OATS Report - June 27, 2003

June 27, 2003

NASD is publishing this article to provide guidance to members regarding their Order Audit Trail System (OATS) reporting requirements when using more than one market participant identifier (MPID) to display or execute OATS reportable orders.1 If a firm elects to use more than one MPID, the firm must continue to submit its OATS data to NASD in the format prescribed in both the OATS Rules (Rules 6950 - 6957) and the OATS Technical Specifications. The reporting requirements as set forth in the OATS Technical Specifications require all new orders and any related subsequent order events to be submitted under the same MPID, such that the OATS system can link the events and create a complete order lifecycle. Specifically, if a member reports a New Order Report to OATS under MPID ABCD, all subsequent events for that order also must be reported to OATS under MPID ABCD. Further, any order executions must be reported to both NASDAQ's Automated Confirmation Transaction Service (ACT) and OATS under MPID ABCD such that OATS can match the Execution Report to the related trade report in ACT.

Additionally, the OATS Technical Specifications, Section 4.1.4 provides that an order transferred between two valid MPIDs within the same firm is considered to have been routed for OATS purposes. In this regard, each MPID is treated as a unique Reporting Member for purposes of the OATS Rules. Therefore, if an order is passed between two MPIDs within the same firm, the member must record and report to OATS a New Order and Route Report under the originating MPID. As required under Rule 6954(c)(2), Route Reports generally must include a Routed Order Identifier. Further, a New Order Report must be recorded and reported to OATS by the receiving MPID and must include the Routed Order Identifier from the originating MPID, so that OATS can link the two orders and create a complete lifecycle.

For example, assume that a firm has two MPIDs, ABCD and WXYZ. MPID ABCD receives an order and routes it to MPID WXYZ. WXYZ then executes the order. ABCD must report a New Order Report and a Route Report to WXYZ. WXYZ, in turn, must report a New Order showing that it received the order from ABCD and an Execution Report to reflect that the order was executed. Any related trade report in ACT must be reported under MPID WXYZ so that OATS can match the OATS Execution Report to the related ACT report.

It is critical that firms not report subsequent order events under different MPIDs or such order events will be rejected by OATS. Firms are reminded that any orders rejected by OATS must be repaired and resubmitted in a timely manner. A pattern or practice of unrepaired rejects may be considered a violation of the OATS Rules and NASD Rule 2110.

Should you have any questions or concerns regarding this topic or on OATS in general please contact the OATS Help Desk at (800) 321-NASD.

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1 For more information about the use of multiple MPIDs, see Head Trader Alert #2003-98, in which NASDAQ announced that it had filed a proposed rule change (SR-NASD-2003-87) with the Securities and Exchange Commission (SEC) to allow quoting market participants to use a second MPID to display attributable quotes and orders in NASDAQ stocks.