Automated Confirmation Transaction (ACT) Service: Definition, Operation, and Practical Insights
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Summary:
The automated confirmation transaction (ACT) service, an integral part of Nasdaq exchanges, automates trade confirmation and clearing processes. In this comprehensive exploration, we delve into the purpose, functioning, and significance of ACT, outlining its evolution, participation mandates, and reporting specifics. Navigate the intricacies of this technology platform designed to enhance transparency, efficiency, and risk management in the finance industry.
Understanding the automated confirmation transaction (ACT) service
The automated confirmation transaction (ACT) service is a Nasdaq-driven automated data system, meticulously designed to document and report trade clearing on Nasdaq exchanges. This technological powerhouse serves as a backbone, comparing trade information input by ACT participants and forwarding “locked-in” trades to the National Securities Clearing Corporation (NSCC) for subsequent clearance and settlement.
The primary objective of ACT is not merely documentation; it extends to the automatic transmission of transaction reports to the National Trade Reporting System, ensuring widespread dissemination to both the public and the industry. Furthermore, it provides participants with crucial monitoring and risk management capabilities, creating a robust foundation for participation in a “locked-in” trading environment.1
Evolution: transition from TARS to ACT
Prior to the ACT era, Nasdaq relied on the trade acceptance and reconciliation service (TARS). The introduction of ACT marked a pivotal transition, replacing TARS and seamlessly taking over its functionality in the third quarter of 1998.3
Participation mandates
The Securities and Exchange Commission (SEC) dictates the mandatory participation in ACT for all brokers who are members of a clearing agency registered with the Commission under Section 17A of the Securities and Exchange Act. This requirement extends to brokers with a clearing arrangement with such a registered broker. Market makers’ participation, however, is contingent upon both initial and ongoing compliance with SEC requirements.4
Upon execution and receipt of the ACT participant application agreement, participants gain the green light to commence input and validation of trade information in ACT eligible securities. The platform allows access via Nasdaq terminals, workstations, or through a computer interface during specified operating hours, as outlined in the ACT users guide. All ACT participants must obtain a unique identifying Market Participant Symbol (“MMID” or “MPID”) from Nasdaq for trade reporting and audit trail purposes prior to input.5
ACT reporting essentials
Each ACT report shoulders the responsibility of encapsulating critical information, ensuring a comprehensive overview of a particular trade. The mandatory inclusions are:
- Security identification symbol of the eligible security (SECID)
- Number of shares or bonds
- Unit price, excluding commissions, mark-ups, or mark-downs
- Execution time for transactions in Nasdaq or CQS securities not reported within 90 seconds of execution
- Indication of the party submitting the trade report (Market Maker side, ECN side, or Order Entry side)
- Indication of the transaction type (buy, sell, sell short, sell short exempt, or cross)
- Indication of the trade nature (as principal, riskless principal, or agent)
- Reporting side clearing broker (if other than normal clearing broker)
- Reporting side executing broker as “give-up” (if any)
- Contra side executing broker
- Contra side introducing broker in the case of “give-up” trade
- Contra side clearing broker (if other than normal clearing broker)
Frequently asked questions
Why was TARS replaced by ACT?
TARS was replaced by ACT in the third quarter of 1998, marking an evolutionary step to enhance and streamline trade confirmation and clearing processes on Nasdaq exchanges.
Is there a fee associated with obtaining a unique Market Participant Symbol (MMID) from Nasdaq?
No, Nasdaq does not charge a fee for obtaining a unique Market Participant Symbol (MMID). It is a necessary identifier for trade reporting and audit trail purposes within the ACT system.
Can a broker opt-out of participating in ACT?
No, participation in ACT is mandatory for brokers who are members of a clearing agency registered with the SEC under Section 17A of the Securities and Exchange Act. This requirement also extends to brokers with a clearing arrangement with a registered broker.
Key takeaways
- The automated confirmation transaction (ACT) service is a Nasdaq-driven automated data system, streamlining trade confirmation and clearing.
- Mandatory participation ensures standardized and transparent trade processes for brokers and market makers.
- ACT offers enhanced efficiency, faster access to trade information, and facilitates online monitoring and risk management.
- Introduced in the late 1990s, ACT replaced the trade acceptance and reconciliation service (TARS).
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