FINRA filed for immediate effectiveness rule changes, and issued a related Trade Reporting Notice, that explain the price validation protocol of the FINRA trade reporting facilities and sets forth guidance on the use of the price-override indicator in trade reports.   Firms have until 11/16/10 to make systems changes necessary to report in accordance with this guidance.

    FINRA TRF's - Alternative Display Facility, Trade Reporting Facilities, OTC Reporting Facility - collectively price validate OTC trades by comparing the submitted price against price validation parameters established by FINRA, generally based on a price deviation against the national best bid or offer.  As explained in the Notice and Rule Filing, the price-override indicator should not be appended automatically to all trade reports submitted to a FINRA Facility. Rather, this special indicator should be appended only after a trade has been rejected by a FINRA Facility, pursuant to the established price validation protocol, as described more fully in the Notice. 

    How Price Validation Works.  After a trade report is submitted, the FINRA Facility validates the trade price against an initial set of price validation parameters. If the trade price falls outside the parameters, the trade report is rejected, and the reporting firm can resubmit the trade with a price-override indicator. 

By using the price-override indicator, the reporting firm is confirming that the price it originally entered is correct, even though it is away from the current market.  After the trade has been resubmitted with the price-override indicator, it is price validated a 2nd time with significantly wider parameters.  If the trade is correct but outside of this second set of parameters, it must be entered manually through ADF or TRF Operations. 

Firms must not report trades in a manner designed to circumvent this important system and operational protocol - e.g., by programming their systems to automatically append the price-override indicator to their trade reports.  The price-override indicator should be appended to a trade report only after the trade has been rejected by a FINRA Facility.  Any firm that's programmed its systems to append the price-override indicator to its trade reports prior to rejection of the trade must make the technological changes necessary to cease this practice as soon as possible, and no later than 11/16. 

While the single-stock circuit breaker pilot applies only to certain NMS stocks, the price validation protocol applies to reports of OTC trades in all equity securities, including OTC Equity Securities submitted to the OTC Reporting Facility (ORF).  Therefore, firms must comply with the guidance set forth in this Notice when reporting to the ORF as well. 

For further details, click onto:   [ FINRA Trade Reporting Notice, 9/17 ]  and/or [ FINRA Rule Filing 10-48, 9/17 ]