FINRA proposes trade reporting requirements for OTC options trades – Financial Services

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The Financial Industry Regulatory Authority (FINRA) has issued Regulatory Notice 22-14, which proposes to establish new trade reporting requirements for certain over-the-counter (OTC) options trades. Listed options are traded through registered options exchanges, while OTC options are traded directly by the parties to the option contract. In some cases, OTC options have the same or substantially similar terms as a quoted option (there may be both OTC options and quoted options on the same underlying security).

Although FINRA has access to data on all listed options trades, there is currently no requirement to report all OTC options trades, even when OTC options are virtually identical to listed options. Firms are required to report certain data for large positions in both OTC and listed options under Rule 2360 (Large Option Position Reporting (LOPR)). FINRA has inferred from LOPR data that OTC options trading activity is significant and explains in the notice that the available LOPR data on OTC trades does not identify critical data points that would be useful for monitoring purposes, including the price and time of individual trades.

FINRA has therefore proposed to require firms to report OTC option transactions that are put or call options on underlying listed securities. The proposal is limited to options whose terms are identical or substantially similar to the options listed. FINRA’s proposal would require firms to report an OTC option trade when:

  • there is a listed option on the same underlying security or the OTC option relates to one or more securities listed in the United States;

  • the type of option is a put, a call or an option type linked to a put or a call; and

  • the exercise style is one of the following: American, European, Asian, Ratchet or Binary.

For OTC option trades that meet the above criteria, firms would be required to report the time and date of execution, option strike price, and expiration date, among other things. of data. Under FINRA’s proposed rule, firms would be required to submit daily OTC options trades as lots for new and amended trades. In the event of an error in reporting, companies would have five days to correct the OTC transaction report, which is in line with the LOPR system’s correction timeframe. Companies would also be required to report when the option is exercised. FINRA does not currently plan to publicly release data collected on OTC options trades.

As a reminder, FINRA is accepting comments on this proposal until September 20. Regulatory Notice 22-14 and the public comments submitted to date are available here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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