FINRA has recently proposed certain amendments to Rule 4554 (Alternative Trading Systems— Recording and Reporting Requirements of Order and Execution Information for NMS Stocks) to require ATSs to provide additional order sequence information on reports submitted to the Order Audit Trail System (‘‘OATS’’).
In May 2016, the SEC approved Rule 4554 to further enhance FINRA’s ability to reconstruct an ATS’s order book and better perform its order-based surveillance, which includes surveillance for layering, quote spoofing and mid-point pricing manipulation. To accomplish this, Rule 4554 requires ATSs to report order information for each order they receive in an NMS stock beyond that set forth in the OATS rules, such as order repricing events and order display and reserve size information.
Rule 4554 sets forth four categories of reporting requirements: (1) Data to be reported by all ATSs at the time of order receipt; (2) data to be reported by all ATSs at the time of order execution; (3) data to be reported by ATSs that display subscriber orders; and (4) data specific to ATSs that are registered as ADF Trading Centers.
Rule 4554(b) requires that all ATSs report eight categories of information at the time of order receipt, including the sequence number assigned to the order event by the ATS’s matching engine. After further evaluation of the need for the sequence number in other order events, FINRA proposes to amend this requirement to require ATSs to report a sequence number for all OATS event types, not just for order receipt, including reports for the execution of an order or the routing of an order away from the ATS.Happy New Year 2018 Images FINRA is proposing to extend the requirement to report a sequence number beyond order receipt because, without a sequence number on all order events, FINRA is unable to properly sequence events when a single ATS MPID reports order events in the same symbol with identical timestamps. Requiring ATSs to report a sequence number for all OATS order events, rather than just order receipt, will further enable FINRA to properly sequence order events within an ATS, which will allow FINRA to more fully reconstruct an ATS’s order book and better perform order-based surveillance, including surveillance for layering, quote spoofing and mid-point pricing manipulation.
FINRA has filed the proposed rule change for immediate effectiveness. FINRA will announce the implementation date of the proposed rule change no later than 30 days following SEC notice of the filing of the proposed rule change for immediate effectiveness.
