Question 46

True or False: Government bond trades are reported through TRACE.

Answer 46

True.

Question 47

What securities are NOT TRACE-eligible?

Answer 47

Money-market securities (with maturities of less than one year), foreign government securities and municipal securities.

Question 48

For what transactions does TRACE not disseminate real-time trade information?

Answer 48

Rule 144A debt transactions between qualified institutional buyers (QIBs).

Question 49

True or False: For trades negotiated manually (not electronically), reporting is done by the member firm.

Answer 49

False. Negotiated, manual executions are reported by the executing firm.

Question 50

True or False: Trades executed through the Nasdaq Market Center Execution System do not have to be manually reported.

Answer 50

True. They are automatically reported by the system.

Question 51

On a riskless principal trade, the _______ on the trade must be disclosed to the client.

Answer 51

On a riskless principal trade, the markup on the trade must be disclosed to the client.

Question 52

Two Nasdaq member firms effect a third-market trade. Who is responsible for reporting the trade?

Answer 52

The executing firm.

Question 53

What is required of U.S. and foreign corporate debt for it to be TRACE-eligible?

Answer 53

It must be registered with the SEC or purchased or sold under Rule 144A of the Securities Act of 1933.

Question 54

Generally, TRACE reporting is required within ____ minutes of a trade.

Answer 54

Generally, TRACE reporting is required within 15 minutes of a trade.

Question 55

Trades executed through an electronic system are reported _______________.

Answer 55

Trades executed through an electronic system are reported automatically.

Question 56

True or False: Debt issued or guaranteed by a U.S. government agency or enterprise is TRACE-eligible.

Answer 56

True.

Question 57

What's the ORF?

Answer 57

The OTC Reporting Facility (ORF) reports trades in OTC markets (e.g., the Pink Market).

Question 58

As it relates to TRACE-eligible securities, what does split-rated mean?

Answer 58

Securities are given an investment-grade rating from one rating organization and non-investment-grade from another.

Question 59

True or False: In order to have a give-up relationship, an agreement must exist between the two firms.

Answer 59

True.

Question 60

A TRACE-eligible corporate bond trade occurs at 6:20 p.m. When is the trade required to be reported?

Answer 60

It may be reported within 15 minutes of TRACE opening on the next business day.