Error Account Type Code

This OATS Report is being issued to update guidance on the OATS reporting requirements for the use of the Account Type Code value of "X"- Error Account previously published on August 4, 2008. (The August 4, 2008 OATS Report)

As a general matter, the Account Type Code of "X" is used when an order is originated in a firm's error account. Typically, this code would be used in situations where a firm must liquidate or accumulate a position through a firm account to rectify an error made in the handling of a customer order.

The guidance contained in this OATS Report assumes that the member has met all criteria required by any SEC or SRO rules for a transaction to qualify as a bona fide error. Nothing in this guidance is intended to suggest what is or is not considered to be a bona fide error under SEC, FINRA or other SRO rules.

Outlined below are the OATS reporting requirements for common error correction scenarios. The related trade reporting guidance may be found in the FINRA Trade Reporting FAQs.

Scenario One - A firm purchases the wrong security in error.

  1. A customer places an order to buy 100 shares of MSFT at 10:00:00.
  2. In error, the firm purchases 100 shares of AAPL for the customer.
  3. At 11:15:00, the firm realizes the error and subsequently moves the 100 shares of AAPL to its error account.
  4. To satisfy the customer's original order, the firm sells 100 shares of MSFT at 11:15:10 out of its error account to the customer at the price the stock was trading when the customer originally placed the order.
  5. At 11:15:15, the firm purchases 100 shares of MSFT from the street into its error account to cover the shares it sold to the customer.
  6. At 11:15:16, the firm sells 100 shares of AAPL to the street out of its error account.

Scenario One Required OATS Reports

  1. 10:00:00 New Order Report B 100 MSFT Account Type Code: I, Firm Order ID ABC123
  2. 10:00:00 New Order Report B 100 AAPL Account Type Code: I, Firm Order ID BDR789
    10:00:01 Route Report or Execution Report, as applicable
  3. No OATS reports required
  4. 11:15:10 Combined New Order/Execution Report S 100 MSFT - Account Type Code: X. The Combined New Order/Execution Report must link to the related transaction report submitted to a FINRA trade reporting facility (TRF)
    11:15:10 Execution Report MSFT Firm Order ID ABC123 linked to the same TRF transaction report as the error account Execution Report
  5. 11:15:15 New Order Report B 100 MSFT Account Type Code: X
    11:15:15 Route Report or Execution Report, as applicable
  6. 11:15:16 New Order Report S 100 AAPL Account Type Code: X
    11:15:16 Execution Report or Route Report as applicable

Note that no additional OATS reports are required to reflect that the AAPL customer order reported at 10:00:00 was an error.

Scenario Two - Customer places order in error and firm elects to correct as an accommodation to the customer.

  1. At 9:35:00 a customer places an order to buy 1,000 shares of ABCD which is immediately executed.
  2. At 10:00:00 the customer informs the firm they intended to buy 1,000 shares of QRST.
  3. The firm agrees to take the 1,000 shares of ABCD from the customer as an accommodation to the customer and moves the 1,000 shares of ABCD from the customer's account to the firm's error account.
  4. At 10:15:00 the firm sells the 1,000 shares of ABCD to the street from its error account.

Scenario Two Required OATS Reports

  1. 9:35:00 Combined New Order/Execution Report B 1,000 ABCD Account Type Code: I
  2. 10:00:00 New Order Report B 1,000 QRST Account Type Code: I
  3. No OATS reports required.
  4. 10:15:00 New Order Report S 1,000 ABCD Account Type Code: X
    10:15:00 Execution Report or Route Report as applicable

Note that no OATS reports are required to reflect that the ABCD customer order reported at 9:35:00 was an error on the part of the customer.

Scenario Three - ATS must step into a subscriber trade.

  1. An ATS receives a buy order for 100 shares of MSFT and a sell order for 100 shares of MSFT and crosses the two orders at 10:00:00.
  2. At 11:00:00, the ATS determines that the buyer in the 10:00:00 cross will not be able to go to settlement on the trade. The ATS takes the other side of the trade with the selling subscriber.
  3. At 12:15:00 the ATS trades out of the shares with a third subscriber.

Scenario Three Required OATS Reports

  1. 10:00:00 Combined New Order/Execution Report B 100 MSFT (Subscriber One/Wholesale)
    10:00:00 Combined New Order/Execution Report S 100 MSFT (Subscriber Two/Wholesale)
  2. 11:00:00 Combined New Order/Execution Report B 100 MSFT Account Type Code: X
  3. 12:15:00 Combined New Order/Execution Report B 100 MSFT (Subscriber Three/Wholesale)
    12:15:00 Combined New Order/Execution Report S 100 MSFT Account Type Code: X

Note that no OATS reports are required to reflect that the original subscriber buy order execution reported at 10:00:00 was subsequently busted.

Scenario Four - Price adjustment through execution of new trade

  1. At 11:00:00 Member BD1 receives a customer order to buy 10,000 shares of ABCD
  2. At 11:00:02 Member BD1 routes the order to BD2 and purchases the shares on behalf of the customer from BD2 at a price of $10 per share.
  3. At 13:45:00 BD1 determines that the customer should have received a price of $9.98 per share and moves the 10,000 shares at $10 to its error account from the customer's account.
  4. At 16:15:00, to effect the price adjustment, BD1 sells the shares, as principal, to the customer at $9.98 per share.

Scenario Four Required OATS Reports

  1. 11:00:00 New Order from customer to B 10,000 shares of ABCD: Firm Order ID 23456
  2. 11:00:02 Route Report to BD2 to B 10,000 ABCD: Firm Order ID 23456
  3. No OATS reports required.
  4. 16:15:00 New Order/Execution Report S 10,000 ABCD at $9.98 Account Type: X Firm Order ID 9968 (linked to related TRF/ORF trade report)
    16:15:00 Execution Report B 10,000 ABCD at $9.98 Firm Order ID 23456 (linked to related TRF/ORF trade report)

Scenario Five - Trade correction

  1. At 11:00:00 Member BD1 receives an order from BD2 to buy 10,000 shares of ABCD
  2. At 11:00:02 Member BD1 executes BD2's order as principal at a price of $10 per share and reports the trade to the TRF, but incorrectly reports the trade as a sale of 100 shares at $10.
  3. At 13:45:00 BD1 determines that the trade with BD2 should have been reported with a quantity of 10,000 shares.
  4. At 13:46:00 BD1 corrects the TRF trade report to reflect a new shares quantity of 10,000.

Scenario Five Required OATS Reports

  1. 11:00:00 New Order from BD2 to B 10,000 shares of ABCD: Firm Order ID 23456
  2. 11:00:02 Execution Report for 10,000 shares: Firm Order ID 23456 (linked to TRF report containing a shares quantity of 100 shares with OATS Trade ID 7896)
  3. No OATS reports required
  4. No OATS reports required

NOTE: If the OATS Execution Report was also submitted with an incorrect quantity of 100 shares, BD1 would be required to submit a correction report for the Execution Report (retaining the original OATS Trade ID of 7896). Firms should reference the OATS Reporting Technical Specifications, Section 6.9 for instructions on submitting corrections to previously submitted OATS reports.

Posted on: 7/8/15