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FINRA Proposes Expanding Reporting Requirements for Alternative Trading Systems

FINRA filed a proposed change to FINRA Rule 4554 with the SEC to require alternative trading systems ("ATSs") to include additional order sequence information on reports submitted in the Order Audit Trail System ("OATS").

FINRA Rule 4554 requires ATSs to report order information for each order that an ATS receives in an NMS stock (i.e., listed equities) beyond what is required pursuant to the OATS rules. The stated purposes of Rule 4554 are to enhance FINRA's ability to more fully reconstruct an ATS order book and better perform order-based surveillance, including surveillance for layering, quote spoofing and other forms of stock price manipulation.

The rule change will extend the requirement to report the sequence number beyond just the receipt of an order to include reporting a sequence number on all order events, including reports for the execution of an order or the routing of an order away from the ATS. According to FINRA, requiring ATSs to report a sequence number for all OATS order events, rather than just the receipt of an order, 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."

FINRA will announce the implementation date of the proposed rule change no later than 30 days following the SEC notice that it is filing the proposed rule change to be immediately effective.

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