Last-Sale Reporting Explained
NASDAQ guidelines require traders to report their trades within ninety seconds via an electronic alert with trade details, the volume of shares, and the share price at which the trade is booked. The last-sale reporting meaning is thus quite literal.
Real-time reporting of trades, commonly referred to as real-time trade reporting, is a regulatory requirement from the market makers to publicly report every transaction immediately following its completion. Similar to last-sale reporting, real-time reporting also contributes to improving efficiency and transparency in the market. Immediate data on trade details adds to market transparency, accountability and stock exchanges efficiency.
What Is Last-Sale Reporting?
The Securities Exchange Commission (SEC) is a promoter of transparent, real-time trade information in the USA and declares all trade-related data publicly within ninety seconds of the trade being live. It is also referred to as trade closing which fulfils the real-time requirement. Simply put, the last-sale reporting definition refers to the practice of trade detail submission by traders in the NASDAQ market.
Last-sale reporting requires dealers to submit deals to the Stock market within ninety seconds of completion of the transaction. They need to report on the name of the stock, and the volume or number of traded shares in addition to the price paid by the buyer. The last-sale reporting requirement ensures all traders and transactions booked are compliant with the Securities and Exchange Commission regulations.
In scenarios, where a trader fails to report on a transaction within ninety seconds, it is earmarked as late by FINRA. If FINRA, the Financial Industry, and Regulation Authority, end up identifying a pattern or practice of unexcused late reporting without reasonable explanations or as a result of exceptional circumstances, the associated traders and members are said to be found to violate the Rule 2010. The rule states that “a member, in the conduct of its business, shall observe high standards of commercial honour and just and equitable principles of trade.”
How Last-Sale Reporting Works
The regulation requiring last-sale reporting stemmed and grew from the need to ensure that the exchange markets' computerized trading system was compliant with the SEC regulatory requirements. To maintain transparency across the exchange and drive competitive pricing among market makers, exchanges are required to ensure current information on trade sales is available to all market participants.
The New York Stock Exchange use specialists who facilitate trades on the exchange floor to get all information regarding the last-sale reporting. However, NASDAQ has no third party to track the relevant data and thus requires traders and dealers to provide the trade data directly to the exchange making it a final step of last-sale reporting. To improve transparency and efficiency across the market exchange, regulators require market makers to utilize real-time trade reporting to provide a public record of stocks. As NASDAQ trades take place over an electronic network instead of a trading floor, market makers are responsible for delivering trade-related data directly to the exchange within ninety seconds of the transaction.
The ninety-second window for last-sale reporting is a requisite for NASDAQ to fulfil the exchange’s regulatory obligation for real-time trade reporting.
As an example, a broker placing a client order for 10 shares of stock ABC at a market price of US$20, is required to submit the details to NASDAQ within 90 seconds of the order being placed on the exchange.
Back in 2006, NASDAQ transitioned from being a stock market to the world's largest securities exchange company. The primary trading platform during that time relied on specialists to facilitate trades via an auction-based system, which is where buyers and traders competed directly with each other to strike deals.
The New York Stock Exchange employs certain specific firms as market makers to work on the exchange floor, reporting all bid and ask prices promptly, settling opening prices, and acting as a catalyst for trades. Specialists acting as third-party facilitators match buyers with sellers to keep up the trade flow across the market.
NASDAQ on the contrary works with hundreds of market makers - none of which operate from a single fixed physical exchange but enter directly into trades. Many investment companies that act as NASDAQ market makers are also acting dealers in securities over the exchange network. The companies buy stocks to create an inventory they use to sell shares to other investors or other market makers on the network. Dealers also tend to buy shares from other investors and dealers, in a way re-adding the shares back to their inventories
Why Does Last-Sale Reporting Matter?
As NASDAQ works as a network of brokers linked through an extensive computer network rather than from a physical location like the New York Stock Exchange, last-sale reporting ensures all trading is compliant with the SEC regulations.
Submission of all trade details booked by dealers and traders allows NASDAQ to maintain transparency across the market ensuring current up-to-date information is available to all market participants on a real-time basis.