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September 10, 2007

FINRA Creates OATS Exceptions

By Peter Chapman

OATS is out for some foreign stocks. Broker-dealers will not have to report certain orders they get for foreign securities traded over the counter to the Financial Industry Regulatory Association's Order Audit Trail System (OATS) when new rules go into effect next year.

In February, the rules governing OATS will be extended to orders received for OTC names. Currently, OATS only applies to orders for Nasdaq securities.

FINRA, reacting to industry complaints, has decided not to require broker-dealers to report orders for foreign stocks traded OTC if those orders are executed overseas. That's because FINRA does not receive a trade report in such cases.

Without a trade report, FINRA decided, the order information would be largely worthless. OATS was established to allow FINRA to track an order from its receipt by a broker to its execution so that it could ascertain whether or not the customer received "best execution."

The exemption to FINRA's OATS rules is the second this year. In July, FINRA excluded proprietary trading firms, specifically those without customers, from OATS reporting.