While most transactions are automatically confirmed between the buying and selling firms through the DTCC some trades are still input manually for comparison. It is during this process where the details of the trade reported or input by one party may differ from the details of the trade recognized by the confirming party. These cases can result in trades being unconfirmed. If the firm receiving the details of the trade does not know the terms of the trade as reported there is an open trade or a DK.
The confirming party is required to contact the reporting party by telephone promptly advising them that they do not know the terms of the trade as reported. This phone contact can often lead to a resolution of the unrecognized terms. The issues that may have resulted in the DK may have been a simple input error or typo. If however the terms of the trade remain unrecognized by the confirming party the confirming party is required to send a written notice return receipt requested to the reporting party within one business day. The reporting broker dealer is then required to send the confirming broker dealer a written notice questioning if a trade did in fact occur between the two parties for the security in question within four business days. If the confirming broker dealer believes that a trade took place but under different terms and conditions it must once again contact the reporting party by phone and send the reporting party a written notice within one business day failing to confirm the trade details as reported.
If either the reporting broker dealer or the confirming broker dealer believes that the trade was clearly erroneous it may cancel the trade by reporting it to FINRA and with FINRA’s approval. FINRA may also from time to time elect to cancel trades that it deems clearly erroneous. Most of these cancellations will be the result of trades being reported that are clearly unrelated to the market price of a security.
Series 4, Series 7, series 10, series 24, series 57 and series 99 test takers are likely to see questions relating to an unconfirmed trade on your exam. Be sure you pass your exam with our greenlight money back pass guarantee.