Soon, over-the-counter trades will no longer have up to 90 seconds to print. They’ll have 30 seconds.
The Financial Industry Regulatory Authority recently proposed reducing the time for OTC prints because trading has become "increasingly automated," particularly since the implementation of Regulation NMS. OTC trades have had 90 seconds to print since 1982, when "trading was more manual in nature," FINRA said in its proposal to the Securities and Exchange Commission.
FINRA said it believes the proposed rule change would "promote consistent and timely
reporting by all members and enhance market transparency and price discovery by ensuring that trades are disseminated closer in time to execution." FINRA proposed this rule change in September. A subsequent amendment was published on the SEC web site last week.
The trades affected by this planned rule change include NMS-listed securities traded off-exchange and OTC equity securities such as Pink Sheets and OTC Bulletin Board names. FINRA’s proposal would reduce the time allowed for NMS-listed trades printed to its trade reporting facilities and the Automated Display Facility, and for OTC names reported to its OTC Reporting Facility. The rule proposal must be approved by the Commission to become effective.
According to FINRA, which regulates close to 5,000 broker-dealers, this rule change isn’t likely to be a significant change for the vast majority of off-board trades. In a single week in February, for example, 99.90 percent of FINRA member firms’ trades were reported within 30 seconds of execution, the filing noted. FINRA reiterated that, as is the case today, firms must report trades "as soon as practicable and cannot withhold trade reports" by programming their systems to wait until the last permissible second to submit the trades.
FINRA also stressed that a "pattern and practice of late reporting" is a no-no. It said that could be a violation of FINRA Rule 2010, which pertains to standards of commercial honor and principles of trade. This rule change, FINRA said, would ensure that firms "do not withhold important market information from investors and other market participants for competitive or other improper reasons."
FINRA does not expect member firms to have trouble complying with the new rules. However, FINRA asked the SEC to solicit comments about whether there are any "categories of trades," such as manual transactions, or "firm structures," such as smaller brokers that don’t have automated systems for trade reporting, that would warrant a longer reporting time frame.
The new rules are expected to go into effect six to nine months after approval by the SEC. This would give firms time to make system changes that may be required, according to FINRA.
